The sequester debate is a national embarrassment — though not for the reasons you might think.
We are debating whether shaving a few percent off the government's bloated budget will bring the country to its knees. It's a good thing the Founders are long dead, because if George Washington or James Madison saw this, they would regard it as a shameful farce.
A few percent off the budget? Their question would be: What happened to the idea of principled limits on government — limits which, if adhered to, would mean reducing the size of government more on the order of 60 percent, 70 percent, or more?
What is the sequester?
The sequester is a group of automatic cuts in government spending that resulted from an agreement struck during the debt ceiling compromise of August 2011. It consists of $1.1 trillion in cuts spread over the next nine years, split primarily between defense and discretionary spending programs.
That may sound like a lot, but in the context of how much the government spends, it's puny. In 2013, for example, sequester cuts will consist of a measly $85.4 billion of the federal government's projected $3.8 trillion budget — less than 3 percent.
To make matters worse, the word "cut" is deceiving. It does not mean an absolute reduction in government spending. Under the sequester, overall government spending will actually increase — just less than the government had planned. Some cut.
Will the sequester harm the economy?
Sequester doom-and-gloomers like President Obama have argued that spending drives the economy — especially government spending, which exceeds the budget of any single private organization by a mile. They claim that when government spends, the economy grows, when government shrinks, the economy collapses, and so cutting government spending could provoke another recession.
On a scale from "wrong" to "very wrong," this notion is "very, very wrong."
Historically, substantial cuts in the rate at which government spending grew, such as the one in Canada in the 1990s, have led not to economic collapse but economic expansion. From 1992 to 1997, the Canadian government nearly froze spending. The results? According to Reuters:
The deficit disappeared by 1997 and the debt-to-GDP ratio began a rapid decline — it is now at about 34 percent...After wrestling the deficit to the ground, Canada enjoyed what Crowley calls the payoff decade, outperforming the rest of the G7 on growth, job creation and inward investment. From 1997 to 2007, it averaged 3.3 percent economic growth, while U.S. growth averaged 2.9 percent.
Same story more recently in Baltic states such as Estonia. Estonia dramatically cut spending — genuine cuts that reduced the overall amount government was spending — and saw its economy outpace even Hong Kong's.
All of this is to be expected. Spending doesn't drive an economy. Prosperity comes from production — from free individuals discovering new and better ways to create wealth. But government doesn't produce anything. When it spends money, that money has to come from people in the private sector who have produced.
Those who claim that the sequester will harm the economy are really saying, "If we take money from the individuals and businesses who earned it and give it to politicians and bureaucrats, we'll achieve prosperity — but if we allow them to keep what they earned, we'll sink into poverty."
If you're concerned about economic growth, then the sequester cuts are not too big — they are far, far too small.
So is the sequester a good policy?
Government spending is hampering economic progress and has the potential to devastate it. But spending is a symptom. The deeper problem is that our once-limited government is now unlimited.
Sure, there are some things government doesn't try to do — although there are disturbingly few of those left. But there are virtually no principled limits on what it can do.
Principled limits come from having a clear view of the purpose of government. When America was created, the Founding Fathers assigned to it a strictly defined role: to protect the individual's rights to life, liberty, property, and the pursuit of happiness — basically, to protect freedom. The fundamental policy question, on that approach, was: Does this measure protect freedom or not? If not, then it wasn't the province of government. (Whether those limits were always consistently enforced is another matter.)
What about today's leaders? What do they think is the purpose of government? To the extent they even have a view, it would be something like "Whatever we feel is best for the country."
That is the basic problem today. Instead of protecting our freedom, the government does "whatever" our leaders, or the majority of voters, or an influential minority want.
And what they want covers basically every aspect of life:
- Subsidizing farmers
- Deciding what we can eat, drink, and smoke
- Restricting imports of certain goods such as sugar
- Prescribing who is allowed to do anything, from selling real estate to cutting hair
- Saving failed companies that are "too big to fail," or breaking up via antitrust successful companies that they decide are just "too big"
- Dictating the future of energy and funneling billions into "green" boondoggles such as Solyndra
- Corralling older Americans into the government's own unsustainably expensive health insurance scheme
You get the picture. Is it any wonder that spending is out of control? If there are no limits to what government does, how could there possibly be any limits to what government spends?
On the other hand, if we restore government to its proper function, the spending problem takes care of itself. Wars aside, from the Founding era through the nineteenth century, the federal government never cost Americans more than 3 percent of GDP — about a tenth of what it costs today.
All of this highlights what's wrong with the sequester: it does not distinguish between the proper, freedom-protecting functions of today's government and the freedom-destroying functions. On the contrary, its cuts are highly skewed against the military — which is a proper function of the state.
As in any policy debate, our focus here should be: Does this function of government protect American freedom? If yes, then spending is proper. But if not — if money goes toward restricting freedom or redistributing wealth — then that spending should be cut.
We're going to need a bigger knife.