To paraphrase Cat Stevens, it’s a wild world out there. Case in point, Europe’s fist fights over bailouts and austerity are virtually never ending, North Korea wants to wipe the United States off the map with poor production values, and apparently the sequester is determined to gut our nation’s slow-but-steady economic recovery. Or so you would think with the way some in the media talk about the current state of the world.
With some closer examination there is sufficient evidence to suggest that the gravity of each situation isn’t quite what the wolf criers would make them out to be. Granted, in the case of issues like the sequester if there’s a case to be made for the media making mountains out of molehills,Washington needs any and every deterrent from making self-destructive legislation. The best way to accomplish that is to document such stupidity with as much of a discriminating lens as possible.
The consequence of sweeping and arbitrary government actions like sequesters and bailouts rely much of the time on fortune tellers known as economists. Like a good weatherman, these soothsayers should always err on the side of exaggeration in trying to predict consequences because it’s always better to be safe than sorry. After all, would you rather leave the house bundled up for a snow storm when the sky decided to rain instead or would you rather be left wishing you bought disaster insurance when your garage roof caved in from the snow fall? Thought so.
In other instances, it’s just a case of watching a petulant dictator let off some steam. Without further ado, here are three stories you don’t have to worry about… too much.
1 . Rumors that the sequester would ruin the economic recovery were a little exaggerated.
Since the Budget Control Act of 2011, otherwise known as the dreaded “sequester,” took effect earlier this month, the warning call throughout Washington and the media told us the bill was a job-killing zombie that threatens our fragile economic stability. Sure, it wouldn’t be the first time politicians used fear to encourage a response from their electorate. However the longer America lives with these arbitrary defense and domestic spending cuts, the more everyone seems okay with the aftermath.
Now to be fair, many of these cuts affect a lot of people in ways that ought to be remedied. For instance, the fact that the sequester targeted benefits for military families should outrage anyone of just about any political stripe. Yet, the insistence that our economic recovery would be significantly withheld by these cuts has proven over time not to be the case.
For one thing, many economists were predicting a fairly positive if not merely stable period of economic growth over the next four years anyway. As Matthew Yglesias of Slate noted in his piece that ran just before election day last year, everyone from firms like Moody Analytics to the Congressional Budget Office were anticipating a period of growth between 9 million to 12 million new jobs, largely regardless of who would take office the next day.
While everyone agrees that the sequester couldn’t be called a job creator, just how many jobs the sequester would kill is a number that seems to be gradually reducing everyday. Back in October, the Congressional Research Service published a report anticipating roughly 2.1 million jobs would be lost if the sequester took place, and that was only keeping defense cuts in mind. According to a more liberal estimate by a more conservative source, economist Stephen F. Fuller of George Mason University claimed in July 2012 that the cumulative loss of jobs for the whole sequester would fall around 2.14 million.
Having some assurance of how many jobs everyone thought the sequester would squander, the net estimate of job growth over the next four years would remain consistent with our current rate of growth. If Moody Analytics and the CBO are to be trusted the damage only bring us to 7 to 10 million new jobs being created over the next four years. So no need to start crying wolf here, right?
Which is why everyone should be breathing an even deeper sigh of relief at the fact that even these estimates over the potential job losses due to the sequester have only recently been found to be a bit too high off the mark. Specifically in regards to the CBO’s estimates regarding federal employees (as opposed to the number of jobs that are estimated to depend on defense contracts, which is much more difficult to know for sure), some economists found that the projected 750,000 jobs lost by the end of the year is actually more likely in the area of 300,000 jobs.
A difference of almost half a million jobs may not seem like much compared to the cumulative estimated 2.1 million jobs to be lost in the long term, but as such, this number reflects changes that will happen over time — and the great thing about time is, well, it changes.
For instance, Washington’s capacity for calamity is certainly unmatched but looking on the bright side (and what else is “Optimism Week” for, anyway?), for every self-inflicted catastrophe they’ve devised, Congress and the president have consistently found solutions, albeit in procrastinatory fashion and usually well after their due dates. Such was the case with both the debt crisis in 2011 and the fiscal cliff debates of earlier this year.
Is it too naive to think the upcoming budget will be able to compensate for the bulk of these remaining anticipated job losses by the end of the year? Well, despite any pessimism from onlookers, they’ve managed to steer clear of extremely under-reported close calls with an entire government shutdown. With a president in his final term, new budgets from the Senate and House in reasonable proximity, even more difficult issues like immigration reform finally making headway, and no major elections in November, it shouldn’t be that hard for Washington to fix the major ills of the sequester along the way.
Cyprus President Nicos Anastasiades. Photo courtesy of the European People’s Party.
