The Sequester

This won't be a long post because I'm still not feeling 100%. But I thought I'd share some quick thoughts on the sequester:

1) it is not the most elegant way to make cuts and does feel a bit like taking a sledgehammer to government instead of a knife

2) but cut we must and i'd rather see any cuts than no cuts

3) the defense budget in this country is way too large and full of pork. it is about time we started to cut defense spending. let's hope the pentagon does it intelligently. i think they will.

4) the cuts don't touch entitlements which are our biggest problem. until we tackle them, we won't get anywhere near a balanced budget.

5) i really like the GOP's standing tough here. it earns them a lot of points with me.

6) Obama is acting like chicken little running around the country claiming the sky is falling. he doesn't need to earn points with me or anyone anymore. he's done running for office. it is time to start leading instead of stirring up fear.

In summary, I very much like that we are raising revenues and cutting spending. We have to. Sure it will impact the economy. It's going to at some point. Might as well start taking our medicine now.


Comments (Archived):

  1. Tom Labus

    But why to we have to be in this fiscal position? It’s bloody insane.I always come back to the Grand Bargain. It should have been accepted by the GPP

    1. fredwilson

      I can’t focus on why. I just want to see the mess fixed. I don’t like looking in the rear view mirror

    2. Elia Freedman

      Too late for that now.

  2. pointsnfigures

    I agree with you more than you agree with yourself (channeling JLM). One thing I would do-I’d give them the flexibility to cut whatever they wanted rather than mandatory across the board cuts. Except I’d have a drop dead date where the cuts became mandatory. I don’t think it goes far enough. $85M is not even close.I do like the fact that Boehner is making the entire house fly commercial. The only question I have is why aren’t they flying commercial already? Might make them empathetic to the “process” of flying!

  3. Morten Josefsen

    I think you got this one wrong Fred. To quote from Krugman’s blog”Trying to slash the deficit while the economy is still up against the zero lower bound is a really bad idea, because it will depress the economy further and hurt both growth and revenue.”http://krugman.blogs.nytime…This was ekkoed by Bernanke in his testimony.Cutting now 1) do not help much, and 2) needlessly hurts millions of Americans.

    1. fredwilson

      Is it possible that Krugman got it wrong? Has he been right about anything lately? He said we needed more stimulus and more deficits to get the economy moving and it turns out we did not. He and Obama make a nice pair of chicken littles. In am sick of both of them.

      1. kidmercury


        1. fredwilson

          I am thinking a little beefing will get me feeling better. Its worth a try. Did you by chance catch the show Steph Curry put on last night at MSG? Oh my.

          1. Pat Clark

            He’s been great 2 games in a row (38pts, 54 pts) but 2 losses as well. Last night was a treat for any hoops fan.

          2. JLM

            .Not to be contentious so early but a player is not “great” if his team loses.The box score is only the dissection of the final score and only the final score counts in team sports.JLM.

          3. andyswan

            That was epic. Different from a Jordan 55 at MSG though…. the Knicks should be ashamed of that. It’s like letting the other guy pitch a perfect game because you didn’t swing the bat. Guard someone, FFS!

          4. fredwilson

            they were doubling and trippling him andy. they were trapping him all Q4. he was making sick shots that had no business going in. not defending the knicks defending here. just saying that he was guarded and still made the shots.

          5. matthughes

            It was a show – and Tyson Chandler with 28 rebounds.That game will go down as MSG legend.

          6. JamesHRH

            Have you ever noticed how many of Curry’s shots hit the bottom side of the back of the rim & drop straight down without rippling the mesh?I think his Pops trained him to focus on the back of the rim as his target…….although that isn’t Dell’s shooting clinic video

          7. fredwilson

            his dad is going to have two boys in the NBA soon i think

          8. ShanaC

            I think you need chicken soup with matazh balls…. :)(PS: It isn’t just me that says this :… )

          9. William Mougayar

            I did a double-take when I saw that score later. Jaw dropping. If this is not a wake-up call for the Knicks, I’m not sure what is.

          10. matthughes

            Just saw this: six current Knicks played with or against Steph Curry’s dad:Chandler/KMart/Rasheed/Thomas/Kidd/CambyNo wonder they need a wake-up call every so-often.

          11. fredwilson


          12. William Mougayar


          13. kidmercury

            unfortunately i missed it though my fb was blowing up so i know i missed something good!

          14. pointsnfigures

            Swisheroo for two (and three). And a great kid from all reports at the Davidson College campus where he went to school. Actually went to class and got an education.

          15. falicon

            Great show for sure…but his team still lost…

      2. Elia Freedman

        Kurgan hasn’t said anything new in seven years. Sick of him, too.

