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1 William McBride, Economic Effects of the Sequester and the Proposed Alternatives: What is the Evidence on Spending and Economic Growth 1 (2013)

handle is hein.taxfoundation/ffdgdxz0001 and id is 1 raw text is: FONAINFiscatl F act March 4, 2013 No. 363 Economic Effects of the Sequester and the Proposed Alternatives: What is the Evidence on Spending and Economic Growth? By William McBride, PhD Introduction After much political theater, the sequester has arrived, meaning that without further legislative action, federal spending will be cut by $85 billion this year and $1.2 trillion over ten years. This is roughly 2.4 percent of the budget and 0.5 percent of GDP per year. The cuts are evenly split between defense-related discretionary spending and non-defense discretionary spending, so the pain will be felt mainly by Washington, D.C. and other towns dominated by federal spending, such as those with large military bases. There is no denying that many people in these towns will see a pay cut, be furloughed, or be laid off entirely as a result of these cuts, and there may not be many private sector opportunities for them. This is real pain for real people, who may have to reduce their spending and/or find work in the private sector by retraining or even moving to places with low unemployment, such as North Dakota. President Obama and others have promoted these rather obvious immediate effects while downplaying or ignoring the more positive long term effects.' If left in place, the sequester will reduce the federal debt, which would bring some stability to financial markets and investors by making a Greek-style meltdown less likely. Less obvious are the benefits in terms of freeing up resources for the private sector, i.e., those laid off workers and those dollars which may now be employed to develop the next iPhone rather than the next tank. Further, the possibility remains that former government workers will find the private sector more enjoyable. Keynesians will argue that Apple isn't hiring, that when unemployment is high the government is the best, the only, employer. Other economists counter that unemployment is high because of slow economic growth caused by an overbearing government. Philip Rucker, Impact of Budget Cuts Depends on Where You Live and Who You Are, WASHINGTON POST, Feb. 26, 2013, h !/ww .>_;__-_:~~'v:2_ { i bt sfL_ sur :i _ *h. _13/ ?J~fls 02-l.

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