Like an Addict, DC is Out of Touch with Reality

By John Watts

As usual, “histrionics” and high drama are being played up in Washington, D.C. this week, as Obama paints Republicans as reckless for not returning to the negotiating table with purportedly horrific sequestration cuts looming.

Meanwhile, Republicans stoutly declaim Obama’s manifest incompetence and equivocating – after all, they say, Obama forced the sequestration on himself.

Both the Republicans and Democrats can accurately be described as reckless, incompetent, and equivocating. Each party’s characterization of the other is just as true for them.

Truth be told, sequestration is not going to be nearly as devastating to the economy as the political establishment would have you believe. In the first place, there are no actual “cuts”, but rather reductions in projected future spending. If words still had meaning in Washington, cutting spending would mean that less money was spent on a program, bureaucracy, etc., then was spent the prior year. But words have the meaning the political class assigns to them, so “cut” today means a vague promise to not increase spending as quickly as they planned.

President Obama played up the threat sequestration allegedly poses to public safety because apparently first responder (police and firemen) jobs would be cut. But why is the federal government funding local police and firefighters in the first place? If anyone in D.C. read the Constitution, they would say that funding “first responders was solely the responsibility of the state governments".

The actual cuts needed are not going to come. They would put too many federal bureaucrats out of work. Or, as revealed by Republicans’ greatest fear of Pentagon “cuts,” too many corporate feeders at the trough of government largesse would actually have to put resources into satisfying consumers in the marketplace instead of profiting by exercising political influence.

Let us suppose by some miracle, Congress actually really cut the budget. What would the effects be?

It is true unemployment (which some analysts suggest is already over 20 percent) would go up even further. But this would be temporary and necessary. The market needs to be allowed to allocate workers where they are needed in productive capacities. Likewise, further subsidizing unemployment, while ostensibly the “humane” thing to do, is actually increasing unemployment and prolonging it. If you subsidize something, you get more of it.

The truth is we are still in a recession; the economy has not recovered. After the huge housing bust nearly five years ago, fundamentally caused by the central bank and central government, a recession is always necessary to correct economic misallocation. The government has largely prevented this from occurring, and instead of a brief but healthy recession, we get a protracted, ever-worsening one.

The government is just building up a bigger catastrophe, like an addict who keeps getting high to avoid the pain of withdrawal. And the longer the federal government postpones kicking the spending habit, the more painful it will be for all of us.

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