      3. Dan Abnormal

        Fred, you acknowledge that these cuts will hurt the economy. And Republicans in Congress are now complaining that the sequester will cost jobs and trying to blame President Obama for the economic damage of these cuts.If cutting government spending and smaller deficits hurts the economy and costs jobs, then surely stimulus and more deficits helped the economy, right?

        1. fredwilson

          of course. the stimulus worked. but it took time. and we did not need more stilmulus that Krugman begged for. thankfully we did not listen to his nonsense.

        2. Aaron Klein

          Well, clearly, we should simply raise tax rates to 100% and spend it all on stimulus. The economy would be in FANTASTIC shape then.

      4. takingpitches

        Our politics is Chicken-Little heavy, not just Krugman and Obama. We have been hearing predictions about soaring interest rates from stimulus in 2008 through Simpson-Bowles, which haven’t come to pass (and Krugman was pretty good at nailing that prediction consistently). The health care debates (which should have been about getting soaring health care costs under control which is the big whale in the entitlements issues) was marked by fear-mongering over “death panels” and the like. And on an on from all sides.

        1. andyswan

          “Death panels” will happen. It’s 100% guaranteed in any health system where the government does the rationing rather than the marketplace.

          1. kidmercury

            #truth. government is all about doublespeak….”universal healthcare” sounds like healthcare abundance, though it is just the opposite as it will reduce the supply of available healthcare by increasing its costs

          2. fltron

            What you’ve described is the issue with the US privatized system which has priced many people out of receiving the care they need. The US privatized system is far more expensive then any public system anywhere in the world.

          3. kidmercury

            US healthcare is not privatized and has not been private in a long time –i.e. medicare and medicaid as two straightforward examples that have been around long before obamacare, much to the detriment of healthcare costs and taxpayers.

          4. fltron

            Yes, there have always been tax-payer parts of the healthcare system, but that’s not why its the most expensive health care system in the world. You do see that, right? Everyone is paying the highest rates, and the US is the least socialized. Hrm. Makes you think.

          5. kidmercury

            too many other factors are at play when making comparisons to other countries — currency value being the biggest. life is cheaper in some infrastructure-free village in india than it is in new york city. with that said, i’d rather get sick in new york city than in a village in india.comparisons to other countries are useless. the goal is not to live a crappy life while taking consolation that one’s crappiness is less crappy than some other place; rather the goal is to actually live a good life. from this perspective healthcare de-regulation brings about greater supply of effective healthcare at a lower price.

          6. fltron

            Wow you’re kind of delusional. Look at the facts, not what you think the facts are.I’m not talking about China or India. I’m talking about Canada, UK (dual system), Switzerland, etc..etc..etc..Consider this. Every country in the modern world has cheaper health care then the US. Every single one. And all of them are far more socialized, and far more regulated, compared to the US.Sure, each system has their own issues. Fine. Sometimes there are issues getting a doctor, other times longer waits for tests, but at the end of the day none of these systems bankrupt citizens for personal healthcare costs and every single one of these systems is cheaper to the individual and the government compared to the US system.You can say deregulation makes things cheaper, but you’re simply preaching a philosophy that has no basis of fact in the real world. The evidence is quite the opposite.

          7. kidmercury

            Too hard to argue here. I wish everyone woukd read henry hazlitt’s book economics in one easy lesson. Then we coukd stip hsving the same old discussions and get on with the solution.

          8. Nick Ambrose

            Kidmercury,I’d suggest reading fltron’s post with your ears open and your mouth closed rather than the other way around.When essentially *every* other developed country in the world has lower costs, better access and comparable/better outcomes in many areas of health than ours, maybe it is worth looking into whats actually going on ?

          9. kidmercury

            How are you measuring costs? Also, as I noted, the US has had public health care for a while now. The more public it becomes the more expensive it becomes.

          10. Nick Ambrose

            Well, you could start here:”How much is good health care worth to you? $8,233 per year? That’s how much the U.S. spends per person.Worth it?That figure is more than two-and-a-half times more than most developed nations in the world, including relatively rich European countries like France, Sweden and the United Kingdom. On a more global scale, it means U.S. health care costs now eat up 17.6 percent of GDP.”…or if you don’t like PBS you can check out the Wikipedia page…Or check out the OECD report….If you just want to repeat the mantra “Public healthcare in the US is whats causing the cost to rise” then there really isn’t much of a conversation to be had as the issue is far far more complex than that.I think you are confusing correlation with causation. I’m also not sure if you have a group plan here in the US or are in the “individual market” but if I had to, I’d either guess “group” or you are young enough to not need the doctor very much … I wouldn’t wish the US individual insurance market on anyone (as it stands right now), and yes I am currently in it …I think there are many many drivers to cost here in the US, including that a lot of other countries are effectively pushing extra cost into the US because their governments negotiate reasonable rates (by force if necessary) to keep costs down and the “market approach” here in the US increases prices as a result because there is far less mandated pressure here (just look at how certain elements in our congress specifically restricted medicard part D from negotiating prices … surely not due to pressure from giant drug corporations ?)To be fair, there are a lot of suboptimal things about (say) the UK (where I grew up) and the US really shines in outcomes in cancer.The interesting thing here is that if you (say) had a list of 100 companies, 99 of which were doing well (profitable, well run, happy employees) and the ONE that was not was doing fundamental things differently than the other 99, I bet you’d likely say that the one failing one was likely to be doing something wrong …..(“you” meaning “one”)

