"Even if you depreciate the exchange rate you can't create more fish"
This quote from a governor of the Iceland Central bank illustrates an important consideration in all of our current economic discussions. Mar Gudmundsson was talking about a lower than expected export boost to the Iceland economy from a favorable exchange rate. What he is pointing out is that all economic policy has to exist in the real world. The world is finite, there are only 24 hours in a day, there is only so much oil in existence, etc. No matter how things sound in theory they must be applied in a lumpy, inefficient, chaotic world. At least in Iceland they are willing to face reality.
Compare and contrast Iceland's approach to the debate in the US. John Boehner said on Sunday that he was "not sure" if the sequester would hurt the economy but he was "concerned " about it. I have news for the Speaker, it will hurt (have a negative impact) the economy. That is not open to question. The question the Speaker and indeed the entire government should be focused on is whether we believe this slowing of the economy is warranted as necessary to long term economic health and is there a more efficient way to cut the budget so we get maximum impact from the cuts. In the late 1970's Paul Volcker forced the US economy into recession to get rid of double digit inflation. It was painful but necessary and set the stage for years of growth and prosperity. Until the politicians are willing to publicly acknowledge simple economic concepts we will be stuck in this repetitive cycle of nonsense. Decreased government spending will slow the economy down, that is a fact, whether or not this is the right time to do this, is an opinion. Very smart people disagree on the timing, that is fine, we need to let the debate air and pick a course of action.