The sequester is here

Politicians’ failure to avoid austerity may harm the economy and the University of Minnesota.

by Ronald Dixon


A few days before the sequestration cuts officially began to take effect, I made the prediction that President Barack Obama and Congressional Republicans were going to forge a deal to kick the can down the road. I thought that they were going to delay the cuts for another month or two, as was done with previous manufactured monetary crisis.

Well, I was wrong.

Last week, Obama signed into law the $1.2 trillion in cuts — $85 billion this fiscal year — that could cost approximately 750,000 jobs.

In general, the economy will suffer horrible impacts. With so many Americans facing job losses, any previous economic growth may be stifled. Specifically, the University could face millions of dollars in grant cuts, as well as future cuts in financial aid and Pell Grants starting in fiscal year 2014 .

As I have written, when the economy is in a recession, depression or in a general slump, austerity is the antithesis of economic common sense. The austerity programs that are impacting several countries within the Eurozone, as well as the lackluster growth of the economy in the U.S., clearly shows the fact that cuts do not grow the economy.

What we need is a renewed push for Keynesian stimulation. According to the basic tenets of Keynesian economics, when the economy is in a slump, the federal government must inject money into the economy in order to stimulate growth. Austerity should only be enacted once the economy has reached a certain level of stability.

Unfortunately, though, there seems to be a bipartisan mantra of debt reduction for a “bloated government.” Congressional Republicans have made their voices clear on this issue, and Obama, although declaring that sequestration is “dumb,” has made it clear that stimulation, akin to the successful American Recovery and Reinvestment Act of 2009, will not be emulated in the near future.

At this moment in time, I am pessimistic about the future state of the economy. However, we could at least hope that politicians stop manufacturing these debt crises and focus on real economic solutions.