Blinder: Reasons for Cheer on the Budget

Monday, 25 Feb 2013 11:33 AM

By Dan Weil

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Despite all the talk of gloom and doom as the nation awaits the automatic spending cuts set to begin Friday, the bigger budget picture isn’t so bad, says former Federal Reserve Vice Chairman Alan Blinder.

“After so many years of bad budgetary news, this may be hard to believe,” he writes in an article for The Wall Street Journal. “The public mood certainly seems stuck in a rut of despair and dismay. But budget mavens have noticed several significant developments.”

He notes the following as positive signs that the budget picture is improving:

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• “Congress and the president have managed to agree on several measures that reduce the projected 10-year deficit considerably.

• “The Congressional Budget Office has quietly lowered its deficit projections, in part due to changes in the underlying economic forecast and in part due to changing cost estimates for healthcare and other items.

• “The country also avoided the dreaded Jan. 1 ‘fiscal cliff’ and pushed the even-more-dreaded collision with the national debt ceiling back to at least May.

• “Republicans are talking far less menacingly about either shutting the government down or precipitating a debt crisis.”

Pretty much the only bad news is the sequester, Blinder says, adding, “that's Latin for ‘cutting federal spending stupidly.’”

And even the sequester isn’t so awful, Blinder notes.

If Congress can replace it with a “smarter package” of spending cuts and tax increases adding up to the same amount of money, that would provide the final savings allowing the government to meet its $4 trillion deficit reduction target, he writes.

“Now, don't get me wrong,” he explains. “I don't welcome the sequester. Its meat-ax approach chops spending bluntly and indiscriminately.”

If Congress is able to moderate the sequester soon, many don’t see a lasting effect on the economy.

“A three to four week period of sequester cuts will have no measurable impact on [gross domestic product] growth,” independent economist Bernard Baumohl writes in a commentary obtained by The Huffington Post.

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