Wednesday, March 6, 2013

Sequester: A Problem of Incentives

With the recent budget sequester, spending has been cut "across the board."  However, pay for congressmen and the President were not affected.  How can these people be expected to take their job seriously if they have nothing at stake?  According to NoLabels, Congress has passed its spending bills on time only four times since 1952. In the last 14 years, annual spending bills have been submitted an average of four months late.

I'm not against the sequester, and if I wouldn't mind taking a 2% pay cut if I end up working for an institution funded by tax long as it's helping pay off our debt AND the fat cats play by the same rules.  Warren Buffet has already called for congress to pay into and receive benefits from the same retirement system as the rest of the country.  It's probably not going to happen because the only people who can change it are the people who benefit from it.  I imagine the system was designed this way by those in power to help themselves.

I just got an email today from Rep. Alan Grayson (D, FL) asking for support to eliminate the sequester.  He wants to pass a bill that says "Section 251A of the Balanced Budget and Emergency Deficit Control Act of 1985 is repealed."  This would allow politicians to keep spending unreasonable amounts of money and keep the support of their constituents.  It is politically attractive to spend money now at the expense of reduced consumption in the future.  Young people and unborn people who will be affected in the future do not get to vote, so they cannot oppose the current spending that will hurt them.  There will come a time when that which has been borrowed needs to be repaid, with interest.  Increased consumption in the past will need to be compensated for by reduced consumption in the future.  Nobody likes this sort of thing, but it's hard to get around.  There comes a point when the options are to default on debt or tighten our belt.  Default would have much worse consequences, especially in the global credit markets.

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