March 7th, 2013
12:53 PM ET

Sequester: 'Dumb on all counts'

"Fareed Zakaria GPS," Sundays at 10 a.m. and 1 p.m. ET on CNN

Fareed speaks with Zanny Minton Beddoes, economics editor of The Economist, David Leonhardt, Washington bureau chief of The New York Times, and former top Treasury official Roger Altman about the likely impact of the forced budget cuts.

The latest GDP numbers, the revised numbers, suggest that the economy is barely growing. So isn't it possible, even though [the sequester] is not a large part of GDP, this could actually have the effect of tipping the United States into something like a second recession.

Minton Beddoes: I don't think it will tip the United States into a second recession because I think there are quite strong parts of the economy, notably housing. But I think it does mean that what could have been a rather more vigorous recovery is going to remain a very lackluster one at best. And overall, it's not as bad as had we gone off the fiscal cliff. But it's still, cumulatively, quite a lot of fiscal tightening coming this year, I think the biggest of any major economy. And so it's really not what the U.S. economy needs, because this doesn't solve any of the real problems, which are medium to long-term problems, particularly in entitlement spending. It cuts stuff that's actually good for the economy. And it weakens a lackluster recovery. So on all counts, it’s dumb.

Altman: One thing, though, that's fascinating is that the financial markets – and you can see it in the stock market, which is off to its biggest and best start in something like 17 years – are looking right through this. It's essentially saying we got through the fiscal cliff, no serious economic effect. All the threats of the debt limit, that's off the table. We're going to get through the sequester and we're going to get through the risk of a government shutdown, and the financial markets are looking ahead to roughly the end of 2013 and seeing a transition toward a stronger economy.

But what about people like your colleague, Paul Krugman, who say the economy is just terribly depressed?  You have something, you know, in the range of 20 million people unemployed or underemployed.  What you really need are…moderate austerity programs, you need a big fiscal push.  You need a big spending plan?

Leonhardt: We've now got tons of evidence that austerity does not work after a financial crisis. The United States in the '30s, Japan, Europe this time relative to us. And yet the United States has turned, after really being aggressive in 2009 – and to some extent, early 2010 – turned toward austerity. It's really remarkable to see that the United States has now been cutting government employment over the last few years, something it did not do in the '80s during the Reagan years or the '90s or the '00s. And so the idea that the best combination here would be some sort of short-term investment, take advantage of the low interest rates and try to put some people back to work. And long-term austerity is pretty widely accepted and we're not going to get it for political reasons.

Minton Beddoes: And I completely agree with that. But what strikes me in this debate is that often, people on the left don't really want to do the long-term...

Leonhardt: That's correct.

Minton Beddoes: …entitlement reform.  And so I think we would have a very different debate.  And I kind of thought both sides – you're absolutely right on the stupidity of short-term austerity. But if we'd had, even from the administration, but certainly from commentators, more focus on the need for long-term entitlement reform, then the U.S. would be able to say look, we've solved our problem. We've put the house in order and we're not doing dumb short-term cuts.

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Topics: Economy • United States

soundoff (10 Responses)
  1. matslats

    Housing? A strong part of the economy?
    Housing is the bubble they dare not pop!
    Why are you lying about the economy? Who do you work for?

    March 7, 2013 at 1:00 pm | Reply
    • Tom

      Before you strap on your tinfoil hat and run screaming into your fallout bunker, you should know that the man does make one salient point: the housing market is in fact growing. True, it's growing from ground zero of a massive economic fallout, but it's growing nonetheless. He is right that fiscal tightening will only hinder the economy; any business person knows that you have to invest money to receive returns. In other words, if you want to help the economy, you need to raise tax revenue and invest money in domestic jobs.
      Cutting spending slows the bleeding, but we need to restart the patient's heart. That requires a large jolt of money, which (given the current deficit) we can only raise by restoring taxes to sensible levels.

      It's not brain surgery: Austerity measures don't raise money. Without money to invest, you can't create jobs. Without jobs, the economy flounders, and the deficit continues.

      Restore taxes to their Clinton-era levels. Tax the ultra-wealthy on fair terms. Fix the economy.

      March 12, 2013 at 3:42 am | Reply
  2. GOPisGreedOverPeople

    The GOP Solution to all problems: Turn the Old, Sick, Poor, Non-white, Non-christian, Female, and Gay people into slaves. Then whip them until they are Young, Healthy, Rich, White, Christian, Male, and Straight. Or until they are dead. Then turn them into Soylent Green to feed the military. And......."Tax Cuts For The Rich!!!!!!!!!!".

    March 7, 2013 at 1:43 pm | Reply
    • Tom

      That is a very thoughtful and moving post. Truly, I am swayed by the intelligent, considerate nature of your opinion, and you've given me a great deal to think about.

      I'm sorry, I forgot that sarcasm doesn't translate into text very well. Your post is nonsense, and I assume you were drunk when you wrote it. Stop posting this kind of garbage. All you do is invalidate your own side by cluttering up the discussion with idiotic claptrap.
      (I'm a democrat, by the way)

      March 12, 2013 at 3:30 am | Reply
  3. Astersheen

    We can nulify the impact of sequester.

    March 9, 2013 at 10:23 am | Reply
  4. Pete

    They talk about the economy,sequester when it all boils down to this republicans obstructionism..It took 12 years under Pres.Roosevelt to upright this country after a republican in Pres.Hoover created the Great Depression and after creating a jobs bill to help Americans republicans back then objected to it as well,but as usual it didn't work and Roosevelts plan went through to help America!!Now Pres.Obama pretty much in the same boat trying to help Americans after another republican in Pres.Bush tried to destroy America with his ignorence and again its a democratic Pres.Obama to the rescue of Americans nationwide and republicans pretty much repeating what went on over 80 years ago,obstructing..Republicans when will you learn you've never been helpful for America and stay out of politics altogether because of your ignorence we again have repeated history and hopefully it'll be reversed just as before by again another democrate that loves America!!

    March 10, 2013 at 11:59 am | Reply
    • Tom

      For christ's sake, when will you learn how to spell and form a coherent sentence. Don't post things on a news website if you're going to blather on with incoherent, overly-politicized nonsense. Regardless of your political stance, you achieve nothing by spouting this barely-comprehensible garbage.

      March 12, 2013 at 3:23 am | Reply
  5. JAKE


    March 11, 2013 at 11:48 am | Reply
  6. Tom

    Austerity is just a stop gap. Ask the Europeans, they've been dealing with this for the past 5 years. Any economist with half a brain can tell you that the best way to reduce the deficit is to increase revenue by creating jobs and raising taxes. Oh, and by the way, the United States has some of the lowest tax rates in the entire industrialized world, not to mention the fact that they were higher under President Clinton, especially for the wealthiest Americans.

    Bottom line here is we're still reeling from the fallout of the Bush tax cuts for the super-rich. If we want to stabilize the economy, we have to re-invest in jobs by pumping more money into domestic programs, and we have to raise revenue by increasing taxes, especially on those who can more than afford it.

    March 12, 2013 at 3:13 am | Reply
    • Bill

      If the Bush tax cuts are the problem, then why were the tax receipts the highest they ever were in the last two years of the Bush Administration? The problem is that spending has gone up by almost 40% in the last 5 years. Despite what the White House says, we do have a spending problem. If the Obama Administration limited spending increases to 4.7%, like they were under both Clinton and Bush, the deficit would have been $1.6 Trillion less now. It is time to stop blaming Bush for everything that has gone wrong since President Obama was elected.

      March 15, 2013 at 2:55 pm | Reply

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