Sunday, February 24, 2013

'The Booze Sequester'-Part II In Greater Detail

'The Booze Sequester'
It is like not drinking 2 out of these 100 bottles
at a frat party
Sometimes having a visual image of a complicated political issue is a good and helpful thing to use.

Our last post on 'Sequesternomics' tried to explain the basics of the upcoming sequester of the federal budget that will happen next Friday, March 1 unless President Obama and the Senate Democrats lay some concrete budget cuts on the table to match those already passed by the Republicans in the House in the last Congress.

We thought it might be a good idea to go into the sequester swamp one more time before the week starts and you start hearing how 'we are going to go into the Next Great Recession!'; 'the sky is falling!' and 'the world is ending as we know it!'.

First: Let's start with this great graph:

As you can see, federal spending is going to continue to go up,up, up, up, up, up, up, up at a rate of about 6% annually for the next 8 years. 5 years ago, the federal budget was 'only' $2.7 trillion. It is now almost $1 trillion higher at $3.6 trillion, a 37% increase in 5 years.

Has your pay increased 37% in the last 5 years?  That is how ridiculously fast the federal government has exploded in spending. It 'exploded' as a result of the Great Financial Crisis...and never returned to pre-crisis baselines.

President Obama can't find $85B to cut out of the $1 trillion or 37% increase in annual new spending that has exploded since 2007? Seriously?  You have got to be kidding, right?

Can anyone show us where overall federal spending is going down in this chart? If you can, then you must be a hypnotist who can also make everyone bark like a dog whenever you want to as well since that is simply not the truth.

The amounts of money that will be 'sequestered' going forward are almost 'decimal dust' as budgeteers would call them. $1.2 trillion in spending restraint out of a projected $37 trillion in projected federal spending over the next 8 years is 3 cents on the dollar or 3% for the entire period of time.

Second:  Let's take the 'booze' analogy that many readers commented on as being 'very helpful' to understanding what is going on with this crazy sequester issue.  It can be very complicated.

If you are a teetotaler and referencing alcohol offends your sensibilities in any way, replace the booze with a 2-liter bottle of sugary soft drink of your choice. 2 liters of soft drinks per day will not be good for your health over the long-run either.

A few very picky and persnickety observers complained that the previous booze analogy was too broad and ignored some of the particularly painful gory details of this sequester, mostly on programs they know and love (and are perhaps employed in protecting in some way or another)

To that we plead: 'Guilty, Your Honor!' We are trying to pass along the broader concepts of federal budget, tax and health care policy so you can at least keep up with the news as both sides try to spin it to their advantage, not yours from a comprehension standpoint.

So here goes another very detailed run at using 'booze' (or soft drinks) as a metaphor or visual image for what is going to happen under this sequester for the rest of FY 2013 up until October 1, 2013 and thereafter for the next 8 years.

'Suppose you budgeted to drink a fifth of booze every single day this year. A 'Booze Sequester' of similar magnitude to the overall federal budget sequester would reduce your intake to 98% of a fifth of booze per day for the entirety of this year, FY 2013 which started October 1, 2012.
However, due to the targeting of the sequester to address mostly domestic and military programs as suggested by White House aide Jack Lew and corroborated by Bob Woodward of the Washington Post, many specific programs will be hit disproportionately harder than the overall 2% number would suggest.
For example, the sequester calls for $42.7 billion in defense cuts (a 7.9 percent cut), $28.7 billion in domestic discretionary cuts (a 5.3 percent cut), $9.9 billion in Medicare cuts (a 2 percent cut), $4 billion in other mandatory cuts (a 5.8 percent cut to non-defense programs, and a 7.8 percent cut to mandatory defense programs)
To put that in 'booze'-related terms: 
  • Defense will be able to 'only' drink 92.1% of the fifth of booze allocated to them for the entire FY 2013
  • Domestic Discretionary Programs can drink 'only' 94.7% of a fifth in FY 2013
  • Medicare drinks 'only' 98% of the fifth of booze it was expected to consume in FY'13
  • Other mandatory programs can drink 'only' roughly 93.2% of the fifth of booze it was expected to consume in 2013
Now, part of the reason why this could feel like such a 'sacrifice' is that 5/12's of the fiscal year has already been completed (FY's run October 1-Sept 30) and 5/12th of the fifth of booze has already been 'drunk' by each agency in the government. Unless each agency affected above has had able chiefs of staffs and planners who made contingency plans to deal with the possibility of this sequester coming true, they will have to make these cuts out of their remaining budget for the year.
The smart and capable administrators will have set aside a commensurate amount of funds in their monthly budgets to meet these potential cuts in spending. Reductions in travel; not hiring people to fill vacant positions, holding off on purchase of new IT equipment...there is a myriad of ways to hold down spending in any government agency, just as in the private sector. 
There will be many agencies that did not believe the sequestration would ever occur that will have to cut their consumption of booze down to perhaps just under 1/2 of the fifth for the remaining 7 months since they have already consumed 5/12ths of the bottle in the first 5 months of this fiscal year. They'll still be consuming, just not as much as they thought they were going to be able to consume at the beginning of the fiscal year.
These will be 'real' cuts. No doubt about it. 
However, starting October 1, 2013 for FY 2014, each agency gets to start all over again, albeit at the reduced levels incurred by the sequester. A new fiscal year will have started presumably by then with the next appropriations bills passed and, God Forbid, maybe even a budget reconciliation bill to deal with the mandatory programs. Then, they get to add perhaps another 6.5% of a fifth on top of this year's final sequestered amount instead of the 7% increase that was included in the baseline prior to this sequester.
The 'predicted' baseline increase of consumption of booze for the future will be reduced in similar percentages for the next 8 years.  You will still be 'over-drinking' heavily...just not as much as you want to and hoped to before the Booze Sequester was activated.'
Hopefully, this will not drive you to drink but will help you understand the Sturm und Drang you are about to see unleashed on cable news shows this week, mostly MSNBC. as they seek to portray the Republicans as the nasty trolls under the bridge.

This sequester is a budget mechanism proposed by Jack Lew and President Obama and agreed to by the House Republicans in the fiscal cliff negotiations starting in 2011. The Republicans have laid out their version of spending reductions they are willing to pass to avoid the sequester.

The ball is now in President Obama's court. Will he come to the bargaining table with real spending cuts to negotiate with the Republicans? Or will he let the sequester hit on March 1 and cause all the damage to domestic and military programs that he says it will cause?

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  1. I love your blog...Always EXCELLENT analysis. Always.

  2. thx anonymous...appreciate the kudos. Always nicer when someone agrees with you than when someone calls you bad names and tries to hurt my feelings or something

    After 22 years in Washington, NOTHING hurts my feelings anymore!

    thanks for being a loyal reader.


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