It has been almost one month since the infamous sequester started on March 1 and, apparently, nothing has happened. If anything, it can be argued that the fiscal adjustment will be beneficial for the US economy — the CPI rose by 0.9 percent in February, albeit three quarters of the increase came from energy. And Joshua Green, from Bloomberg Business Week has estimated that the sequester is to the federal budget just the equivalent of a $207.08 cut in the monthly budget of an average American family. Consumers are buying, firms are confident and the labor market is slowly improving. So far, the only visible feet of the sequester has been the end of the guided tours of the White House due to lack of funding. It sounds like a joke, and was widely treated as such during the annual meeting of the American Conservative Political Action Committee.
However, the effects of the sequester are just about to start. The Bureau of Indian Affairs is offering $25,000 compensation packages to the workers who want voluntarily quit (very few have accepted the offer, and the ones who have are about to retire). Every Government agency is reviewing its contracts with private firms and individuals and, when possible, not renewing them. This means that all the workers and firms from the private sector who are not part of the government are in very serious risk of seeing their contracts. And this is no a small amount of people. Let’s not forget that in the United State there are one million people from the private sector with some security clearance, which means they have access to information or places that the Government has deemed as “classified.”
Most of them work for the Pentagon, which is going to absorb half of the cuts. That means that the military will have to cut its budget, on average, 3.5 billion dollars every month. In two weeks, most of the 780,000 civilian workers at the Department of Defense will start receiving notifications to inform them that they furloughed once a week starting in May. In the meantime, 149 regional airports have been closed throughout the country. This is a particularly sensitive issue, because airports in dual areas are literally petty projects of the legislators for their districts.
But the key aspect of the sequester will be noticed in some other form–34 percent of the States’ budget comes from the Federal Government. Now, those transfers are going to be cut because of the sequester.
In the end, the whole situation is ironic. Rural, poor, and broadly speaking Conservative districts are the most dependent of investment in military bases, and rely more in Government handouts, from agricultural subsidies to air travel. Paradoxically, the self-proclaimed free marketers are in reality the free riders. Now, they are the ones who are going to feel the pinch.