Sequestration is a government budget tool that attempts to provide oversight to a budget that is out of control. It is controversial as it is evidence of the inability of the president and Congress to come to an agreement over spending and taxes. Congress passes a budget resolution that lays down overall limits, and then the dozen or so appropriation bills must fall under that limit.  If they do not, then sequestration’s automatic spending cuts go into effect.

Even though the President is using fear of sequestration’s effects to promote overturning the legislation, the real effect of sequestration on the economy is debatable.

The federal budget is difficult to manage due to three factors:

  • First, the budget is not one single document.  The federal government passes its budget in a piecemeal fashion through several appropriations bills as opposed to one comprehensive piece of legislation. This dilutes the ability to manage spending since it prevents tying separate pieces of the federal budget together.
  • Second, only a minority of government spending is dealt with in yearly budgets. The yearly budget only applies to discretionary spending by the government, not the entitlement spending through Social Security, Medicare and interest on the national debt.  Such mandatory spending accounts for 47% of the federal budget. Defense accounts for 67% of the remaining 53%, thus accounting for the lion’s share of the proposed cuts.
  • Third, and most importantly, our divided government allows both sides to avoid responsibility, and our current partisan atmosphere allows voters to support their party while not allowing compromise to take place. 

All of this combines to illustrate how closely tied government spending is to the performance of the current economy and how fragile the current economic growth is.  People don’t trust the economy or government and we are very risk-averse as a result.


Please login to comment on this blog post.