The Ticker Quick Views on Politics, Economics and Finance
Why the Sequestration Hype Was Wrong
It was hard, in the week before the sequestration took effect, to avoid the ceaseless warnings and doom-filled prophecies coming from the White House. From the president to the lowliest Cabinet secretary, federal officials claimed the U.S. would see immediate and severe disruption to government operations.
Well, they were wrong. The sequestration won't be devastating. It will be slow, boring, and local. That's the message sent by the flurry of reports from federal agencies as they detail their plans to cope with their budget cuts under sequestration.
One reason the effects won't be sudden is the labor rules in the Code of Federal Regulations. They require that federal employees get at least 30 days' notice before they can be furloughed. That pushes much of the predicted disruption to April at the earliest. And not all agencies will furlough immediately. The Defense Department, whose outgoing chief, Leon Panetta, had been an early and outspoken foe of the sequestration, won't start furloughs until April 25.
The agency announcements also suggest that the consequences of the budget cuts can be spread out over several months. That could reduce the impact for most Americans to the point of insignificance.
The Agriculture Department, for example, is planning 11 to 12 days of furloughs by the end of the fiscal year. The Environmental Protection Agency says it will have employees take four days off by June. The Federal Aviation Administration thinks that its freezes on hiring and overtime will take months to have a noticeable effect. Some agencies won’t need furloughs at all.
Those who expected a major economic shock are also likely to be wrong. It generally takes several months for changes in government spending to have significant effects on economic activity. The delays to most of the cuts will extend the lag time.
The sequestration bears may be making another mistake. The International Monetary Fund and Congressional Budget Office both expect the cuts to knock about 0.5 percentage point off gross domestic product growth this year. But the private sector looks more ready to offset fiscal tightening than it did just a few months ago. There has been a run of auspicious data on jobs, factory production, consumer confidence, housing, and auto sales. Though the sequestration's timing is not good by any measure, the outlook can't be all that bad when stock markets are breaking records.
The most feared outcomes simply haven’t happened. The National Park Service is planning much smaller cutbacks than the widespread closures advertised a week ago. All hell hasn’t broken loose in American airports, as we were told would happen. And many of the scariest claims have proved baseless.
The impact of the sequestration will also be local. Maryland and Virginia will be hit hard, but most other states won't. Communities beyond the Beltway that are large recipients of federal spending, such as those with military posts and defense contractors, will feel a blow while many others will be spared. Sequestration is poised to have locally significant impacts, but little beyond that.
All of this suggests serious miscalculation by President Barack Obama and senior White House staff, who hyped the sequestration but did little to prevent it. They are now in the awkward position of hoping -- or seeming to hope -- for bad things to happen in the government they run.
(Evan Soltas is a contributor to the Ticker. Follow him on Twitter.)
Bloomberg moderates all comments. Comments that are abusive or off-topic will not be posted to the site. Excessively long comments may be moderated as well. Bloomberg cannot facilitate requests to remove comments or explain individual moderation decisions.