On The Sequester and Moving Cheese


Flanked by a row of police and firefighters who supposedly would be laid off, the President sent out a dire warning at a press conference this week about the effects of the sequester set to hit March 1st unless a new deal is crafted.  This is odd given that police and firefighters have long been paid for by local governments and not the Federal Government, so only a few years ago they would have been unaffected.  As the Federal Government has taken on more and more, however, including providing grants to local communities that were used to hire firefighters and police and finance classrooms despite the money only being provided for one or two years, suddenly this local responsibility has become national.

This press conference actually showed the real issue and it is not the sequester.  The issue is that the Federal Government has taken on so many responsibilities beyond its original charter that it cannot sustain it all.  Like a family that is convinced they can out-earn their spending and that the issue is that they need a higher credit limit rather than a change the behavior, many in Congress and the White House believe that they can continue to spend at these levels if they can simply raise the debt ceiling and raise taxes.  As a family always learns, however, there is no income or credit limit that can keep ahead of out-of-control spending.  The longer the issue persists the harder is the fall at the end.

Even if Congress decides to not cut spending now as dictated by the sequester, or decides to raise taxes to try to cover the deficit, the situation will still not be sustainable.  The debt will continue to increase until the interest payments alone start to take more and more of the operating budget of the Government.  With Medicare and Social Security expenditures growing, not to mention the insanely expensive new healthcare program, it is unlikely that more than a few years will pass before the debt will become unbearable and hard choices will need to be made.

Unfortunately this will result in a lot of layoffs from the Federal Government.  Federal Employees will be furloughed as departments are closed.  Contractors will be laid off as contracts are cancelled.  Whole towns that depend on military bases will see their local economy devastated.  There will be lots of worthwhile things that should continue to be done but there will simply not be the money available from the Government to do them.  While these effects will cause a lot of pain, it is inevitable.  Just because one wants to keep the ocean out, it will eventually make its way through any wall of sand we can build around our sand castles.  The situation just cannot sustain itself.

Some individuals who have had steady employment for years will see their whole livelihood eliminated.  Others who have jobs created within the last few years in the Federal Government (and there are a lot of them) will see their jobs cut.  There are thousand of people in all branches of the Government, including in a swelling Transportation Security Administration, in jobs that did not exist just a decade ago.  There has never been money to pay for all of these positions.  Likewise, there has never been money to pay for all of the unemployment benefits, housing allowances, and healthcare benefits that are currently being paid or are due to be paid in a few years.

Certainly no one likes change.  We are happy in our jobs, or at least comfortable.  We have our routines, we know who to call, we know what to do.  We have our cubicle or our office.  We know where to eat and maybe we take a walk each day for a break.  We like our home, our neighborhoods, and our family routines.  We like what we have and don’t want to do anything different.

As Spencer Johnson explains in his book, Who Moved My Cheese, however, we can not always stay where we are.  The buggywhip makers were no doubt happy with what they were doing but the world moved to cars and there was no one left to buy their whips.  They could say that their parents and their parent’s parents all made whips and they should therefore be able to continue making whips, but it didn’t matter.  They could tell about the devastation they would see as the factories closed and people lost their homes, but it would not change things.  Their way of life was no longer sustainable and they had to change or perish.

In Who Moved My Cheese, two mice and two small humans wake one day to find that their cheese – cheese that they had built their whole lives around – was gone.  Some of them stayed and bemoaned the loss of the cheese, praying it would somehow return.  Others set off into the maze and looked for new cheese.   Those that did found that life was better elsewhere – that there was other cheese to be had.  It took an effort to change, especially since they had not needed to look for cheese in so long, but once they started to look they discovered that it was not that bad.

The end of many Government positions is coming, either because of cuts made by Congress and the President or because the Government can no longer find the money or the credit to sustain it.  Either way, the sooner those who will be affected start out to find the next job or the next career, the better off they will be.  While it is hard to picture things differently once you are used to getting a steady paycheck from any employer, there is always something else to do for those who look.  Most of the Government jobs available today did not exist even twenty years ago, and yet people survived.  Many of the things Government now does were done by individuals, communities, and businesses.  They can be done that way again.  While there is still a little cheese left, start going out there into the maze.

Has anyone ever lost a job you were comfortable in and then found a better job or started a new business?  Would you be willing to change cities for a better job?

 

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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