I have been hesitant to write on this subject.  Whereas everyone was tired hearing about the “fiscal cliff” back in December, now everyone is growing tired hearing about “sequestration”.  It is a confusing topic and it is hard to rely on the mainstream media for any kind of accurate reporting.  The term “sequestration” is probably not even being used accurately in these discussions.

Some people claim that we will have draconian cuts that will dramatically cut services, hurt employment, and hurt the overall economy.  There are even some who claim it will harm our defense, although I think they are really talking about offense.

Others say that these so-called cuts are not really cuts at all.  They are simply reductions in the already projected increases in spending.

This article on Forbes gives a good example of what we are dealing with.  In some ways, both sides are correct, if you cut out the Keynesianism.  If the sequester goes through and the projections hold true (which they rarely come close), then there will be an increase in overall government spending over the next ten years.  However, it isn’t as clear when you factor in inflation, which we will surely have.

There will be actual cuts in certain particular things.  On the other hand, it is also true that the overall federal budget will go up for the year.

I think we are going to see a lot more of this in the future.  It’s just a guess, but for at least the next ten years, we are likely to see these kinds of debates continue.

One of the major factors in all of this is so-called entitlements.  In particular, it will be Medicare and Social Security.  The government no longer runs a major surplus in payroll taxes.  It is actually shifting the other way around, where there is a shortage of payroll taxes in comparison to what is paid out.  It doesn’t matter if the so-called Social Security trust fund cashes in on some of its government debt or whether Congress directly funds the difference.  It is all the same.  It is just a difference in accounting.  Either way, Congress, in order to keep its promises, has to spend increasing amounts of money on these programs.  So you can have the overall federal budget going up while still seeing cuts in many programs.

Of course, even if there were actual cuts of nearly a trillion dollars over the next decade, it is still a drop in the bucket.  The government is currently running deficits over a trillion dollars in one year.  So even if these so-called cuts held, the federal government will still have accumulate another, say, $9 trillion in debt, as opposed to $10 trillion.  It is a small difference that won’t mean much in the long run.  The whole thing is unsustainable and it is just starting to unravel.

Anyone who is a libertarian, or even slightly leaning that way, should be advocating actual cuts that are far more significant.  It would be a good start to cut the federal budget by $1 trillion immediately, and stop running up the national debt.  While this would certainly be painful for many, it would start to flush out all of the malinvestment and maybe we could start on a real road to recovery.

The longer we take in getting significant spending reductions, the more painful this will ultimately be.  There is going to be a giant default down the road in some form or another.  Then these “sequester cuts” will seem like nothing.