          11. kidmercury

            You keep saying there is a mrket approach in the US when there isnt. All obamacare does is impose regulatiry costs on top of operational costs. Markets minimize regulsyory costs. Anyway, the end result is less employment if employers foot the bill and more currency devaluation if government foots the bill. It doesnt matter though, america doewnt the to make the tough and drastic reform needed to avert a big breakdown.

          12. Nick Ambrose

            What does Obamacare have to do with the cost of medical care ? For now, hardly anything. My insurance rates were rising 10%+ per year for many years before Obama was even elected president. Please stop throwing out red-herrings.The US is *far far* more “market-driven” than health care in every other developed country and it’s not working.And yes we do have “public health” here …the cost of which is predicted to rise more slowly than private insurance:…And it has lower admin costs (although one might be able to argue about it’s outcomes I suppose)…Do you have *any* actual data to back up your points or just hand-waving generalities of “Free market must be best!!!!!”I really don’t have any idea what you are talking about in the second half of your post ….Maybe you should try another country’s health-care system before you knock it ?

          13. kidmercury

            my point is you cannot fully account for the costs because government spending ends up being inflationary. higher premiums and higher cost of everything. next time you fill up gas or buy food remember why it costs so much. big pharma writes the healthcare laws, big government is the same thing as fascism and it creates greater income inequality. note that income inequality and goverment spending have been positively correlated for 4 decades now.

          14. JLM

            .We should be harnessing the crap out of technology, medicine and whatever we can to preserve life and the sanctity of life.Why not?Life is the ultimate game and there really is no other.JLM.

          15. JamesHRH

            Just heard on CBC Radio (public broadcaster) about how hard it is to get accepted – as a new patient – by a Doctor in Toronto (NA’s 5th or 6th largest market). Hospitals cannot refuse you in Canada, but MD’s can!

          16. ShanaC

            this is also true in the US – with my current gynecologist it takes 8 weeks to schedule a regular well checkupAt least in canada you don’t go bankrupt for going to the hospital

          17. fltron

            I live in Toronto and I can definitely say that that’s true, but in Toronto things are a little different. Between hospitals and MDs is the walk-in clinic. I have 4 in my area within a 5 minute walking distance, and rarely would I wait more than 20 minutes to be seen by a doctor. Also, its completely free.But this is more of an issue with Toronto, population density, than a statement about the Canadian healthcare system. There’s no other city where this is an issue.

          18. JamesHRH

            I just moved from CGY to Sarnia.Getting a GP in CGY was pretty tough. Our guy was great, but he was down to working 3.5 day a week. Walk in clinics often had 2 to 3 hour waits.We moved to St Albert (suburb of Edmonton) for the winter of 2009. We never got a GP – spent the entire school year in the MediClinic system. It was not a good situation.We got into a GP here in Sarnia – really good doctor. One of our criteria was that they could accommodate same day appointments, as there are no daytime walk-in clinics in the city (there is a night time one, but it fills up within 15 minutes of opening, typically) and we have children aged 10 & 7. GP and his nurse said no problem, in December. Thru January and Feb, they have been slammed and they are not able to do what they said – not blaming or mad, just the facts.A former ER doctor opened a new GP practise in December – she had been advertising thru the fall. By the end of January, she was not accepting new patients. Sarnia is 73,000 people but serves a county population of about 125,000.Just saying – not just a TO issue.

          19. fltron

            Figures… Canada’s news is very Toronto focused isn’t it? ;)Fair enough. But regardless, there are clinics around and you’re not going without a GP (via clinic) when you’re sick. The point being, if you are sick, you can get help and it isn’t a long wait (unless you go to the hospital, which is generally a needless endeavour unless you really need to be taken in – in which case they take you in).

          20. William Mougayar

            You don’t get the best doctors in those walk-in clinics. Ok if you hurt your toe. Doctors not taking new patients has 2 root dynamics:1) Canadian doctors don’t like to compromise on the quality of care they can provide. For eg, they will not cut short a standard visit from 15 min to 10 min in order to squeeze 30% more patients. 2) it’s in indirect way to put pressure on the government to solve that issue. For eg, they have solved it in rural areas where you can find quality specialists that are available in those areas. Yes, Toronto has more cranes than any other cities in NA now. Its population is growing.

