A Must-Read For Anyone Who Thinks Sequestration Doesn't Matter

Wind River Indian Reservation Wyoming

Remember sequestration?

Some warned that the automatic budget cuts — which were required by 2011’s debt ceiling deal — would send the economy back into recession.

For whatever reason, those dire predictions haven’t panned out. Whether it’s easy monetary policy, or rising home prices, or something else, the economy seems to have gathered steam in recent months, at least as measured by the pace of job creation.

But, of course, the cuts still exist, and are painful towards the folks where those cuts land.

Annie Lowrey at the NYT has a great story on how cuts fell hard on Indian reservations, which weren’t exempt from the cuts (unlike othe national benefit programs).

On the Pine Ridge reservation, home to around 40,000 members of the tribe, the unemployment rate is estimated at as much as 85 per cent. Shannon County, home to the town of Pine Ridge, has a per-capita income of less than $8,000. The local economy is not just reliant on transfers from the federal government; it in no small part consists of them.

Over all, the tribe’s budget is about $80 million a year, of which $70 million comes from federal sources, said Mason Big Crow, the tribe’s treasurer. The tribe still did not know how much money it would lose, waiting on word from Washington, he said, but the number would be in the millions.

The tribe is cutting the size of a program that delivers meals to the elderly, many of whom are housebound. The school budget, Head Start program and health service are shrinking, too. The tribe has no choice but to cut everywhere, Mr. Big Crow said.

Despite the reservation’s extraordinary problems with crime — alcohol and methamphetamine abuse are rampant, many of the tribe’s youth are involved in gangs — its police force is absorbing more than a million dollars in cuts.

“We’re cut to the bone,” Ron Duke, the police chief, said. “Right now, we’re being reactive to things. It’s really hard to be proactive when you don’t have enough staff. We’re just constantly answering calls.”

There’s been a pretty huge debate this year between people who think that fiscal stimulus is what’s needed to keep the economy strong, and people who think it’s all about monetary policy. Both sides generally agree, however, that aggregated demand has been too low, and that it needs boosting. One side wants to transfer money into people’s pockets directly through government spending. One side wants to reduce the cost of money to the point where credit starts flowing again. (This puts both camps on the opposite side of the liquidationist group, which argues that everything just needs to collapse, and prices need to clear, so that the economy can start growing “sustainably” again”).

But within the aggregate, some pockets will be winners and some will be losers. If you’re invested in real estate in Nevada, you’ve been a big winner this year. Obviously if you live on an Indian reservation, then the answer is the opposite.

For no good purpose (since there is no debt crisis, and since the sequester wouldn’t do a lick about it if there were a debt crisis) some pockets of the economy will see more suffering, even if on the whole, loose monetary stimulus is able to counteract that.

Overall it’s great that things appear to be healing, but cuts that land arbitrarily on some groups, coupled with a recovery that’s (once again) in large part about housing, may not be the best possible way to go about this.

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