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Government vs. Private Sector’s Reponse To Sequester



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As you know, the Obama administration has spent the past few days describing the doomsday scenarios that would occur if sequestration cuts are allowed to go through. You can google the three words “sequestration will devastate” to get an idea. The country’s economy, Virginia’s economy, cancer research, Head Start, baby seals at zoos, diplomatic-security missions, teachers’ jobs, the ability to preserve the Constitution, home weatherization, and so much more — all devastated. Better yet, you can watch this video

Fact-checkers (if they are interested) should be able to keep busy for months checking out the claims that were made about sequestration against what will actually happen. The Washington Post’s Glenn Kessler, for instance, gave two Pinocchios to the administration’s claim that the sequester would “take food out of the mouths of seniors.”

This hype has to be considered against the fact that cutting discretionary outlays by $35 billion, as CBO projects the sequester will do, in 2013 will roughly get us back to the discretionary spending of FY 2009. That’s the year which saw the president’s stimulus on top of a large increase in discretionary spending from the previous year. And yet I don’t remember the administration making all these threats back then. As George Will puts it:

The sequester has forced liberals to clarify their conviction that whatever the government’s size is at any moment, it is the bare minimum necessary to forestall intolerable suffering. 

Now, some people will be affected by the spending cuts that do occur. But we have known that the cuts were coming for months, and yet the warnings issued by the White House and the interest groups that may be affected by sequestration suggest that they haven’t adjusted or planned for the reduction in spending at all. This is why it is interesting to contrast the government’s response to these planned cuts to the private sector’s response. Over at AEI Jim Pethokoukis gives us an example of that dynamic. He writes:

David Blom is the CEO of OhioHealth, a Columbus, Ohio, based not-for-profit health care system that includes 18 hospitals. Because the 2% sequestration cuts to Medicare providers, OhioHealth will lose $12 million in revenue this year from Uncle Sam. In an interview with Kaiser Health News, Blom tells how he’s planning to deal with the cuts:

“Inside the organization, we’ve not really made a big deal of this because we actually budgeted for it. Last year when we did our budget, one of the assumptions was for sequestration to occur. … We’re very cost-efficient as an organization. It was just one other element as we were preparing for this fiscal year.  … We do a five-year financial forecast every year, and we take very conservative assumptions on that forecast.  So we’ve been thinking about Medicare cuts, Medicaid cuts, employers being a lot more cognizant of their own health care spending as we do our own planning. … Can we live with it? Yes. I think we’re able to live with it because we’ve anticipated it for some time.”

That’s right, the private-sector adapts and overcomes, the public sector tries to kvetch away fiscal reality. Blom goes on the outline all the ways OhioHealth has become more efficient in recent years. What he did not do is claim sequestration will be a disaster causing bodies to pile up in the hallways or some other nightmarish prediction.

Last week, I mentioned another example, detailing how Boeing anticipated the inevitable reductions in defense spending (because of the drawdown from two wars, in addition to sequestration) and has already shifted some 8,000 jobs from the defense side of its business to its commercial side. I suspect we will see more of this contrast between the public and the private sectors’ responses to reductions in government spending (real or imaginary) as the year goes by. 



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