In the summer of 2011 the US Congress voted to raise the national debt ceiling on the condition that a “super committee” of six democrats and six republicans would meet and hammer out a way to reduce the national deficit. If they could not come up with a plan by November 2012, automatic tax hikes for taxpayers and spending cuts in the armed forces and the executive branch would kick in. These cuts were advertised as draconian. The two parties would be compelled to reach an agreement. The super committee never did. A compromise on tax cuts was passed before the end of the year. (Basically the “Bush tax cuts” were renewed without a sunset provision for the overwhelming majority of Americans taxpayers.) No agreement was reached on the spending cuts, however. The President and his economic advisors predicted an economic meltdown, which they blamed on Republican intransigence. Since the federal budget is a statistically significant part of US gross domestic product, they predicted that the “budget sequester” would cause the GDP to shrink and unemployment to grow, which would unleash a recession. All of this would worsen the government’s deficit and debt problem.
We are almost to the middle of 2013 and, in Lord Melbourne’s words, “What all the wise men promised has not happened.” Todd Ganos of Forbes recently surveyed the economic situation since the “budget sequester” went into effect on January 1. In the first three months of 2013 the GDP grew at a 2.5% annual rate, slightly better than 2012’s growth rate of 2.2%. In the first four months of 2013 about 800,000 jobs were created. Initial jobless claims have been consistently lower then in 2012. The Congressional Budget Office has modified its budget estimates and now predicts that the deficit would shrink by $52 billion to $378 billion in 2015.
This is all very bad news. Of course, there is still time for the situation to turn around and for the economy to dive into a tailspin and enter another Great Depression. In the short run, though, things are looking dark. Suppose people draw the totally unjustified conclusion that cutting the federal budget—not draconian cuts, of course, but still not derisory ones either—could be accompanied by, or even causally related to, a slowly improving economy. No, no. It is too awful even to contemplate.