Monday, January 28, 2013

OK, now I see how Republicans think the sequester cuts are leverage

By now most people are aware that unless Congress acts, on March first $1.2 trillion of federal spending cuts (called "sequester') will take place as a result of the 2011 debt ceiling deal. Half of the cuts will come from domestic spending and half from defense.

A while ago I thought Boehner was bluffing when he said that these sequester cuts were as much leverage as Republicans were going to get. In a way, he was. To read more about why, check out this recent article by Ezra Klein.

But both Ezra and I need to factor in two things. First of all, the economy is now improving much faster than most people thought it would. That creates a challenge for Republicans. How can they continue to induce fear of economic doom that can only be solved by draconian cuts to the social safety net if the economy gets better?

Secondly, Republicans (including Paul Ryan) are signaling that they'll let the sequester happen (for how long is where the bluff comes in). And if they do, what happens to the economy?
If it kicks in as scheduled in March, Macroeconomic Advisers, a consultancy, reckons it would knock 0.7 percentage points off growth this year.
If that is the leverage the Republicans are counting on, it is a truly Machiavellian deal with the devil. They're still hoping for an economic crash that they can blame on the President and Democrats. And to get it - they're counting on their own policy of austerity to make it happen. Now that's twisted! It simply demonstrates that these guys have NO actual concerns about improving the economy. They know that austerity will ruin the recovery. Its all a power game to them.

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