2. The Cyprus bailout proves the EU’s crises are becoming smaller, even pretty predictable, and the solutions more reliable.
Any economist will look at that heading and think, “That’s easy to say after the fact!” Since EU finance ministers only just came to an agreement on the Cyprus bailout on Monday, they wouldn’t be wrong and yes, general concern (or borderline panic) was justified in the weeks preceding the deal. Even still, the major details of the Cyprus crisis sound like a familiar tune from an old radio station.
The tune goes like this: First, a major EU partner finds their financial institutions just can’t seem to weather the global crisis. Then the EU decides which better-fairing partner should be sullied with the task of saving them. This better-fairing partner demands the desperate state adopt austerity measures. Liberals cry foul, conservatives cry boot straps, people riot, and in a few months the original deal is made reasonably more generous. A year ago, the destitute benefactor was Greece, the benevolent savior was Germany, and the unrest, while ugly, eventually subsided. Today, the European financial madlib fill-ins are Cyprus, Russia, and I give these riots six months before they go the way of Occupy.
Certainly there are differences worth deliberating on between what happened in Cyprus and other cases of bailout-first-austerity-later. But if we can agree that one of the major problems with the world economy is providing an atmosphere of certainty for global investors, then it’s probably safe to draw two conclusions post-Cyprus.
First, if anything like this ever happens again, it’s unlikely to happen to a more prominent EU state (since there are thankfully no outstanding reports of storms on the horizon) and they don’t come much smaller than Cyprus. Secondly, even if another smaller EU partner does find itself in trouble, the union now has a significant track record of avoiding indefinite chaos. At the end of the day, investors know the smoke will eventually clear.
While such bailouts are and should remain controversial ideologically, their pragmatic appeal couldn’t be more straight forward. It’s safe to say that in the four years since it began, no major western nation has been able to survive the global financial crisis without substantial government assistance.
A few other, smaller, and more isolated examples, like Ireland and Iceland, seem to contrast each other. Some in the media (including me) see the case study of Ireland as an example that the longer you wait to bailout your banks, the worse your recovery will be. Others see Iceland as an economic petri dish that implies if everyone had just arrested their Too-Big-To-Fail executives in the first place (and bailed out the middle class instead), there’d be no crisis by now.
There’s food for thought on both sides but it might be best to let history run its course for the time being before drawing long lasting conclusions. Moving on to other parts of the world…
North Korean dictator Kim Jong Un. Photo by petersnoopy.
3. Sure, North Korea is an undeniable threat… to global sanity.
Fifteen years ago, a nuclear-capable North Korean state would be considered an unacceptable blunder of American foreign policy. Of course, this was before 9/11, before the invasions of Afghanistan and Iraq, before drones, and – to put it succinctly — before the United States had bigger fish to fry. Even more importantly, this mentality was prevalent before China’s patience with their fellow autocratic communist allies began to wane, as it has demonstrably since.
Which is precisely why Kim Jong-un’s threats of attacking the United States are news to Sean Hannity (if that) and no one else. The only attack they seem to be capable of is that of standards of video production value, and maybe musical taste. But first a few concessions. Yes, a nuclear and bombastic (no pun intended) North Korea can’t possibly be ignored by South Korea, not to mention the thousands of American troops on their side of the DMZ. Yes, the United States is constructing missile defenses on the west coast to counter Kim Jong-un’s boisterousness, but you don’t need to be a defense analyst to deem those efforts largely cosmetic.
After that, it’s hard to imagine North Korea actually having the nerve to truly offset stability in the region to any significant degree. With China sympathizing with sanction efforts along with a broad consensus at the UN, Kim Jong-un’s hands are tied.
Coincidentally, the real predicament of North Korea — namely, their regime’s need for attention — bares a resemblance to both the sequester and the Cyprus bailout in that we’ve been here before and not just on one other occasion. Similarly, we have time-tested solutions to rely on for each scenario that only make further deliberation on their possible consequences somewhat futile.
I’m not arguing that these incidents should go unreported. If Kim Jong-un releases another awful video, Vladimir Putin starts complaining about adjusting Russia’s loan to Cyprus, or the Tea Party decides it’s in the mood for taking more hostages then the media should certainly talking about it.
But hey, why let it ruin your day? In a year, we’re going to be laughing about it all, asking why we ever tore our hair out so much over what turned out to be petty inconveniences. Instead, concentrate on the real stories, like the military families who might have to make due with less since the sequester gutted the TRICARE program, or the unfortunate Cypriots who will have to persevere, come austerity or high water.
And let’s not forget the poor North Korean production assistants who have to make these miserable propaganda videos.
Watch at your own risk: