Sequestration and other bugaboos!

The eyes of the political, governmental and monetary world are today glued to the date of march first of this year when the supposedly draconian cuts to the federal budget that were never seriously supposed to be considered, take place. For those who do not know what the sequestration is, it is not the traditional definition of placing a usually criminal jury in isolation to keep them from being influenced as they make an important decision. Sequestration, in this case, is the act of taking eighty five billion dollars from the federal budget, much of it coming from the defense department. The estimate is that seven hundred and fifty thousand federal jobs will be eliminated when this sequestration takes place on march first. The history of this term dates from over a year ago when the Republicans and Democrats came to an agreement that, if a special committee of the house and the senate could not agree on substantial cuts to the federal budget--a grand bargain-- to fight the deficit, then these cuts would take place. The prospect of them was to be so dire that no one would want to face such a prospect. The Democrats were brought on board by the idea of defense department cuts and the neoconservative Republicans were brought on board by the idea of cuts to social services programs such as teachers and the like. It is the old “guns and butter� issue pitting those who back defense spending against those who want more social spending.

There is more to this sequester than just numbers! There are going to be seven hundred and fifty thousand souls affected by this. These are people working in mainly good paying jobs that generate social security and state and federal income tax. These are souls with wives, children, grand children and others who depend on them. These are breadwinners! These are people with children in college, with elderly parents who may depend on them for help. These are Americans with all of what that term defines for all of us! However, to neocons Republicans, these are just numbers!

Now, one would think that, on the surface, this sequester would be just what the neocons republican majority in the house of representatives wants as a means of creating a smaller government. To swallow that, one must remember that the smallest federal defense department spending in over twenty years in the last quarter of last year drove the nations growth into negative figures for that same quarter. The estimates for this sequestration are that it would lower the nations growth by six tenths of one percent, presumably over the course of one year. When you are already sitting at negative one tenth of one percent, this could conceivably mean that we could be under water by as much as a half a percent or more for the second quarter in a row.

Two quarters of negative growth defines a recession no matter how one wishes to spin it!

Regarding the last quarter of negative growth, everyone laid that off on the defense cuts because the private sector was growing at an about an average rate, so, they generally disregarded the whole thing in its entirety. It is still, however, a quarter of negative overall growth and we cannot ignore that fact. The other thing that we cannot ignore as a nation and an economy is the fact that the United States government has a great effect on this economy. If defense cuts did what they did in the final quarter of last year, we need to examine this whole idea of government spending and the effect that it has on our nation as a whole. After all, the final quarter of each and every year features some of the greatest yearly spending mainly focused on the holiday season. To mitigate government spending in this type of environment is to do so at a great potential peril to us all.

Paul Krugman, a Nobel Prize winning economist, author and commentator has come to the conclusion that it would be better to wait to deal with the deficit and the looming public debt until after the economy has healed. Krugman has stated that large nations and large and diverse economies can afford to carry a significant amount of public debt for fairly long periods of time. He is opposed by those who, as a group, think that we need to tackle the public debt and deficit head on right now. This group, made up mainly of neoconservative Republicans and Tea Party members in Congress, believes that adding onto the public debt which now stands at sixteen point five trillion dollars and is growing by about four billion dollars a day, will, before long, place this nation and its future generations in a situation that is basically not tenable. Krugman does not dispute the debt but he feels that if we can heal the economy and place those out of work back to work that the deficit will begin to come down, thus reducing the rate of expansion of the debt.

It is interesting to note that half of all of those graduating from college over the last few years since the great recession began in 2008 are not working in jobs that could be considered to be in the professions that they have been trained for and many of them are stuck in jobs in the low paying service sector. In other words, their education has not paid off for them as of yet even though many of them are head over heals in debt because if it. This situation could be solved if the economy could expand at a greater rate. It cannot be solved if we go into another recession! Still, those on the right hammer away at their theme of getting the deficit under control as the top priority even though the top priority in most public opinion polls is creating jobs and continuing to heal the economy. If we do not get this situation of debt and education solved before long we will have created in this nation a permanent segment of its population that will always question the need for an education beyond high school at all. It is an attitude that they may pass on to their children.

