It has all the usual hallmarks of a Washington crisis: threats of doom, mud slinging between Democrats and Republicans, and growing disgust from the American public. But the stakes in the sequestration battle are notably lower than they've been compared to other recent Washington standoffs.
If automatic spending cuts go into effect on March 1, federal outlays will fall by about $44 billion this year. (That number is lower than earlier estimates because of a two-month extension of the deadline and other factors.) Cuts will reach $110 billion per year by 2016, with the goal being to cut about $1 trillion during the next decade.
That's a meaningful amount of money, especially in a slow-growing economy, but it's a fraction of all federal spending. Here's the total amount of projected federal spending through 2021, with and without the sequestration cuts:
The cuts would be deep enough to hurt the economy for a couple of quarters, according to forecasting firm Macroeconomic Advisers:
They'd also push the unemployment rate a bit higher than it would otherwise be. Defense contractors may be forced to lay off some workers. Hiring would slump at other firms dependent on federal funding. The overall slowdown in growth could depress demand for some products along with the need for new workers:
But as the second chart above shows, the economy should recover by the start of next year, and it might even grow a little bit more in 2014 than it would have without the sequester. Here's what's unfortunate, though: Even if all of the planned cuts stick (and Congress could repeal some or all of them at any time), the national debt will still keep rising toward unsustainable levels:
(Source: Congressional Budget Office)
The main reason for the ballooning national debt will be the uncontrollable rise in healthcare costs associated with programs such as Medicare and Medicaid, which the sequestration does virtually nothing to address.
So while sequestration, if it sticks, would help narrow federal deficits for a few years, it will take much deeper cutbacks to truly align federal spending with what the nation can afford. That's why budget battles, including efforts to streamline the tax code and make entitlement programs like Medicare more affordable, are likely to go on for years.
If you're not yet sick of the doomsaying out of Washington, you soon will be.
Rick Newman's latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.