The automatic spending cuts that have been enacted at the federal level – the “sequester” – have generated concern and outrage in some quarters. Breathless press releases from the White House and trade association groups that may receive slightly less federal money than they did last year have permeated the media reporting.
It’s important to put these reductions into perspective. The reductions amount to no more than 2.5 percent of the federal budget. Arizona will still receive around 99 percent of what it received last year for programs like health, education, and welfare. Hardly an existential threat.
One sector of Arizona’s economy may be hit a little harder than most: our aerospace and defense-related industries largely reliant on Pentagon contracts, some of which may be cut back. These industries make up 6 percent of Arizona’s economy and, at the high end, estimates show the defense cuts could translate to $2.3 billion economic loss to the state.
This sounds scary; but we will survive. Between 2007 and 2010, Arizona lost $11 billion in state gross domestic product. That’s almost five times bigger than this potential loss. And the economy has already recuperated about 80 percent of that loss over the last two years.
While you hate to see anyone lose a job in today’s tough economy, you probably shouldn’t assume the defense job losses will be permanent. Defense and other federal spending will still climb in future years and many of those jobs will likely be restored, perhaps even regardless of whether the spending that finances them is needed or not.
Our real problem is an economy that is more concentrated in a few specific industries, often dominated by a small number of large companies, than is probably prudent. To protect themselves in the future, states with economies like this should eliminate the subsidies and favoritism that permeates tax and budget policy so a more vibrant and diversified economy can bloom.
Cato Institute – The Sequestration Cuts in Perspective
Phoenix Business Journal – Sequestration consternation: Some think it’s all blown out of proportion
Greater Phoenix Economic Council – Press release announcing GPEC’s pre-sequestration analysis of Arizona’s defense industry