More on President Obama’s Flip Flop Over the Sequester

by Robert Maynard

Yesterday True North Reports posted an article on President Obama’s previous about face over the supposed disaster that would befall us if the sequester was to take effect.  The speculation being that Washington Post Reporter Bob Woodward’s pulling back the curtain over Obama being the one who actually came up with the idea, and that it really did not cut any spending, being major reasons for Obama changing his tune.  Another reason given was that he did not expect the Republicans to stand fast and allow the sequester to take place if he did not get more serious in cutting spending.

The amazing thing about his sudden course change is how it flies in the face of his earlier expressed intention of “breaking the GOP fever,” which is how he views the insistence on cutting spending.  Here is TownHall.com’s Byron York raising the question of just whose fever was broken:

After Obama won re-election, there was extensive discussion among his supporters about whether the Republican “fever” would, in fact, break. Would the fiscal cliff negotiations, which resulted in the GOP accepting a tax increase on the nation’s highest earners, do the trick? If not, would coming fights over the debt ceiling and sequestration finally cure the Republican illness?

There was little speculation about whether something very different might happen: Would determined GOP opposition break Obama’s fever? That is, could Republicans weaken the president’s resolve to defeat the GOP and further raise taxes? That appears to be what has happened, at least for the moment. Republican determination to go through with sequestration, which Obama warned would have disastrous consequences nationwide, seems to have forced the president to change course.

Of course, pubic opinion may have played a role as well: ‘Some in the GOP saw public opinion at work. “The three-day Gallup tracking numbers certainly aren’t good for him,” said one House aide, pointing to surveys placing Obama’s job approval rating at 47 percent approve versus 45 percent disapprove — down from a post-election approval rating that topped out at 56 percent.’  The problem is that some see his change as a temporary one of political expediency and realize that they still need to remain vigilant.

Having the proponents of greater spending cults hold fast is important for out economy.  Now that the sequester is actually in effect, it might be a good idea to examine its actual impact.  Some think that a signal being sent of more seriousness about spending cuts that allowing the sequester to go forward represents, is actually good for te economy.  Economist Larry Kudlow is one of those who think so:

President Obama may be backing away from his doomsday spending-cut predictions as the sequester goes into place. But the new party line is that while there will be no impact in the first few days, there’ll be a slow, downward slump after that.

What, are we to believe that lower spending and smaller government damage the economy? Doesn’t that run counter to virtually every reasonably objective study in recent years — including ones from a number of U.S. academics and the Organization for Economic Cooperation and Development in Europe — that describe how countries with lower government spending grow more, and how countries with higher government spending grow less?

However you calculate the sequester spending cuts, and however uneven they may be, the reality is that the sequester at least moves the ball in the right direction. I maintain that by reducing the government spending share of gross domestic product, the sequester is pro-growth.

Although Kudlow is not the first economist to make this case, his timing is impeccable.  The Dow Jones industrial average closed today (Tuesday) at a record high:

The Dow Jones industrial average soared to a record closing high on Tuesday, breaking through levels last seen in 2007 and as investors rushed in to join the party in anticipation of more gains.

Signs of a strengthening economy, continued support from the Federal Reserve, and fairly attractive valuations compared to other assets have boosted the Dow by almost 9 percent so far this year. A strong reading in the services sector, which accounts for the bulk of economic activity, was the latest indicator of improving demand.

It does not look like the market is all that worried about the sequester taking effect.