The disaster that is sequestration

More than any other economic danger looming on America’s immediate horizon, including a possible break-up of the eurozone, sequestration poses the greatest single threat to American recovery in the near term. This arcane process came into force when the congressionally-mandated "super-committee, "officially known as  the Joint Committee on Deficit Reduction, failed in its mission. As a result, the sequester calls for reductions in government spending totaling $1.2 trillion over the next nine years, of which $984 billion, or $109 billion annually, will be realized from across-the-board budget reductions.

Although defense accounts for only 14 percent of the budget deficit, when entitlements are taken into account, the annual $109 billion dollar cut will be evenly divided between defense and non-defense reductions, with some small reductions in entitlements contributing to the non-defense side of the ledger. Put another way, once the sequester comes into effect, defense-related appropriations will have to be reduced by $55 billion annually. And these reductions will be of the sledgehammer variety: Every "program, project and activity" will be reduced by the same percentage, regardless of its relative importance to the overall enhancement of national security.

It gets worse. The sequester does not begin to bite until January 2, 2013 — that is, until the beginning of the second quarter of the upcoming fiscal year. That means that the entire $55 billion must be found from programs that had not yet been obligated during the first quarter of the fiscal year. To the extent that such commitments will have been made, the amount of funding susceptible to reductions will itself be reduced, and the percentage of reductions will accordingly increase. Finally, because President Obama is expected to exempt the military personnel accounts, which total some $141 billion, and Congress is expected to exempt the contingency-related accounts (which are the major source of funding for the war in Afghanistan), there will remain some $375 billion, from which $55 billion will have to be found, resulting in a 15 percent reduction in all other defense programs. 

The impact of that reduction will be highly disruptive to both the current and longer term defense program. It will result in massive reductions in weapons systems, though not in personnel. It will render the pivot to Asia meaningless; any plans for increasing our military muscle in that region will be completely undermined by the reduction in shipbuilding, aircraft, missile, drones, and a host of other acquisition programs. Our presence in the rest of the world will at best fare no better, and, in light of the so-called pivot, will probably suffer even more.

All the foregoing has long been well-known to Washington’s defense cognoscenti and especially its bean counters. What is less well-known, and at least equally alarming, is the impact of the sequester on the economy as a whole. As the recently released study by the Bipartisan Policy Center points out (full disclosure: I am a member of the Center’s Task Force on Defense Budget and Strategy), the sequester will result in the loss of about a million jobs in 2013 and 2014 and America’s GDP will decline by half a percent. Moreover, of these million lost jobs, it can safely be asserted that at least half will come from the non-defense sector. In other words, the sequester is not just a defense problem that should agitate only hawks. It is a national problem, and it demands immediate relief. 

Despite the urgency of the sequester’s challenge, the administration continues to sit on its hands. No draft legislation has emerged from the White House that would at least postpone the sequester for a reasonable period to enable Congress to try its hand at another effort to reduce the deficit. The administration’s allies on the hill, particularly in the Senate, have been equally nonchalant about the coming programmatic and economic disaster.

Such nonchalance carries with it a very high risk, however, and not only for the economy. In addition to its impact on the government’s budget, the sequester will also trigger the WARN Act, which requires employers to give a minimum of sixty days notice to private and public sector employees whose jobs are being targeted for possible termination. Those politicians seeking re-election to national office should take note that Nov. 2, 60 days before Jan. 2, when the sequester comes into force, is just four days before election day. They may find it very uncomfortable having to explain to potentially hundreds of thousands of people who have been given WARN Act pink slips why they deserve to be returned to office after they did nothing about the sequester. America’s economic house is burning; the Neros of Washington had better act soon, or they may find that their political fate will echo that of their ancient Roman namesake.