February 21, 2013

The sequester rhetoric ratchets up: “By Friday, expect him to be invoking plagues of frogs and flaming hail”

Filed under: Economics, Government, Media, USA — Tags: , , , , , — Nicholas @ 11:43

Nick Gillespie rounds up the latest batch of rhetorical shit being spewed by both sides over the looming sequester:

Here’s what President Obama is promising will happen if the sequester goes through as he wrote it (yes, it was his idea, as a way of forcing a compromise):

    “If Congress allows this meat-cleaver approach to take place, it will jeopardize our military readiness. It will eviscerate job-creating investments in education and energy and medical research,” Obama warned in a speech at the White House, flanked by emergency workers. “It won’t consider whether we’re cutting some bloated program that has outlived its usefulness or a vital service that Americans depend on every single day.”

By Friday, expect him to be invoking plagues of frogs and flaming hail. As I noted earlier this week, the $85 billion figure that gets invoked is wrong; cuts in fiscal year 2013 will amount to $44 billion or about 1.2 percent of all federal spending. We’ve been hearing for a long time that sequestration alone would kill about 700,000 jobs.

That’s a claim taken as gospel that is based on what can be called “ugly modeling” at best. Because virtually all government spending is counted by definition as adding to GDP, any cut thus means reductions in activity and jobs. Add to that the idea that projectionists routinely assign a multiplier of more than 1.00 to government spending, so that each dollar the feds spend magically creates more than $1 in economic activity.

The country’s experience with recent stimulus spending should give pause to all of us (if it doesn’t, watch this). When the stimulus manifestly failed to reduce unemployment by its own predictions, its architects and defenders in the press nonetheless pronounced it a success and claimed that it saved us from an ever bigger problem. The real problem, you see, was that the stimulus wasn’t big enough. All it takes is a government failure for stimulatarians to channel their inner Andrea True.

Yet there’s every reason to believe that stimulus spending has a multiplier that is well below 1.0, meaning that every dollar that’s spent generated less than a dollar of activity, resulting in a net drain on economic activity. Think about it in a different context: Virtually everybody understands that when local governments shell out massive tax money on sports stadiums, the local economy doesn’t see any net benefits. If you’re lucky, existing entertainment dollars may be spread toward sports facilities, but nobody seriously believes any more that such spending grows the overall economic pie or stimulates anything other than owners’ and players’ bank accounts (in fact, simply having a major professional team in your metro area shaves about $40 per person per year). If building white elephant stadiums and museums with public dollars worked, Cleveland would be the hottest town in the country.

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