We have had a laboratory experiment in reducing government expenditures in Europe over the last few years and it has been a disaster all the way around. Europe has its share of debt but so many of its nations have chosen the road of reduced government expenditures and it has driven nations like Great Britain into what is now described as a triple dip recession. In other words, they have been into and out of recession three times over the last few years, much of it since the conservative government has come into power. The continent of Europe has the worst of all worlds as they have a central currency--the Euro--without a central banking authority such as the United Stated Federal Reserve to help control their monetary flow and to help stimulate their economy as our fed does on this side of the pond. Even at that, Great Britain has proven that if you do have your own currency, you can still go into multiple recessions if you do not follow the proper monetary policies. And, we might point out, those policies are driven by Britain’s version of the neocons right, a conservative government bound by its mistaken principles.

Underlying so much of all of this in all of these developed nations is their concentration on entitlement programs such as the American Medicare and Medicaid models. We leave social security out of this because, with some minor tweaking, this program has usually been self sustaining over the years since its inception back during the Great Depression of the nineteen thirties. Even the social security situation has been compromised because so many hard working Americans who could be covered under social security disability and who elected not to do that have now fled to the program after their loss of jobs during the current recession. The radical right likes to point to entitlement programs as a disincentive to work but they do not like to point to this fact that many who could have qualified for disability but had chosen to continue to work are now flooding the system. It is the same philosophy that caused the right to discontinue unemployment compensation after ninety nine weeks because they were afraid that many would never want to reenter the job market if they could stay on this system.

There is no question that there is a segment of this society that is satisfied with drawing government benefits before retirement but it is also questionable just how large that segment really is in a traditional sense. Most Americans aspire to an improving lifestyle with adequate money to enjoy the fruits of their labors and this great recession that has gripped the nation for the last four years has made many of them bitter as they have never thought that living off of the public dole was any sort of life that they desired. It is doubly bad when young people who bought into the system and its ideas of a better life through an education must take jobs that do not fully utilize their skills and their talents. What is likely to happen to them over the long run is not a satisfaction with their current lot in life, but, rather, to follow the nation of Egypt’s model in the current Arab spring and to take to the streets with civil disobedience if their problems are not soon addressed. Egypt educated much of its younger population and created a class that was no longer satisfied with its lot in life when they could not, in great numbers, find work As the world watched, they toppled the Egyptian government in eighteen short days!

We have long talked in this space about the goals of the neoconservatives to destroy the government by the accumulation of large governmental debt each and every time that one of their own gets to occupy the presidency. Ronald Reagan began this trend back in the nineteen eighties and it was almost completed by the ruinous presidency of George W. Bush that combined large debt accumulation with extremely poor management skills that resulted in the nation, and the world, almost going into a depression that would have probably ended society as we know it today. Barack Obama had to borrow large sums of money just to enable the traditional governmental theory of “pump priming� just to keep some semblance of economic order. So, in effect, the neoconservatives have won the day on the role of government in society as it pertains to any sort of entitlement programs affecting society and life. It is all a rear guard action now and all that we can hope for is that this economy may heal and that we encounter no further need for government intervention to hold us together as a nation. The past track record on that does not seem good, particularly when one looks at the neoconservative propensity to want to get the nation into ruinous wars. One must remember that Mitt Romney had, as his foreign policy advisors, almost the whole group who surrounded George W. Bush when he took us into war.

So, as we look at this sequestration issue it is fairly minor as the scope of things go, except for its potential to take us into another technical recession and to retard the work that the current administration has been doing in spite of Republican opposition over the last four years. The size of the recession that we were in during the last downturn is measured by how long it has taken us to begin to pull out of its very lingering effects. And, we feel that we are tipped on the edge of an economic sword that could either propel us forward or drag us back down into the monetary abyss. And, this sequestration, along with continued Republican intransigence, might be the very thing that might set the whole situation aflame. The Republicans have used the deficit and the debt along with their long held belief that there should be no new tax revenues to retard the nations economic progress over the last few years. Now they think that the recent small tax increase on the wealthy fulfills all of their obligations on the revenue side of the equation, and, that the rest must come from these ruinous cuts that they are want to propose. The lesson of history might be this. It took a great world war to pull this nation and this world out of the last great depression despite all of the efforts prior to that time. And, that might be the warlike neoconservatives whole idea behind all of this! And, China looks like the probable foe! And, if that be the case, seven hundred and fifty thousand souls will only be the beginning of the carnage that will ensue!

IOVHO,

Regards,

Joe

To say that "God exists" is the greatest understatement ever made across space and time.