February 28, 2013

This afternoon, the alternatives to the sequester advanced in the Senate by Democrats and Republicans were both defeated. This means that as of now, the sequester is going to happen. Beginning tomorrow, the administration will have to implement across-the-board cuts, affecting all areas of the federal government, including defense and social services.

The inevitability of the sequester has inspired some analysts and lawmakers to wonder if this is as bad as it looks. “People focus on the upfront cost and they don’t think through the whole timeline,” Tyler Cowen, a George Mason University economist, told by the New York Times, “You have to cut spending within the next 10 years anyway. It may be time to take some lumps.”

Likewise, just a few days ago, the Post’s Chris Cillizza argued a similar point, “it’s uniquely possible that only through crisis…will people come to grips with the fundamental paradox at the center of their thinking of what the federal government should or shouldn’t do.” And of course, Republicans have been somewhat sanguine about sequestration (at least, when they’re not trying to blame Obama for the policy). “I think I can safely say,” said Mitch McConnell in a press conference on Tuesday, “that Senate Republicans do not believe that it’s a good idea to walk away from that commitment to cut spending.”

Sequestration might be bad policy, the argument goes, but at least it helps with deficit reduction. But there’s a big problem here — that’s not even true. A recent analysis from Reuters makes the case:

The nonpartisan CBO estimates gross domestic product will grow by 1.4 percent this year, compared to 2.0 percent if the sequester was not in place. The Bipartisan Policy Center estimates the sequester will lead to 1 million lost jobs in 2013 and 2014.

Slower economic growth means the government will collect less tax revenue as businesses and workers earn less than they would otherwise – a fact that Federal Reserve Chairman Ben Bernanke highlighted in congressional testimony on Wednesday.

Yes, there will be some deficit reduction, but it will come at the cost of growth and employment. You don’t have to be a deficit dove to see that this is a poor trade. When given a choice between stronger growth and higher deficits, it’s always better to take the former; with growth there’s more space for fiscal adjustment, on account of higher revenues and greater economic activity. By contrast, sacrificing growth to deficit reduction is a sure way to harm the economy — with higher unemployment — without real improvement to the country’s fiscal position. Any “confidence” gained by reducing deficits is outweighed by the overall drag of a slower economy.

Which is why the best policy for sequestration has always been to repeal the measure. We’ve done a substantial amount to stabilize the debt over the last two years. Given a 50-50 split of spending cuts and new revenues, you only need $120 billion a year of deficit reduction to stabilize the debt-to-GDP ratio at 73 percent by 2022. We can delay that for several years while the economy recovers, and still be in good shape for the near-future.

It should be said that even if Republicans agree to come to a deal — after the political consequences of intransigence become apparent — the White House is committed to a “balanced” plan of short to medium-term deficit reduction. If there was ever a debate over whether the debt — rather than jobs and economic growth — should be the current guiding priority for the United States, it’s long since been lost.

Jamelle Bouie is a staff writer at The American Prospect, where he writes a blog.