          21. William Mougayar

            Nice to meet you btw. Toronto here too.

          22. takingpitches

            We need more of the the type of “rationing” that happens in functioning markets, where price and quality signals are more clearly transmitted. So, consumers can see and are incented to use that information to make consumption decisions based on those prices; and when the payors are other than the end-consumers such as the state, they also get a role in making cost-benefit decisions based on the effectiveness of treatments, etc.I like the concepts behind some startups such as castlight, which is tackling figuring out the spread of prices charged for certain treatments, and enabling employers to give their employees incentives to consume health care intelligently.

          23. LE

            My wife works and deals with families who want every last dollar spent to keep their “gomer” alive at any cost. With all the “he would have wanted it this way bullshit”. We talk about it all the time. She’s a physician and deals with this daily. (As well as people who abuse their bodies but that’s an entirely different story.)I saw it happen with two of my relatives recently. The wife relative just couldn’t let go and they kept the husband relative alive weeks past the point of no return. My wife new about the disease and the hospital (not the one she is at) kept him alive simply because the wife couldn’t say goodbye and didn’t want to let go. He was 89 and had no chance at all for a quality of life.Isn’t that great? We spent all this money, money that could have educated someone for a year in college (at inflated rates) because a wife just couldn’t say goodbye.I’m not trying to be insensitive (and want to stress again that these were relatives of mine) but this is ridiculous.In this particular case they had good private health insurance. But even though they paid for the insurance that still raises costs for everyone obviously.

          24. ShanaC

            we don’t educate about death

          25. ShanaC

            the marketplace doesn’t ration. I go to the hospital closest to me if there is an emergency (like a heart attack) irrespective if my insurance covers it. The hospital charges what it will at that moment irrespective of my ability to afford it/what I want. I don’t determine treatment at that point either.How is that a marketplace

      5. William Mougayar

        Krugman has been wrong on many counts in the past couple of decades. The more famous he got, the more wrong he became. He was good in the 80’s.

        1. LE

          Like Fred said in a comment about numbers if you slice a time frame short enough anyone can look good.

      6. fltron

        Likewise cuts haven’t been shown to do anything but further spiral an economy downwards. I’m sick of both sides on this issue because they both have bad solutions.Stimulus would have worked had there been more money (or at least that’s the theory– can’t blame Obama if he didn’t get what he wanted and compromised). Cuts would have worked had they happened in the early 2000s. But no one cared back then.Easy to be sick of the other side when your side hasn’t shown improvements.

        1. JamesHRH

          This is certainly Richard Koo’s conclusion re:Japan’s lost decades.

      7. LE

        “Is it possible that Krugman got it wrong?”Economists differ in the way they think many things will play out.I don’t have a link to a good article about this but within econ there are schools of thought an example being “freshwater” (chicago) vs. Saltwater (eastern academics).…Both institutions have esteemed well regard academics. Note emphasis.So to quote Krugman and say “you got this wrong Fred” as a reason couldn’t possibly be right since there is no right or wrong answer. This isn’t math.

        1. fredwilson

          I like disciplines where there is a right answer

      8. wtf-ever

        wow thank you Fred. civil disobedience now consists of obama-dissent. obama was trained as an agitator and does that well, but thats nothing to do with what the President does. He is the American Idol President, stirring up false emotion and notice. He is the absence of truth and transparency, for those watching. He went to sleep while Americans were under attack on 911 but struts as our savior. He won by slandering GOP and spreading fear and division. He wont change. Again thanks Fred to being unfashionable here. Obama is the end of truth.

    2. christopolis

      Mortan Josefsen, logical fallacy of appealing to authority.

      1. Morten Josefsen

        I am of the opinion that a comment tread is not a useful place to include what would amount to a book on how the economy works, the current situation in the US, and what the effects of the sequester would have. Therefore a link to ‘authority’ explains where I am coming from more easily.

        1. christopolis

          It doesn’t take a book. You can simply state their case, trickle down economics works. Give money to people who will spend it, regardless of the productive use of the money. Then hope that creates confidence and eliminates the animal spirits so that prudent and productive people will begin to spend or be forced to spend before their money is devalued.

          1. fltron

            Your use of ‘hope’ largely invalidates your attempt at a logical argument.

    3. andyswan

      So basically “people are addicted to gov’t spending 50% more than it takes in.”Wonder how Krugman feels it got that way lol. What a hack.

      1. Jim Ritchie

        Economics (macro) is filled with hacks.

