Last month, the chattering classes were fretting about the 'fiscal cliff', which the United States would supposedly go over if Congress could not agree on a budget deal. Jim Flaherty, Canada's finance minister, even got into the act, claiming that we too could go into recession if the issue was not settled — which it eventually was, temporarily at least.
Now U.S. politicians are manufacturing another crisis as they try to agree on deficit reduction. This time the issue is 'sequestration' — $1.2 trillion in across-the-board budget cuts to take effect over the next 10 years, beginning March 1, barring an agreement between the president and Congress. As the date approaches, every day brings new warnings of dire consequences.
Over the years bureaucrats and interest groups have learned how to avoid cutting the bloated government programs they depend on. What works best, they have found, is to scare the public by threatening visible cuts that ordinary people will feel most.
So, we have the U.S. Department of Defense, whose budget is larger than the military spending of the next 17 largest powers combined, warning that the cuts will jeopardize national security. Education officials warn about potential effects on schools. The meat lobby warns that a lack of inspectors could slow distribution. The State Department says diplomatic junkets could be hit, which would hurt foreign relations.
Some sympathy is in order. It is hard for beneficiaries of government largess to bite the bullet. Furthermore, in a perfect world, the proposed budget cuts would be targeted to trim the most egregious waste first.
However, targeted cuts would leave politicians vulnerable as they'd have to vote against the pork handed out in their own constituencies. Across-the-board cuts were set up precisely to avoid that.
Although those budget cuts appear large, they are relatively modest compared to the $16.5-trillion U.S. public debt. Implemented over only one year instead of 10, they would simply cover the $1.1-trillion deficit recorded last year. Not only are the annual cuts going to be much smaller, but deficits are still projected as far as the eye can see.
You can't get out of a hole unless you first stop digging. It's now time to start getting public finances back in order. Getting on with the sequester would be a good first step.
Michel Kelly-Gagnon est président et directeur général de l'Institut économique de Montréal. Il signe ce texte à titre personnel.
* Cette chronique est publiée dans les journaux de Sun Media, tant dans ses quotidiens présents dans plusieurs des marchés urbains canadiens les plus importants (Toronto, Ottawa, Calgary, Edmonton, Winnipeg et London) que dans ses 28 quotidiens régionaux.