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Sanjay Sanghoee

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Fiscal Cliff Breakdown: How Spending Cuts will Literally Leave Americans by the Roadside

Posted: 12/23/2012 10:24 am

In the political circus surrounding the fiscal cliff, we are missing the forest for the trees. Most of the rhetoric deals with Democratic sacred cows like Social Security or Republican sacred cows like taxes, but what about other spending cuts - like federal grants to state and local governments, some of which is used to fund public transport - that threaten to damage our economy both immediately and into the distant future?

Spending cuts look good on paper. After all, with a deficit of $1.1 trillion, anything that would reduce our indebtedness should be a step in the right direction. Theoretically, yes, but in order for us to truly get our deficit under control, we also need robust economic growth and higher tax revenues, which will not happen if we cripple the very infrastructure that our economy is based on.

I am using the example of public transport because it is a critical factor in the success of commerce and because the effects of cutting it can be dramatic. My cousin, who is a speech therapist for both children and adults, lives in Queens but has to commute to patients in Manhattan, Brooklyn, and Long Island. She also works out of an office several miles away. Her average commute to work is one hour, which includes two buses and a train.

Over the past six months, however, the frequency of bus and train service has declined dramatically. At 7 am, a bus that is supposed to arrive every ten minutes often shows up a half hour late. By the time it does, the number of passengers waiting has grown so large that it is impossible to get on, which then necessitates another 20-30 minute wait for the next bus. When she finally reaches the train station, she encounters similar delays due to decreased train service.

Combined with her evening commute, my cousin wastes two extra hours every day due to this fiasco. To make up for it, she has to leave earlier and comes back home later, which then makes it impossible for her to go to the gym, keep up with the latest medical research necessary for her profession, or get enough sleep - not to mention that excessive commuting times between the different boroughs of New York prevents her from being able to help more patients with speech impediments.

Another way of describing this is that my cousin loses several hours of valuable productivity every week, as a result of which fewer people receive the benefit of her specialized care, and also pays a heavy price personally in terms of her spare time and health.

Now multiply this by millions of people across the nation and you get the catastrophic result of large-scale productivity loss, income loss, professional stagnation, sleep deprivation, stress, fatigue, and many other negative consequences. You do not need to be a scholar to see how this can damage our economy.

But this is what public spending cuts do. They gut the lifelines of our nation, and of commercial activity. They can also impose direct monetary costs on society, such as higher healthcare costs due to the physical toll that long commutes take on workers, and lost income from non-production.

This should illustrate the problem with the Republican stance on the fiscal cliff pretty clearly.

By pushing for large spending cuts while resisting higher taxes, they are ensuring that my cousin's predicament will worsen, and in the process, hurting the economy rather than helping it. The automatic spending cuts in the fiscal cliff, known as sequestration, could lead to an almost 8% reduction in federal grants to state and local governments (which would impact public services). The GOP's rationale is that by cutting spending they can lower taxes, which would lead to more job creation, but even if that were true, job creation without leaving people the means to actually get to their job would be useless.

The above scenario might seem simplistic but that is the whole point. It is that simple. For one thing, spending cuts are not part of some fantasy game played with electronic money but have very real consequences for real people, and secondly, economic growth does not happen in a vacuum or simply on the foundation of private enterprise. It depends heavily upon public infrastructure.

To come back to my example, we cannot have worker mobility and productivity without efficient public transport and we cannot have efficient public transport without government spending. That is simple economics as well as logic, and the Republicans should really stop acting naive about that.

SANJAY SANGHOEE has worked at leading investment banks Lazard Freres and Dresdner Kleinwort Wasserstein as well as at a multi-billion dollar hedge fund. He has an MBA from Columbia Business School and is the author of two financial thrillers, including "Merger" which Chicago Tribune called "Timely, Gripping, and Original". Please visit his Facebook page for more information.

 

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