Sequestration: Crisis by stealth

by Warren Davis, for the Political Committee

Posted March 19, 2013

Is it the stupidity of dysfunctional bureaucrats? The tactical blundering of a likeable president facing an irreconcilable congressional divide? Or is this the cleverest maneuver yet from the self-proclaimed defenders of democracy and the American quality of life? My vote is for clever.

For the moment we are talking about the Sequestration crisis, just the latest of what president Obama himself called many manufactured crises in his inauguration speech. Though it may seem like he is distressed by the perceived gridlock on Capitol Hill, the actual agenda for the long series of bought-off Congresses and corporate-friendly presidents is moving along quite nicely. Across the board discretionary spending cuts amounting to $85 billion have taken effect as of March 1 and will need to be absorbed by the end of the fiscal year on September 30. A total of $4 trillion in cuts are mandated over the decade so far.

To be sure, this “crisis” is not a crisis at all for the president and the congress, since they’ve been intending to see these cuts enacted in some form all along. As Jeffrey Sachs observed in his recent Financial Times op-ed: “The administration is now vigorously blaming the Republicans for the pending cuts. Yet the level of spending for fiscal year 2013 under the sequestration will be nearly the same as Mr Obama called for in the draft budget presented in mid-2012.” Of course, the president won’t be entirely pleased until Congress legislates authority to agency heads to redistribute and prioritize spending, but that will be as easy as the last – or the next — continuing resolution to keep the government operating. Not a problem.

This is really a continuation of the now-permanent campaigning that consumes Washington’s politicians. Virtually all federal legislation has taken on a public relations character, a contest between party spin doctors for points toward the next election. The supposed “fiscal cliff”, off which no sane politician would dare jump, has been neatly turned into the new plateau. Instead of dramatic congressional debates or presidential addresses, we see campaign speeches lamenting the failure of bipartisanship followed by the president treating Republican leaders to dinner at the luxurious Jefferson Hotel in D.C. One supposes having the dinner hosted in-house would have been a bit rich after cancelling the White House tours for American school children on account of the sequestration cuts. By the way, to watch the ABC Evening News with Diane Sawyer, we might guess that these school children are facing the worst of it.

So what will the sequestration really cost America’s working and poor folks? Estimates vary widely, but none of it is good for the 99%, and all of it is good for the 1%. In a nation of TV addicts, crises take on a surreal character: our political storms are like our weather reporting. The reporters breathlessly describe the storm of the decade or the century, or more like the month, devastating to millions. But typically most viewers “escape” the worst effects, as the trees happen to fall on neighbors’ cars, or the power goes out in another neighborhood; all of it will be restored sooner than later by those trusted companies and contractors who apply good old American ingenuity and know-how to end the crisis, and private enterprise hums along. Of course, odds are that everyone will be affected by a crisis sooner or later, but the sense of security, knowing that American commerce will fix the problem and keep the economy working, is enough to sooth all nerves.

According to the Congressional Budget office, GDP growth would be 0.6% slower under sequestration, and Austin Goolsbee, former chairman of Obama’s economic advisors, told Congress that the impact of the sequester would “put us back in the circumstance where growth is not fast enough to shrink the unemployment rate.” In other words, not enough new jobs would be created to keep up with new workers entering the job market, and unemployment rates would again rise as the mid-term election campaigns get under way. Incidentally, a key part of the electoral calculation is the new demographics. One thing will certainly happen before then: passage of immigration reform. Latino voters put Obama over the top in 2012. Republicans would like to have a bipartisan reform under their belts as they enter the midterms, so they can claim a remedy to fix the rising unemployment that disproportionately hurts Latinos in lower paid jobs.

The effects of sequestration will not appear to be catastrophic to those still with jobs – somewhat like an overdone weather report – unless you are the one affected personally. The FT explains: “[M]any federal agencies plan to handle the cuts by sending staff home, without pay, for one day a week or fortnight. Such workers will not show up as unemployed because official jobs data include anybody who did any work in the past week. Nor will figures for hours worked or average earnings fall as a result of such lay-offs because the Bureau of Labor Statistics does not collect those numbers for the salaried federal workforce.” As usual, the effects are wider than reported, but the crisis quickly recedes from the newscasts and the brief attention span of public consciousness.

The next “crisis”? Recently government economists have begun to point out that the legislation making tax cuts permanent has been a major factor in a further trillion-dollar shortfall. It just so happens that the bipartisan Bowles-Simpson commission, designed to market cuts in Social Security and Medicare, has come up with another trillion or two in savings. Expect the eventual “grand bargain” among Republicans and Democrats to be something like the shared sacrifice we’ve been promised by Democrats all along, chief spokesman among them, president Obama. But if all goes according to the usual formula, Republicans will demand a revised tax code, “giving up” favored loopholes in exchange for lower rates (a net lower tax bill, of course); and Democrats will trade off “small but fair” cuts in “entitlements” (what was a cut in cost-of-living increases could now include a raised retirement age for Social Security; Medicare rates will rise but so could the age of eligibility to match longer life spans, etc). If true to form, Obama’s Democrats will offer their concessions at the beginning of negotiations before even being asked to give them up, showing us all what decent sports they are.

The real crisis is systemic and politically unsolvable. The Fed, like the European Central Bank, will continue its “quantitative easing infinity” (another term for printing money because they have no other answer); corporations will be forced to continue to shake out, eliminating or absorbing competitors, lowering costs and shedding jobs; banks, reluctant to extend credit to businesses in a shaky economy, are looking more to currency speculation and higher yields on money they lend to debt-saddled governments; and the 99% will continue to bear the burden of bankers’ debts gone bad, the decimation of labor institutions, a drastically lower standard of living and dismantlement of the social safety net, in short the end of the New Deal.

As we publish, Europeans were shocked to hear that the citizens of Cyprus will have a substantial portion of their bank savings deposits stolen (“taxed”) by the government to qualify for billions of euros in bailout funds for their failing banks. After Greece and anticipating Italy, the Germans and Finns (the two highest rated European economies) especially are worried that politicians can no longer be relied upon to impose the worst of austerity measures in failing European economies, and that the financial system faces complete collapse. No longer confident that governments can buy off the total debts of their banks with privatizations, more taxes and cuts in pensions and wages, now almost half the losses will be directly withdrawn from the bank accounts of ordinary citizens. The sales pitch is that depositors can take the tax bite or face total losses when the banks go under. As it is, the run on the Cypriot banks is likely to spread as other European investors realize their own governments don’t have the cash to guarantee their bank deposits either. The Irish prime minister, currently serving as rotating chair of the European Union Council (heads of government), told Russian TV that Italy, next in the bailout line, “is too big to be saved and too big to fail.” There is no plan B. Meanwhile, in a corporate state as culturally hegemonic as the United States, the consequences of this crisis will be visited on the working class mostly by stealth. But sooner or later, all of us will be affected by the storm’s effects, and the catastrophe will be unfixable.

Conclusion? There is a choice. Either we accept the looting and pillaging, dysfunction and mendacity, of the corporate class as they destroy the system that feeds them, or the 99% can make the capitalist system dysfunctional on its own terms, by stopping payment of the debts of the rich and demanding the fruits of our own labor. Tell that to your neighbor next time there’s a storm.

Warren Davis is a long-time labor activist living in the Philadelphia area, recently most active in the Occupy movement and the struggle against austerity. He joined Solidarity in 1987.