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This article analyzes the effects that would take place from the 85 million dollars of cut government spending. It mentions the multiplier effect, a topic we have discussed in class. The argument being made is that there will be an effect much greater than just 85 million dollars being taken away from the economy. The 85 million dollars would have been used by consumers and producers many times spurring the economy, but now that that money will not be circulated, our $15 trillion economy is going to take a hit. The author suggests that their will be a net reduction of $200 billion from the economy 4 quarters after the spending cuts take place. He probably used some form of our equation learned in class to determine the multiplier effect. [1/(1-MPC)] The article also specifies that they used multiple predicted values for the marginal propensity to consume (MPC) to receive a better estimate for the effect of budget cuts. This article brings up the question many economists are pondering: is this the best time to implement spending cuts?
Before reading this article, I was aware of the $85 billion worth of spending cuts which are scheduled to occur March 1, but I did not fully understand the sudden, inefficient manner in which they would be implemented. These automated tax cuts would make it so federal officials wouldn't be able to pick and choose which programs are protected and which are cut. The linked Washington Post article details the effects of these arbitrary cuts, most of which are very concerning. Both Democrats and Republicans have recognized that these automatic cuts will have negative impacts upon the economy, but it is their inability to compromise which may allow these cuts to still occur. If the country fully understood what these automated cuts meant, I think we would see Washington reach an agreement to avoid them.
I found this article's discussion of the impending tax cut interesting. I agree with the previous post which discussed the multiplier effect. It is of course always important to keep in mind how much will be effected by any government act- especially when it is in regards to the economy. The $85 billion cuts will result in a much bigger hit to the economy. This includes all of the areas of the government which will lose a percentage of funding. I did find it interesting that each area will be having budget cuts, rather than picking and choosing. I think it seems reasonable to not favor one group over another, and as mentioned above, it may be the only way to carry out these cuts without upsetting one political party more than another.
It is NOT a tax cut. It is a spending cut.. BIG DIFFERENCE.
I'll be honest, I'm really just mystified by all of this sequester business. I understand that the US has massive debt and to get rid of it we need to either cut spending, raise taxes, or both, so I can see why spending cuts are being implemented at this point in time. What I don't get is why the sequester was proposed and approved in the first place. It's recently been revealed that it was a proposal from the White House, but it had to pass through the House and the Senate so in that sense the blame must be shared. Looking at the numbers and the multiplier argument in this article, its clear that implementation of the sequester will be bad for governmental agencies and Americans across the board, so I really don't get why members of either political party would have supported it. However, questioning the sequester's origins won't do anything to stop March 1st from rolling around, so the question we should focus on is how to avoid it by agreeing on different cuts. Congress currently seems unable to do that, and I (and many others) fear that the inability of many politicians to work across the aisle for the good of the nation will end up hurting us all.
My thoughts on the sequester before reading this article were that the government would pick and choose its spending cuts wisely and where it was needed. I now realize that the government is cutting all programs almost equally. Each agency is cut by a certain percentage and they cannot move money around amongst themselves. The very blunt approach to these cuts may seem fair, but I think that cutting programs equally will have an even larger affect on the economy than just cutting one single program. I personally would advocate for spending cuts to agencies that are also controlled by states. Something like defense on the other hand might need less of a spending cut because of its importance to America as a whole. While I don't fully understand the details of the sequester itself, it seems as though the government is making these cut equal and blunt because it is the only way to have collective action. It may have been the most efficient way to handle the deficit, but it could also have multiplier effects that may come from the constituents of these agencies. It seems as though the government is hoping the private sector will take off as a result of these cuts, but when the government is already such a strong player in the unemployment, there is no going back. Whether or not the sequester will have good or bad long term effects, something had to be done to our economy.