Thanks to the profligate spending by Congress and the president and despite having no budget for four years, there is seeming hysteria about cutting about 2.5 percent of the budget. The laundry list of substantial cuts in services for each state that the White House issued over the weekend was dutifully reported by media outlets. A few of them actually asked the next question—the federal budget is up 19 percent since President Obama took office and the cuts are pretty trivial—what is the big deal.
How many American families have dealt with diminished income—in real terms? You have to remember that a "cut" in Washington D.C. speak is a reduction in the anticipated increase in spending, not spending less money. The sequestration reduces the rate of increase over 10 years, not actual spending. That's the scam that Washington D.C. has played upon the citizens for decades—reducing the spending rate is considered a cut. In an expanding economy the reduction in the rate of growth will close the gap.
It's also worth remembering that the country is borrowing about 46 cents of every dollar that is being spent—a trajectory that makes the unfunded pension liabilities in California and many of its governments look pretty manageable by comparison.
Consider other examples—California's governors and legislatures, most specifically Gov. Arnold Schwarzenegger, manipulated numbers on revenue and borrowed excessively to close the budget gap on paper over the last decade. The gap was real—revenues had plunged about 25 percent at the depths of the recession and there was no appetite to truly close the gap.
The Bay Area News Group ran a retirement story this week about the Antioch city manager that shows just how dramatically and quickly things can change and require immediate change from government (that's why Pleasanton has numerous reserve funds for economic uncertainty and equipment replacement—and Pleasanton still instituted a hiring freeze when the economy started to go south).
Revenues in Antioch went from $47 million to $34 million over four years as new home construction dried up and sales tax revenue went with it. That required three rounds of layoffs, employee benefit and salary concession and stringent other spending restrictions. It was necessary because cities cannot run deficit budgets.
Oh, for such requirements at the federal level which is addicted to borrowing and spending (revenues this year will be at an all-time high and there's still the 46-cent per dollar deficit spending).