    4. pointsnfigures

      @mgjosefsen:disqus , Bernanke has got it incorrect as well. They are following the Japanese example. There is a tremendous opportunity cost to 0% interest rates as Luis Zingales and John Cochrane have shown. It’s also hurting savers, and retirees. Krugman did some tremendous work to earn his Nobel. But that was for international trade relationships, not macroeconomic policy. He has been more wrong than right on that score-although I heard he did like the meteor strike in Russia because it might herald an invasion from space:… (and he is wrong about WW2 bringing us out of the Depression as well)

    5. Montgomery Kosma

      And the broken windows fallacy rears its ugly head…

  4. fredwilson

    All great wishes. All not going to happen sadly.

  5. Scott Barnett

    I’m pretty shocked to read your POV on this. I tell people that if Congress ran a business like they are running the country, that company would have gone out of business a LONG time ago.I’m personally totally sick and tired of the finger pointing. This is EVERYBODY’s problem. Not Obama’s. Not the GOP. And this sequester is a self-made problem – they gave themselves a deadline to compromise, and they failed.Obama is indeed acting like Chicken Little. But the GOP is digging in and accepting no compromise – so they are on opposite ends of the spectrum. They need to cut this out and come together. I personally am not confident they can do it. I want to see them all thrown out…. and I’d like to see a 3rd political party become a force so we can stop this “us vs. them” arguing. And I’d like to see Mayor Bloomberg be the head of that new party πŸ™‚

    1. Jim Ritchie

      Bloomberg is the anti-freedom politician.

  6. andyswan

    I think I just agreed with every point that @fredwilson:disqus made in a political post.The internet has come full circle. Time to get off.Quick, Fred– say something good about forcibly removing a 17oz Dr Pepper from my hands! πŸ™‚

    1. fredwilson

      And go to work!

      1. andyswan


        1. pointsnfigures

          @jimritchie, the bureaucrats would change the way they calculate GDP so they could keep their jobs.

          1. Jim Ritchie

            My other constitutional amendment would be Federal term limits, 2 – 6 year terms for senators, 4 – 2 year terms for reps. Go home and get a job after that. Also, include make no law that does not apply to equally to our elected reps.

          2. Phanio

            Would not work. They would just work harder and faster to rip-off the public before they left office.

          3. Jim Ritchie

            Seems to work at local and state level in many places, same for POTUS. If a politician is there to rip us off then I would certainly like to make sure they can not stay in office indefinitely.

    2. Jim Ritchie

      I’d love to see a constitutional amendment to limit Federal Government spending to 15% of last year’s GDP. Only to way to spend more would be with special appropriation bills during time of war that required 2/3 majority of both houses. These charts give some historical background on the rise of the Feds http://www.usgovernmentspen

      1. Matt A. Myers

        Didn’t tax only come to be because of wars? Wars will be fabricated to tap into whatever funds you allow to be allocated.

        1. JLM

          .Estate tax was created to fund wars.JLM.

        2. jason wright

          the Rothschild business model for 200 years and more

    3. Donna Brewington White

      The thing is that even when I disagree with Fred, I have to admit that he makes good sense . Of course, he makes even better sense when I do agree with him.

      1. andyswan

        “I could agree with you but then we’d both be wrong.”

        1. William Mougayar

          I’m gonna use that line.+10

    4. jason wright

      you’re going soft

    5. Alan

      Fred Wilson for President!

  7. kidmercury

    like it matters. as usual the whole discussion is insignificant. the chart below illustrates why.…as a reminder, debt cancellation is the only solution. either this is dealt with honestly or chaotically through reckless inflation that if left unchecked will result in civil unrest.

    1. Elia Freedman

      Absolutely agree, kid. Without fixing entitlements, the rest is an exercise in vanity. I keeping thinking the only way out is when Gen X/Y take over. Baby Boomers will just keep spending. They aren’t going to cut their own benefits that they aren’t paying for anyway. In a few years when Gen X and Gen Y take over, we will just cancel all the programs. Since we aren’t going to see any benefit from them anyway, why would we keep paying the bills for them?

    2. andyswan

      Agree with the first part but not the 2nd. This debt is long-term and very payable if we can get our spending under control. That’s a big if… there are a lot of people…I mean voting blocks…that are completely addicted to the govt teet.But we are a very wealthy nation, innovative and capable of creating $40 trillion of excess wealth over the next 50 years.But we’ve got to get to work. We’ve got to stop celebrating the victim, regulating the winners and coddling the losers.It’s fashionable to do so, but I haven’t given up on America. I see a spark in each of us…a pride in how we got here and a desire to make it better. We just need to castrate the government again and stop getting distracted by the people that want to blow us up and take our jobs.

      1. Jim Peterson

        “but I haven’t given up on America”So true. It is still the land of opportunity. And yes, adjustments need to be made.

