Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Report on Business

Economy Lab

Delving into the forces that shape our living standards
Best Business Blog, EPPY awards, 2011 and 2012

Entry archive:

Economy Lab has moved

Only Globe Unlimited members will now have access to a wide range of insightful commentary
and analysis on the economy and markets previously offered on this page.


Globe Unlimited subscribers will be able to read these columns,
written by some of Canada’s most deeply respected economists,
such as Christopher Ragan, Sheryl King, Andrew Jackson, and Clement Gignac,
as part of our ROB INSIGHT section.


All of our readers will still be able to browse the Economy Lab archives and read our
broader coverage of economic data and news by accessing their 10 free articles a month.


Learn more about Globe Unlimited and how to subscribe.

U.S. President Barack Obama speaks about the sequester after a meeting with congressional leaders at the White House in Washington March 1, 2013. Obama pressed the U.S. Congress on Friday to avoid a government shutdown when federal spending authority runs out on March 27, saying it is the "right thing to do." (KEVIN LAMARQUE/REUTERS)
U.S. President Barack Obama speaks about the sequester after a meeting with congressional leaders at the White House in Washington March 1, 2013. Obama pressed the U.S. Congress on Friday to avoid a government shutdown when federal spending authority runs out on March 27, saying it is the "right thing to do." (KEVIN LAMARQUE/REUTERS)

U.S. politicians lost for now, but may have stumbled on path to fiscal deal Add to ...

Sequestration could yet force a comprehensive budget agreement in Washington; just not as quickly as hoped, and not in the way its architects originally conceived.

The death of received wisdom – that Republicans would shrink in the face of big defence cuts – has made predicting the future path of the budget wars difficult.

More Related to this Story

But let’s try. And let’s do so without all the doom and gloom. Washington politicians are lost at the moment, but they may have stumbled on a path to a grand fiscal bargain that so far has proved so elusive.

The next deadline in the budget saga is March 27, when the government’s current spending authority runs out.

House Speaker John Boehner and Senate Minority Leader Mitch McConnell said in television interviews aired Sunday that they were confident a government shutdown could be avoided.

The political winds are blowing toward an agreement that extends current budget provisions through September, the last month of the current fiscal year. President Barack Obama indicated Friday he would back that approach.

“We should not create crisis on top of this one,” Jay Carney, the president’s spokesman, told reporters Monday. “Congress ought to pass a [continuing resolution] without drama, as it has half a dozen times since April 2011.”

Previously, I’ve used this space to suggest there is something missing from Washington’s budget debates – real public engagement. Canada’s austerity program in the 1990s worked because the public was behind it. That’s just not yet the case in the United States.

The U.S. only will achieve fiscal peace when it confronts the unsustainability of Medicare, the health program for seniors that is on track to blow the budget in a decade. Yet for all the sound and fury around the deficit, politicians have avoided a serious debate about the fact that nibbling away at discretionary spending will do little to save the U.S. from a future debt crisis.

Discretionary spending, as a percentage of gross domestic product, already is about as low as it’s ever been.

That’s why the Obama administration is able to describe such dire consequences from cuts that represent only about 2 per cent of the budget. “We are really, really, really close to the bone,” said Kenneth Baer, managing director at The Harbour Group, a strategic communications firm, and a former official at Mr. Obama’s Office of Management and Budget.

Mr. Baer isn’t simply talking his old boss’s book. Eugene Steuerle, a fellow at the Urban Institute and a former deputy assistant secretary at the Treasury Department during the administration of George H. W. Bush, said there always is some fat to be found in government, but it’s getting harder to find.

“There are things we do that cost $1 and return 50 cents,” Mr. Steuerle said. “There are not many things that we do that cost $1 and return nothing.”

Mr. Steuerle is unconvinced contemporary politics in the U.S. – or anywhere, for that matter – is up to the task of reneging on promises such as pensions and healthcare. Politicians since the 1990s have hacked away at discretionary spending, but always under the assumption that economic growth would save them from having to touch core social programs.

That calculation can no longer be made with confidence. As David Leonhardt, The New York Times’s Washington bureau chief, calculates in his new e-book “Here’s the Deal,” growth rates are getting slower – from an average annual rate of about 4 per cent in the decades after the war, to about 2.7 per cent over the past 40 years and 1.6 per cent over the past 12 years.

American politicians often say the right things.

On Friday, Mr. Obama acknowledged that some Democrats “violently disagree” with the need to curb Medicare benefits, but that he is “willing to say to them, `I disagree with you,’ because I want to preserve Medicare for the long haul.”

Which brings us back to the “sequester.”

Because politicians missed the March 1 deadline to modify sequestration, and they seem reluctant to risk a government shutdown, the debt fight could shift to the relatively calm confines of congressional debate over the budget for the fiscal year that begins Oct. 1.

The White House, the Republican leader of the House Budget Committee, and the Democratic leader of the Senate Budget Committee all will make proposals in the weeks ahead.

As they do so, the effects of the “sequester” will be taking hold. Defence contractors will be cutting jobs; government workers will be put on furlough; children will be turned away from government-sponsored daycare programs; national parks will be closed.

If Mr. Obama is right, his demands for tax increases will be strengthened, as Americans get a taste of what austerity really means. If Republican leaders are correct, Americans barely will notice, undermining the case for more revenue.

Regardless, sequestration promises to clear the air of much of a lot of rhetoric. And maybe then Washington finally will get serious about its debt issues.

Follow on Twitter: @CarmichaelKevin

 

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories