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Uploaded:2013-03-12
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In which John explains how the United States arrived at Sequestration, while also describing what exactly the Sequester is. Along the way, he explores deficits and debts and other matters of governmental budgets. It's bananas.

Understanding the American debt and deficit: http://www.youtube.com/watch?v=3ugDU2qNcyg
CGP Grey's video about the debt ceiling: http://www.youtube.com/watch?v=KIbkoop4AYE

(Gentle reminder: Educational and informational videos are allowed to be longer than four minutes, so no punishment for me by extensive precedent.)
Good morning Hank; it's Tuesday. Today I'm going to endeavor to explain what the heck sequestration is, why it's so important, and why it's so bananas. But first, we have to understand a few things about what governments do. So there are a lot of government programs that are super-popular with people, like, for instance, here in the US we have something called Medicare, which offers inexpensive health care to older people. Now, Medicare is actually more efficient and cheaper per person than private insurance, but it is still very expensive, because, don't take this personally, old people, but you get sick a lot. We also have a very popular program that offers health care to our poorer citizens called Medicaid, and between those two, that's 23% of the federal budget. Another 22% of the budget goes to Social Security, a very popular program in which old people get checks every month so they can buy, like you know, food and computers. By the way, I know that they're buying computers because suddenly a lot of old people are reading the Fault in Our Stars, and they keep emailing me, and the subject line is like, in all capital letters, "MY GRANDDAUGHTER RECOMMENDED THAT I READ YOUR BOOK BECAUSE SHE THINKS THAT I AM ABOUT TO DIE; I THOUGHT IT WAS FUNNY AND SAD, GOOD JOB" and then there's nothing in the body of the email. So we need Social Security, because how else am I going to hear from my older readers? Right, so those three programs are 45% of the federal budget, and they're what's known as mandatory spending programs. They're another 13% of our budget that is also mandatory spending, like salaries for federal judges and stuff, and the interest on our national debt is 6% of our budget. So in total, that stuff if 64% of the federal budget. The other 36% is discretionary spending, which Congress allocates yearly, or sometimes over multiple years, or sometimes only in 90-day segments if they're feeling very cranky and inefficient. That's everything from like Veterans Affairs to building highways, to NASA, to science research, to meat inspectors. But more than half of all discretionary spending doesn't go to any of that stuff, because it goes to defense. One other piece of background information: as previously noted, the United States has a long-term debt problem, but it does not have a short-term debt problem. Like right now, the US can borrow money extremely cheaply - arguably, like cheaper than free. And that's because we're a very strong economy, we've never defaulted on our debt, there's no reason to think that we will, and our budget deficit - the annual difference between what we take in and what we spend - is shrinking pretty fast, and is probably not a concern at the moment. But there is a serious long-term problem with our mandatory spending programs. The cost of Medicare and Medicaid will double over the next 30 years as the population ages and health care costs continue to rise, and the costs for Social Security will go up too. So in the long term, we either have to decrease benefits or increase revenues, or both, or else our budget deficit will spiral, and our debt will get more expensive, and Greece. So we have a long-term problem which requires a long-term solution, and that brings us to the sequester. Rights, so back in 2011, the US nearly defaulted on its sovereign debt, not because we couldn't afford to pay the debt, but because Congress was refusing to raise the debt ceiling, which is particularly hilarious because the reason we were reaching the debt ceiling is because of budgets that Congress had passed. There seems to be a little bit of confusion about this, but: 1. In the United States, Congress sets the tax rates, and 2. In the United States, Congress sets the budget. And so if the budget and the tax rates lead to a deficit, that is Congress' fault. Literally. Presidents may, like, drop by Congress to try to argue for whatever they believe in, but Presidents do not set tax rates and they do not decide the budget. So eventually Congress passed the Budget Control Act, in which they raised the debt ceiling in order to to pay for the budget that they themselves had created. And in this Budget Control Act, Congress created a so-called "supercommittee" that would address the nation's long-term fiscal problems with a grand bargain that would keep our debt from spiraling out of control and Greeceing. And in order to force to supercommittee to do its job, Congress enacted another ticking time-bomb, because we don't have enough of those, that was originally proposed by President Obama, called sequestration. If they didn't come to an agreement, there would be automatic cuts of $1.2 trillion over 10 years, half cuts to defense, and half cuts to other spending. But vitally, very little cuts to the mandatory spending programs that are the center of the long-term fiscal problems! Which is such an incredibly bad idea that the assumption was they would find a way to compromise, but yeah, no. It's like if a doctor told you that you had a slow-growing tumor in your fingernail, and you responded by saying, "Quick! Remove my gallbladder!" Right, so the reason that sequestration is so bananas, is not because of the cuts themselves, it's because they're indiscriminate. Every project, program, and activity of the United States federal government has to be cut by the exact same percentages, except for those mandatory spending programs, that are mostly exempt. So basically, everything the government currently does, it has to do about 8% less of. That doesn't sound that bad, but because it's every project, program, and activity, it gets super-bananas. For instance, something sort of like this happened in 1991, with a 5% sequestration, and federal employees were literally instructed to scrape 5% less bird poop off buoys in Chesapeake Bay, because that is a project, program, or activity of the federal government. So instead of making a choice about which federal programs we can afford to get rid of, we're just going to scrape 8% less poop off of all of the buoys. That is bananas! It's going to cost between half a million and two million jobs, and instead of getting rid of jobs because they're outdated or unnecessary, basically just throws a dart at a dartboard. And more importantly, sequestration doesn't just create problems; it also fails to solve problems, because it does absolutely nothing to address the long-term fiscal problem in the US. Because mandatory spending on Medicare, Medicaid, and Social Security is continue to grow at pretty much the exact same pace. So essentially, Hank, Congress saw a long-term problem, which they responded to by creating a short-term crisis, which they then failed to solve. These days, the conversation on the news channels tends to be about whose terrible idea this was, with Congressional Republicans being like, "This was President Obama's idea", and President Obama being like, "I'm sorry, do I create and pass legislation in this country?" But this whole business about only discussing who's to blame distracts from the larger issue, which is that the sequestration is a disaster. It's inefficient and bureaucratic and everything people don't like about government, and it does nothing to make our economy healthier. So, to summarize, the sequester creates an unnecessary catastrophe without addressing the larger future catastrophe; it is an embarrassment. Frankly, Hank, it is more embarrassing than our continued minting of pennies, and that's saying something. I'll see you on Friday.