      2. kidmercury

        not just federal debt. add in state, local, credit card, student loan, mortgage. also, outstanding debt is increasing.raise taxes to 100%, use it all to pay off the debt. still doesn’t do it. the debt/money system we’re on is the root of all the problems.

        1. andyswan

          I don’t want to agree with you yet

          1. kidmercury

            no one does…..except the math.

        2. LissIsMore

          I agree with Kid. It is unsustainable and, even at current levels, unpayable. We have saddled our children with a mortgage they can never repay. It is immoral, as well as bad economics.

      3. fredwilson

        you and i see it the same way andy. we can beat this debt pile if we get our house in order and be the america we can be.

        1. kidmercury

          this is basically a math problem which is i view it in such a cut and dry fashion. add up mortgage, credit card, national debt, state debt, muncipal debt, auto loans, student loans. then look at GDP and savings. play with the numbers all you want, it won’t add up. also bear in mind that right now government’s only “solution” is to add more debt — so solving the debt problem means reducing trillion dollar deficits, without completely destroying the economy via a snowball effect of spending cuts, before all the other stuff gets paid off.the debt cant be paid mathematically, and if one looks at how the debt was created and who created it, i think a strong (albeit subjective) argument can be made that it shouldn’t be paid off morally. the countries that have cancelled their debt, most notably iceland, are recovering faster.

        2. JLM

          .The numbers are really not bad at all if we would just stop lying to ourselves.”Does my ass look fat in this deficit, Honey?””As big as a freakin’ barn, Sweetie.””Oh no!”If we would just stop the rate of annual increase for 4 years — no cuts, just the rate of increase — and fully fund the SBA and make the required cuts in Defense (including getting out of the Middle East) and entitlements, enact a coherent energy policy we would be in a surplus in 5 years.JLM.

        3. Cam MacRae

          I’m a afraid I have to agree with @kidmercury:disqus here.There’s a not so hidden kicker to the sequester, which as kid notes only pretends to play at the margins, being the risk it triggers another round of private debt deleveraging. This isn’t a theoretical risk.

      4. LE

        “It’s fashionable to do so, but I haven’t given up on America. I see a spark in each of us…a pride in how we got here and a desire to make it better.”Interesting, you sound very JLM. “We just need to castrate the government again”Ok that’s much better.

        1. fredwilson

          Andy and JLM are cut from the same cloth in many ways. Andy is just a lot taller

          1. JLM

            .Wow, I’m 6’4″, so Andy must be freakishly tall. I guess that is just another reason why Andy and I agree on, well, almost everything.Tall people think differently. A tall person secret I hate to have revealed.Just kidding. Tall people love short people.JLM.

          2. ShanaC

            how tall is andy?

          3. fredwilson

            Tall. He will have to show up and reply if you want specifics

  8. JMD

    The GOP is not standing tough out of principle, but to thwart the Obama administration at every turn leading to the 2014/2016 elections. This is hardly a winning strategy.

    1. Tom Labus

      as it has been since 09

    2. Phanio

      Fred – Don’t agree with your 6th point. He is running to get full power in both houses for the mid-terms. So that he can push more unpopular policies on us – things that no one wants. He has been in campaign mode since the last mid- terms in 2010. That means 4 years of campaigning and nothing to show for it.

  9. Dan Abnormal

    Why do we have to take our medicine? This isn’t medicine – it is poison.This is a manufactured crises. We have record low borrowing costs. Why not borrow more when TIPS yields are negative? Unemployment is a far more pressing problem than the deficit and creates real human suffering.Entitlement programs are largely self-funded. Social Security has run a $2.7 trillion surplus. What is the problem? That at some point in the future there *might* be a shortfall? So we need to cut now or else we *might* have to cut later?These cuts are reckless.

    1. ShanaC

      The one thing that concerns me about TIPS yeilds is that although they are currently negative, they may move. Granted, in that situation I would want to be sitting on cash (re-invest in myself).But because of the nature of tips to money ( a proxy instrument) if tips yields go up goes up, the value of the cash you’d be sitting on goes down since effectively they are the same thing.

      1. Richard

        low interest rates are a tax

        1. ShanaC


          1. Richard

            Lets think of a 75 year old woman who saved 200k throughout her lifetime. Being risk adverse she is forced to invest in fixed income instruments. Todays yield? .5%, or $1000 vs the historical mean 2.5% or 5k, Thats a 80% tax bracket! There is no free lunch at the monetary table.

          2. ShanaC

            yield is a growth rate – unlike death and taxes, it is not guaranteed. It also isn’t exclusively determined by the government (much like taxes).She misguessed what growth would be like – not got taxededit: spelling πŸ™‚

          3. Richard

            Markets havnt determined interest rates in since 2008, QE 1,2,3 and uncle Ben are in control.

