FUBAR "Fowled Up Beyond All Recognition

To find a word adequate to describe our current political culture, you have to go back to World War II and FUBAR - "Fouled" Up Beyond All Recognition. This entire crisis makes no political or economic sense whatsoever. It merely goes to show that no one knows what is happening or who stands for what.

Tomorrow, Friday March 1, 2013, the much discussed Sequestration, $85 billion in across the board Federal spending cuts will be imposed on the US economy for the period March 1 through September 1. This money that is supposed to be a down payment, a set aside, to begin control of the federal deficit, hence the word sequester..

But note that all the political talk is about what the absence of this spending will mean to the economic well-being of political constituencies and the economy as a whole. Thus the military is shifting aircraft carrier groups around, grounding the F-35s and, heaven forbid, laying off contractors. Teachers and other public service providers will incur part time, short weeks or lay offs. Travelers will be even more annoyed at the short-staffed TSA. A lot of projects will be delayed and lose their place in the funding queue.  Infrastructure will be further neglected as repairs and maintenance or deferred.

The impact on the macro-economy is probably the most serious threat to the nation. With weak growth numbers and high unemployment, this is absolutely the worst possible time to cut government spending. We should be stimulating the economy, increasing government spending, not cutting it. The original 2008-9 stimulus of about $400 billion was far too small to jump start the economy . It was just enough to keep us from plunging off the depression cliff.

No one knows what the macro impact will be of this cut in spending. The Democrats think that it will be serious and they are expecting, perhaps even hoping, that it will be severe enough to make the taxpayers outraged at the Republicans on whom they have been able to smear the blame. In the 2014 election Democrats might then even be able to retake control of the House. But maybe not. Obama is really gambling on this one. 

The Republicans expect the opposite, that the economy will absorb the shock the way it absorbs gas price increases, some get hurt more than others. That $85 billion is only 2.5% of the $3.5 trillion federal budget and a mere 0.5% of the $16 trillion GDP. The economy has already suffered the loss of extended unemployment payments of $30 billion and temporary FICA tax cut of $115 billion. That's $145 billion of lost demand. What's a mere $85 billion? The Republican think that it will confirm what they have always believed: government is eminently cuttable. They just have to stick it out.

If the economics are skewed and confused, the politics are downright chaotic. The President's constituencies elected him to protect the social safety net, especially social security and medicare. He may have shown some guts in regard to gays and guns, but he has clearly waffled in regard to entitlements.

The President has consistently put social security and medicare on the table in his effort to get a "grand bargain" from Speaker John Boehner.  Boehner has walked away from $100 billion offers to cut entitlement, not because he doesn't want to bargain but because his tea party members want all or nothing. In the debt ceiling negotiation, Obama accepted a lower tax rate for the rich than if he had done nothing. He brags about spending cuts. The safety net is what the Democrats are about and he doesn't seem to care.

The President appointed the Simpson-Bowles Commission and his appointees "recommended $200 billion annual cuts in discretionary spending, raising of the Social Security retirement age, cutting the federal workforce by ten percent, and reducing federal pensions and student loan subsidies." All are  Republican proposals to cut down the debt.  What's with this President?

The Democratic party leaders are at least as wanting in loyalty. Pete Peterson is the billionaire Republican who got his million/billionaire buddies to ante up $60 million for "The Campaign to Fix the Debt." The campaign would fix the debt by cutting, privatizing and generally weakening entitlements, especially social security and medicare. Peterson recently put up an additional $500 million. But it is Alice Rivlin Clinton's Budget Director and once Vice Chair of the Fed who is, at 81, dancing the Harlem Shake to support fixing the debt on the backs of the poor. Similarly, Ed Rendell, Democratic governor of Pennsylvania and Chair of the DNC is co-chair of Fix the Debt.

The horror of all this is that there is no debt problem to fix, that the deficit is falling faster than at any time since the 1940s and growth in medical costs is unexpectedly slowing. There is no reason whatsoever for this self-inflicted, manufactured crisis.