The Thinker

Burning through the seed corn

Debt ceiling. Fiscal cliff. Continuing resolutions. Sequestration. So many names but it’s all the same game: it’s Washington’s version of high stakes poker where no one gives an inch until the last minute and maybe not then. This time the game is the sequestration that begins March 1. The prevailing political wisdom is that no one will make a serious effort to stop it. It’s not until we close a few national parks and the lines extend for hours at TSA checkpoints that politicians may get serious and pass something, at least until the next politically designed crisis. That is due to kick in at the end of March when the latest continuing resolution expires.

The sequestration will mandate that all federal agencies including defense take a significant haircut, $1.2 trillion in cuts over ten years, half from defense, half from the rest of government. Social Security, Medicare and Medicaid are exempt. It’s the discretionary spending that is being cut and it is being cut because it is discretionary, as if it is nice to have spending, not necessary spending.

Quite the opposite is true. Most discretionary spending is really essential spending. Not spending on Social Security, Medicare and Medicaid is really nonessential spending. Of course to those who depend on these programs, they are certainly essential spending. In reality, government’s real value comes from discretionary spending. It includes all those services you take for granted but it turns out will really piss you off if canceled or even cut back. Agencies know what to do and will often find the most visible ways to influence Congress and choose to cut these first. It worked during the government shutdown in 1995. Americans get really pissy if they when they are already late for their flight have to wait in long lines to get through security, or their trip to Yellowstone gets canceled or shortened because the park is closed one day a week.

In reality, the threat of sequestration has already thrown a lot of chaos into the economy. Federal spending often sounds so abstract, but federal spending creates and sustains lots of jobs, most of them quite necessary. Defense contractors have already laid off people anticipating sequestration. Uncertainty usually adds to economic fears. That appears to be what is going on right now, and the United States risks going back into recession just because of all the pointless last minute brinkmanship in Washington.

These activities are burning through our seed corn, by which I mean we are hacking away at essential areas of government. Meat processing plants, for example, may have to close one day a week due to lack of federal inspectors. Weather forecast models may need to be turned off, resulting in forecasts with more uncertainty. Applications for new drugs will take longer to get approved, reducing market advantage and causing pointless suffering and maybe preventable deaths. This money does more than buy stuff and create jobs. It allows government to oversee and regulate. It enables an even playing field so competition can thrive. It makes our modern life possible.

The agency I work for is pondering what to do if, as required, it suddenly loses ten percent of its budget. As it is we work off continuing resolutions, so we have little certainty about how much money we will eventually get or how exactly we are supposed to spend it. Tightening the belt is all well and good, but try tightening your financial belt so that suddenly you had to live on ten percent less. If you knew that you would always have to live on ten percent less, you would probably make major financial decisions like move to cheaper housing, buy a used car, etc. But most discretionary spending is in reality fixed costs. The rent to GSA will not go down. The power company will not reduce rates. You can’t order employees to take a ten percent pay cut although with thirty days notice you can furlough them one day a week. What is typically done in these situations is that truly discretionary spending is cut: travel, training and long term investments like contributions to working capital funds and buying computer servers. This sometimes works in the short term, but it cannot be sustained in the long term and doing this is really counterproductive.

We recently got one of these politically inspired directives to cut travel by thirty percent compared to what we spent in 2010. Probably some political appointee figured that it doesn’t look good. In any case, travel is discretionary. In a pinch you can do without it, right? Watching what this is doing inside our agency, you only want to grimace. The effect is to introduce a lot of uncertainty and to cause project schedules to slip. Cutting travel in our case mostly means cutting travel for testing. This will mean that testers will test remotely. So much money is saved. Unfortunately, the real effect is that productivity drops substantially. Bring people together to test and they test collaboratively and more thoroughly and play off testing scenarios against each other. They are also not distracted by normal business because they are testing in their office. We have documented this many times, which is why we budget sufficient money for travel for testing purposes. The likely result will be inferior tests, which will result in an inferior and/or late product. Certainly many meetings can and are held on line. In fact, most of them are. We have tons of these conference calls and Webex meetings, so many that they often consume our calendars. Sometimes you really need to meet face to face to get work done on time and to an acceptable level of quality.

The effect of sequestration on the economy is already well documented: it causes negative GDP and if continued will probably trigger another recession as well as increased unemployment. Inside the government it will cause fear, chaos, uncertainty, hard feelings and most importantly slipped schedules and more inefficiency, not less.

It’s no way to run a railroad or a government. To work efficiently government must run off a plan. This is not a plan unless the plan is to create dysfunction, in which case it’s a great plan. It’s stupid and counterproductive and is degrading the ability of government to simply govern.


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