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The Economic Consequences of Sequestration

The Budget Act of 2011 limits President Obama's ability to allocate the cuts among departments. However, House Republicans have offered to draft legislation giving him discretion in where he trims the $40 billion, but the president has indicated no interest in such a deal, and has indicated no inclination to cushion the effects of sequestration on the economy where he has discretion.

The agriculture department has one of the largest staffs of economists in the world. Moving administrative personnel that support food inspectors to that department and furloughing more economists would be better than shutting down the meat packaging industry several days a month and imposing food shortages.

Similar shuffling of personnel in the Department of Transportation could keep the air traffic controllers on the job, and one can only hope the Department of Homeland Security and Federal Bureau of Prisons finds more creative approaches than releasing detainees and inmates into the general population.

President Obama is betting that the pain will create such a public outcry as to force Republicans to raise taxes again.

However, Republicans have a point -- the president got $150 billion in new taxes in January -- and under current legislation Federal tax revenues will rise well above their average for the last 40 years.

Moreover, health care, social security, and federal pension spending -- which are driving the deficits ever higher-- are rising much faster than GDP. Without genuine entitlement reform, another tax increase will only buy a few years and place the whole deficit mess on the desk of the next president.

Those are hard facts -- and repeating endlessly that 51 percent of the population voted for him on a platform of raising taxes on 2% of the population doesn't change those facts.

Simply, the deficit is an economic problem, the president's divide and conquer strategy may bring House Republicans to heel but it won't do the nation much good.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.
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