Harvard’s Jeffrey Miron: Sequestration Will Help National Economy

by Hans Bader on March 4, 2013

in Economy, Politics as Usual, Stimulus to Nowhere, Zeitgeist

Harvard’s Jeffrey Miron argues “the sequester will be good for the economy” even in the near future, helping the real economy by reducing government spending that includes “pure waste,” yet is classified as part of GDP; and by increasing production of things of real value. In his view, “the main problem with the sequester is that it is too small; it will reduce the deficit only slightly and scale back misguided government only a little. But it’s a start.”

There doesn’t seem to be any serious doubt the sequestration’s automatic budget cuts will help the economy in the long run, as we previously pointed out, citing the Congressional Budget Office’s analysis of the so-called “fiscal cliff.” Wells Fargo economists say the sequestration will boost the economy in the long run, and even increase its size — although they also argue that in the short run, it could shave 0.2 percent off of this year’s GDP. The sequestration will cause localized short-term pain to areas that include disproportionate numbers of federal employees and contractors, such as Northern Virginia, as a March 3 New York Times story illustrates (“Virginia’s Feast on U.S. Funds Nears an End”).

In an unsuccessful attempt to repeal the sequester budget cuts, the Obama administration exaggerated its short-run impact (such as falsely claiming it would result in budget cuts at a non-existent agency that closed its doors last year). Cutting spending helps  in the long run by reducing debt-service burdens on the economy that crowd out productive private investment. For example, the Congressional Budget Office says the stimulus package enacted in 2009 will hurt the economy in the long run.

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