In bid to reduce escalating national debt, the White House proposed a budget control plan to apply automatic cuts on its budget. This proposal to cut national expenses, which came to be known as sequestration intended to cut the budgetary allocation on key government agencies. The escalating national debt of $15.882 trillion and the $15.003 trillion GDP at the end of June 2011 sparked discussions in the Congress thereby necessitating the Congressional Budget Office (CBO) to come up with policies that could take the nation back to a sustainable fiscal discourse (Ehley par. 2). Political leaders from the two divide had to convince their supporters to either support or oppose the policy.
With the national debt increasing by $500 million every year since 2003, the federal government proposed that the move to cut expenses in government offices like in the Social Security, Medicare, Military Pensions, Education and Tourism sectors was the best option to address the impeding financial crisis. The Act had to institute legislation that was to cut the debt-ceiling crisis by $1.2 trillion in the next decade.
On the basis of demand and supply, the demand for more funds by the government amidst low supply of funds made the government to borrow from external financial bodies like the International Monetary Fund (IMF). With increasing demand, the situation plunged the government into a great debt crisis that it had to take necessary actions to salvage the economy. Government spending on key agencies had to take a slightly less budget to restore the equilibrium. The Republican side of the House, however, held that the move by the Obama administration was ill-advised since the economy had not stabilized at the time. Even though the sequestration had a long-term goal of having a sustainable economy, the opponents viewed the act as coming too early; therefore, it should have waited for the economy to improve (4).
At the time, the US economy could not support the huge wage bill resulting in job losses and furloughing in order to put the economy back to the recovery path. Based on the dynamic stochastic general equilibrium (DSGE) models, a forecast into the future showed that without the sequestration, most households in the US would not be in a position to meet their basic needs since they will use large percentage of their earnings to pay the expenses (Mankiw 36). The Obama administration also had to convince the public to accept the move even though it had dire consequences. For instance, non-partisan CBO held that the sequestration would lead to loss of close to 770,000 jobs by the end of 2013 fiscal year due to the $85 billion cuts on the federal budget.
Evidently, job losses will pressurize the unemployment rate on the upward trend since the entire process will lower the growth of payrolls thereby undercutting earnings. Clearly, for the sake of the economy, politicians have to involve dishonesty in their daily operations in order to remain relevant. Notably, the federal government did not mention the negative aspects of the sequestration process, while the Republican side of the government concentrated on the negative aspects of the policy.
The mismatch between the demand and supply of funds in the US economy made the sequestration policy to come into place to avert the already looming economic recession like the latest financial crisis of 2009 (Ehley par. 7). Even though the policy attracted oppositions and dishonest arguments from politicians and other economists, the move was vital in stabilizing the US economy.
Works Cited
Ehley, Brianna. Sequestration Effects on Government. Business Insider. N.p. 2013. Web.
Mankiw, N. Gregory. Macroeconomics. 7th ed. New York: Worth Publishers, 2007. Print.