News Column

Business and the Spending Cuts: A Love-hate Relationship

February 28, 2013

John Luciew

handcuffs and cash

Business typically regards the federal government with a skeptical eye. It's been said time and again, that many businesses simply wish government would "get out of the way," and then maybe economic growth would occur.

But the federal government is also a huge customer and employer. And with $85 billion in federal spending cuts set to begin taking effect tomorrow, the federal government is poised to pull back on both its purchasing power and reign in its payroll, mainly through mandated employee furloughs.

Many businesses across America -- and right here in Central Pennsylvania -- stand to suffer economic pain as a result.

Some businesses could lose sales directly, through government contracts that are either never awarded, canceled or delayed. Other businesses stand to lose sales indirectly, as government employees cut back their own spending due to furloughs or job insecurity.

And all businesses could see the country's economic mojo wane if the so-called sequester leads to a lack of confidence in the wider economy. After all, the Obama Administration has frighteningly forecast everything from 750,000 jobs lost, long airport delays, meat shortages at grocery stores to possible federal park shutdowns at the height of vacation season -- all as the federal spending cuts take hold in coming weeks and months.

On the other hand, however, some businesses will continue see the cuts in federal spending as a greater good -- and a positive for the future business climate.

Specifically, cutting spending could put the country on firmer financial footing and might reduce the need for future tax increases. In short, the sequester could bring back some of that certainly that businesses are always longing for.

Consider this analysis from the Wells Fargo Economics Group saying that some near-term pain from the cuts could lead to long-term gain, along with positive economic growth:

"The budget cuts will have some slight negative consequences on economic growth in the near term, but likely will support higher levels of growth longer term. Should the sequestration be reversed or canceled, the result would support short-run economic growth at the cost of reducing the long-run rate of growth of the U.S. economy."

In other words, some business seems to be learning to love the sequester and its across-the-board-cuts as a serious attempt to finally reign in federal spending.

Politico also notes business's blase attitude toward Washington's latest manufactured fiscal crisis. Instead of sounding the alarm, as was the case with past crises like the debt ceiling and the fiscal cliff, the stock market has been climbing higher, even as the sequester cuts draw closer.

And in this morning's story headlined "Big business on sequester: Zzzz," Politico chalks some of this up to "crisis fatigue." Simply put, the fiscal sky has been falling one too many times in our nation's capital.

"We are tired. We just go from one crisis deadline to the next," Richard Hunt, president of the Consumer Bankers Association, told Politico. "And it seems like the White House is more focused on the consumer approach this time around."

And many businesses accustomed to their own budgeting simply do not see an overall federal spending cut of less than three cents on the dollar, when compared to the total budget, as a huge deal.

"Nobody in America thinks you can't take a couple percentage points out of the federal budget," John Engler, former governor of Michigan and president of the Business Roundtable, told Politico. "That's why [the White House] isn't getting much traction. If you get five miles outside the Beltway, it's hard to find somebody that cares very deeply about this."

All of this begs the question: How do Central Pennsylvania businesses view the $85 billion in mandated federal spending cuts known as the sequester?

Will the cuts sap government contracts and curtail the spending of furloughed federal employees at area businesses? Or is all the economic crisis talk coming out of Washington, D.C., much ado about nothing when viewed from the vantage point of midstate businesses?

We will be answering these questions and more all day long on PennLive, with a series of posts detailing the viewpoints of Central Pennsylvania business leaders.

You are invited to chime in, as well. Comment below, or send an e-mail to jluciew@pennlive.com detailing how you view the sequester, describing how it will affect you and why.

Is it really the latest federal fiscal crisis, or simply the first step toward putting the country back on firmer financial footing?

Your views could appear in future PennLive posts. So keep checking back here for the latest news on the federal spending cuts, which begin taking effect tomorrow.



Source: (c)2013 The Patriot-News (Harrisburg, Pa.) Distributed by MCT Information Services


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