          4. ShanaC

            in order to do quantitative easing, you have to have a market willing to sell to the government. Someone sold. Maybe not me, maybe not you, but someone did.Saying it is a tax gets rid of agency for more passive investors. There is a choice to be passive.And while Ben Bernake may be the chairman and may be government appointee (along with the rest of the board of governors) technically speaking the federal reserve is a private bank with strange powers because of monopoly powers given to it by the US government. None of those powers including the power to enforce taxes – that is the treasury.I hate to remind you of this, but JP Morgan backstopped the US economy in 1907. He was a totally private entity. In theory, today, anyone who can trade effectively could usurp the fed in determining interests rate, much the way JP Morgan did. No one chooses to override the fed’s policy in the buying and selling of US bonds.

          5. JLM

            .Absolutely. Brilliant. Well played.High energy prices are a tax on the entire economy in much the same manner.JLM.

    2. LissIsMore

      One thing that people overlook is that the Social Security Trust Fund “surplus” is an accounting entry. Where is the money? The operating side of the government borrowed (spent) it. So, from an accounting standpoint, the SSA has $2.7 trillion. But in order to spend it on benefits Treasury will have to borrow $2.7 trillion to pay SSA back.

    3. Richard

      because low interest rates are a tax on seniors

  10. Phil Anderson

    #4 is the most key. People see waste in government agencies, but don’t realize that all of the government agencies combined (outside of defense) are just a fraction of our entitlement costs. Someone needs to have the balls to touch “the third rail” if we are really going to get anything done.

  11. Joe Wallin

    Great post Fred. Well written. Short. Succinct. To the point. But punchy too. Nice!

  12. mrostick

    Thanks for the very thoughtful post – I’m afraid until the majority of the US electorate understands that long-term improvement in our economic state will require some kind of pain/compromise for all of us AND we are able to fix our gerrymandering problem which allows ideologues to control this debate, we won’t see a good resolution

  13. John Revay

    Glad you wrote about this topic…Any one running a business can easily cut 2% from expenses – especially when there has only been increases in spending over the last few year.I hate the way that the Dems are talking about cutting food inspections and Traffic controllers – why not cut or furlow some of the suits running Washington let’s make cuts to the congressional staff and their budgets ( probably not enough $$ there) – but still a good place to start.As much as I was not for Mitt – I think a PE guy could rationalize a lot of the spending and programs in our government.

    1. Dan Abnormal

      Because these cuts are reckless. There is no flexibility in them. Every agency and program affected has to cut by a fixed percent.For example, there are airports that don’t have any flights and yet still get funding each year. Instead of eliminating this waste, the FAA has to have across the board cuts equally in every program. This means an 8% cut everywhere – 8% fewer air traffic controllers in every tower or 8% fewer hours worked. Reckless.

      1. Jim Ritchie

        FAA will layer their cuts as they see fit. I’d like to see real 20% across the board not these silly reductions in the rates of spending increases. These are not even real budgetary cuts.

    2. ShanaC

      except for the bailout, our spending was low. Lower than ever.We’ve been passively cutting as it were

  14. Tudor

    Nice to see you taking the unpopular stance on this. We should praise our politicians for what they do well and hold them accountable for what they do not. Right now too many are willing to let their “candidate” get away with anything, right or wrong, rather than admit that the politician/party could possibly be flawed.

  15. Greg Berry

    I could not have written this better myself, even at 100% ;). Couldn’t agree more.

  16. Ethan O. Perlstein

    As an independent scientist and recovering academic, many of my peers are dreading sequester, or #sciquester as it’s being called by some on the Twitterverse. I agree with you about Point 1 that the proposed cutting strategy is imprecise, but there is a ton of waste in biomedial research ($30B NIH Land), including bloated university overhead (euphemistically called “indirect costs”) and publication fees that siphons billions a year from the science itself.Francis Collins, Director of NIH, says that a 5% cut will be “devastating” to biomedical research, and that we will lose a generation of young scientists. I feel for academic researchers battered by the Tenure Games, but 5% is not devastating. 50% would be devastating. Academics aren’t familiar with downsizing but our debt chickens have come home to roost.So isn’t the sequester a reminder that being 100% dependent on government grants is not a sustainable path? Related to that question: is it crazy to think that non-government $ will start to assert itself more in biomedical research?

    1. ShanaC

      yes, because time to market is so very very long

  17. christopolis

    amazing that a decrease in the rate of spending increases is considered a cut.”The sequester has been advertised as “cutting” discretionary spending over a ten year period by $995 billion. After inflation adjustments and exempting more than a trillion dollars of defense and non-defense discretionary spending from the sequester, the CBO projects discretionary spending to increase by $110 billion over the decade. There is no actual $995 billion cut after the CBO applies its magic adjustments. Rather there is a $110 billion increase.”

