Good morning Hank. It's Tuesday.
Today I'm going to endeavor to explain
what the heck "sequestration" is,
why it's so important, and
why it's so bananas, but first
we have to understand a few things about
what governments do.
So, there are a lot of government programs that
are super popular with people,
Like, for instance, here in the U.S.
we have something called "Medicare", which
offers inexpensive health care to older people.
Now, Medicare's actually more efficient and cheaper
per person than private insurance,
but it is still very expensive,
because, don't take this personally old people,
but you get sick a lot.
We also have a very popular program that
offers health care to our poor citizens
called "Medicaid"
and between those two, that's 23%
of the federal budget.
Another 22% of the budget
goes to Social Security,
a very popular program in which
old people get checks every month
so they can buy, you know, like, food
and computers.
By the way, I know that they're
buying computers, because
suddenly a lot of old people are reading
"The Fault in Our Stars", and
they keep e-mailing me
and the subject line is, like,
in all capital letters,
"MY GRANDDAUGHTER RECOMMENDED THAT I
READ YOUR BOOK BECAUSE SHE
THINKS THAT I AM ABOUT TO DIE
I THOUGHT IT WAS FUNNY AND
SAD, GOOD JOB"
and then there's nothing in the
body of the e-mail.
So, we need Social Security
because how else am I gonna hear
from my older readers?
Right, so those three programs
are 45% of the federal budget.
and they're what's known as "mandatory spending programs".
There's an additional 13% of our budget
that is also mandatory spending,
like salaries for federal judges and stuff,
and then the interest on our national debt
is 6% of our budget,
So, in total, that stuff is 64% of the federal budget.
The other 36% is "discretionary spending",
which congress allocates yearly,
or sometimes over multiple years,
or sometimes only in 90-day segments
if they're feeling very cranky and inefficient.
That's everything from, like, veterans' affairs
to building highways, to NASA, to
science research, to meat inspectors...
But more than half of all discretionary spending
doesn't go to any of that stuff, because
it goes to defense.
One other piece of background information:
as previously noted, the United States has a long-term
debt problem, but
it does not have a short-term debt problem.
Like, right now the U.S. can borrow money extremely cheaply,
arguably, like, cheaper than free.
And that's because we're a very strong economy,
we've never defaulted on our debt,
there's no reason to think that we will...
and our budget deficit, the annual difference between
what we take in and what we spend,
is shrinking pretty fast
and is probably not a concern at the moment.
But there is a serious long-term problem with our
mandatory spending programs.
The cost of Medicare and Medicaid
will double over the next 30 years,
as the population ages and health care costs continue to rise
and the cost of Social Security will go up too,
so in the long term we either have to decrease benefits
or increase revenues or both,
or else our budget deficit will spiral,
and our debt will get more expensive,
and Greece.
So we have a long-term problem,
which requires a long-term solution,
and that brings is to the Sequester.
Right, so back in 2011,
the U.S. nearly defaulted on its sovereign debt,
not because we couldn't afford to pay the debt,
but because congress was refusing to raise the debt ceiling,
which is particularly hilarious because
the reason we were reaching the debt ceiling
is because of budgets that congress had passed.
There seems to be a little bit of confusion about this,
but one, in the United States congress sets the tax rates,
and two, in the United States congress sets the budget.
And so if the budget and the tax rates lead to a deficit,
that is congress' fault!
Literally!
Presidents may, like, drop by congress to try to argue for whatever they believe in,
but presidents do not set tax rates
and they do not decide the budget.
So eventually congress passed the "Budget Control Act"
in which they raised the debt ceiling in order to
pay for the budget that they themselves had created.
And in this Budget Control Act, congress created
a so-called "super-committee"
that would address the nation's long-term fiscal problems
with a "grand bargain" that would
keep our debt from spiraling out of control and Greece-ing.
And in order to force the super-committee to do its job,
congress enacted another ticking time bomb,
because we don't have enough of those,
that was originally proposed by President Obama
called "Sequestration".
If they didn't come to an agreement, there would be automatic cuts
of 1.2 trillion dollars over ten years,
half cuts to defense and half cuts to other spending,
but vitally, very little cuts to the mandatory spending programs
that are the center of the long-term fiscal problem!
Which is such an incredibly bad idea that the assumption was
they would find a way to compromise, but, yeah, no.
Think if a doctor told you you had a slow-growing tumor in your fingernail
and you responded by saying "Quick, remove my gall bladder!"
Right, so the reason that sequestration is so bananas
is not because of the cuts themselves,
it's because they're indiscriminate.
Every project, program and activity of the United States federal government
has to be cut by the exact same percentages
except for those mandatory spending programs
that are mostly exempt.
So, basically, everything the government currently does,
it has to do about 8% less of.
That doesn't sound that bad,
but because it's every project, program, and activity
it gets super bananas.
For instance, something sort of like this happened in 1991,
with a 5% sequestration,
and federal employees were literally instructed
to scrape 5% less bird poop off buoys in Chesapeake Bay,
because that is a project, program, or activity of the federal government.
So, instead of making a choice about
which federal programs we can afford to get rid of,
we're just going to scrape 8% less poop off of all the buoys.
That is bananas.
It's gonna cost between half a million and two million jobs,
and instead of getting rid of jobs because they're outdated or unnecessary,
it basically just throws a dart at a dartboard.
And more importantly, sequestration doesn't just create problems,
it also fails to solve problems,
because it does absolutely nothing to address
the long-term fiscal problem in the U.S,
because mandatory spending on Medicare, Medicaid, and Social Security
is gonna continue to grow at pretty much the exact same pace.
So, essentially, Hank, congress saw a long-term problem
which they responded to by creating a short-term crisis,
which they then failed to solve.
These days the conversation on the news channels
tends to be about whose terrible idea this was
with congressional republicans being like
"This was President Obama's idea",
and President Obama being like
"I'm sorry, do I create and pass legislation in this country?"
But Hank, this whole business about
only discussing who's to blame
distracts from the larger issue, which is
that the sequestration is a disaster!
It's inefficient and bureaucratic and everything that people don't like about government
and it does nothing to make our economy healthier.
So, to summarize, the sequester creates an unnecessary catastrophe
without addressing the larger future catastrophe.
It is an embarrassment.
Frankly, Hank, it is more embarrassing than our
continued minting of pennies, and
that's saying something!
I'll see you on Friday.