Everybody seems to hate the across-the-board government spending cuts due to kick in March 1.
President Barack Obama called the cuts—known in Washington as the "sequester"—a "meat-cleaver approach" to trimming the government's annual deficits, warning that they will visit a host of plagues upon America: Military readiness will suffer. School quality will decline. Hundreds of thousands of people will lose their jobs.
Obama didn't mention one other thing the sequester might accomplish: restoring faith in America's creditworthiness.
With everybody in Washington bad-mouthing the sequester, you might think it was imposed on the United States by a dreaded enemy. In reality, the sequester is the government's own doing. Back in 2011, Obama and his Republican adversaries in Congress agreed that deep spending cuts, totaling about $110 billion a year for nine years, would go into effect in 2013 if they didn't come up with a better way to start paying down the $16.5 trillion national debt. They didn't, so the sequester looms.
Congress could still vote to delay, amend, or simply cancel the cuts, which would reduce funding for most government agencies by about 8 percent, with only Social Security and a few other things exempt. But there's a good chance the sequester will actually happen, because Democrats and Republicans can't agree on an alternative.
If those cuts do go into effect, economists estimate it will cut GDP growth by about half a percentage point or a little more in 2013. The stock market may dip, as worried investors retreat briefly to safer types of securities. Consumer confidence might decline, as ordinary folks hear scary headlines and wonder if another recession is coming.
But here's one thing that probably won't happen: another downgrade of the U.S. credit rating.
Standard & Poor's cut the U.S. credit rating for the first time ever in 2011, citing political bickering that stood in the way of credible action to fix the nation's finances. The two other big credit rating agencies, Moody's and Fitch, have basically said they, too, will cut the U.S. rating if there's no meaningful action on debt reduction this year.
While the sequester might harm the economy in the short term, it would actually represent a fairly serious effort to narrow the gap between Washington's spending and revenue. Over nine years it would cut spending by about $1 trillion, which is roughly one third of the total savings budget experts say it will take to put the federal government on solid financial footing. That would probably be enough to forestall additional cuts in the U.S. credit rating, and perhaps even reverse the S&P downgrade.
It's still not the best way to fix the government's finances. Since it would do nothing to prioritize the most useful federal programs, the sequester could inadvertently cost the government revenue, through tax receipts lost due to a slowdown in economic activity. That would obviously make the debt problem worse. It would be better if politicians could agree on targeted cuts that would be phased in slowly, giving everybody affected time to adjust.
Yet even critics of the sequester grudgingly acknowledge it will help with deficit reduction. Budget gurus Alan Simpson and Erskine Bowles, for instance, called the sequester "mindless" in their latest blueprint for government reforms. Yet they also identified the sequester as one of four essential steps that must be taken to get the government back on track, with the other steps including tax and entitlement reform, along with further tax hikes and spending cuts.
What few politicians will say is that paying down the nation's debt is likely to be painful, no matter what. Whether it starts with the sequester in 2013, or some other measure a few years later, it won't change the fact the we've got a lot more government right now than we can afford. Somebody has to pay, sometime.
Rick Newman's latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.