    1. fredwilson

      you can make numbers tell any story you want them to tell. that is one of the many reasons i love numbers and always will.

    2. wjcohen

      agree – there is no reason the mainstream press should ape washington-speak.

  18. RudyC

    I agree whole heartedly esp. the points about defense. As a banker I would think that this will further increase the dollar (probably not good right now) and again lower interest rates. I also suspect that the markets would welcome it.Unfortunately, 2 major roadblocks with this. 1. There are more welfare states in the US than payees AND the prominence of major cities with a higher educated population have not had a political say in the US for decades. This country is run and administered by the poorer states, with their hand out grabbing anything they can get but still dictating policy. Unbelievable.In my opinion their is absolutely NO reason why a senator from Arkansas, Wyoming, Nebraska, New Mexico, Louisiana, Alabama, West Virginia, North Carolina, South Carolina, Kansas, Arizona, Nevada, Utah, Colorado, New Hampshire (those are just on the top of my head) should wield more power or even the same power as California, NY, and maybe IL.

    1. Dan Abnormal

      How dare you sir! North Carolina is a top 10 state by population with major cities and prestigious universities. (Much bigger than Delaware, Rhode Island, Connecticut, Maine, Vermont… COMBINED)

      1. RudyC

        Agreed…I had second thoughts about NC as well…sorry..point taken.

    2. Jim Ritchie

      I’m glad your opinion does not matter in this case…

      1. RudyC

        I was speaking in jest but the point of the matter is that a small pct. of states actually contribute MOST of the $$ into this country, yet have literally NO voice in anything, esp. financially.The republican party has become a party of simply WHITE FOLKS. I seriously doubt anyone will be some contrite as to admit it, but that is exactly what the bulk of the party is. Sure, you’ll have your token black or hispanic, but even the slave owners had there chicken littles.Welfare has the stereotype of being for the poor black people who have a ton of children, but if you look at the sheer number of people collecting welfare, you will find that they are in the midwest and white.Does anyone else find it ironic that cities pay more than counties, which pay more than states which pay more than the gov’t? 85% of most city revenues go towards police and fire. That in itself is a form of welfare.This country is a mess folks. Deflation is around the corner. QE has flooded the country with $$ and commodity prices have increased, yet worker salaries then mainstay of america have decreased and will continue to decrease. Suddenly labor has become cheaper. The separation of the haves and have nots will become even greater. What happens then?

        1. JLM

          .Yes, those damnable WHITE FOLKS. Worse than well the white folks who built the country?As a white person of white ancestry, I have never made a single decision in my life based upon being…………………………white.My very whiteness blinds me to being, well…………………………..white. Sometimes when I am sleeping, I even forget I am white. Oh, so white. White, white, white.The glare of being white is just unbearable. So intense I cannot see anything.Tonight I will be meeting some white folks to celebrate our collective………………………whiteness.There is no political philosophy or theory of governance that binds us all together like being……………..white.Even when I get a bad sunburn or, heaven forbid, a tan — I am still white to my core. Oh, I may get a bit sunny and tan after a month at the beach but I am still a white guy at heart.You know what they say — you have never lived until you have been a white guy in the third row of the Episcopal church on a Sunday morning in May (White Guy Month). Talk about a wild white time, me and the hymnal singing our white songs and worshiping that white host. Oh, yeah, white is right, baby.White, white, white — me I am white.Hell, some of my best friends are…………………………….white. Not many, I admit but some. Yeah, it could be true.JLM.

          1. RudyC

            @jlm….just for reference, I’m white as well. What I’m referring to is the white folk that still WANT the US to be what it was 50 years ago and vote purely on what the GOP stands for.I don’t think it’s a coincidence that since Lee Atwater (that’s how far I can go) the GOP has always had short simplistic phrases to catch the american people, abortion, marriage, civil rights, WAR, catchy phrases aimed directly at the people I’m speaking about.Quite frankly, my mother. It all goes to the same category. Hatred for a particular race, gender, or sexual orientation.I think on that point you have to agree. Someone recently did an analysis of the GOP party, and the results were eye catching to say the least. The least educated in this country were in the same token, Repubs.That doesn’t mean that there are not educated republicans to say the least, but most of there party today do not stand to benefit at all, except for the catch phrases of hate. That’s what I meant to say.

          2. JLM

            .Oh, please, stop already you’re only making it worse.Playing the white race card is sheer nonsense. Even if one were to agree with the silly knee jerk notions you suggest, they have absolutely nothing to do with anyone’s being white.It was a white Republican named, Abe, who freed the slaves.It was white Republicans who voted in civil rights — you will remember that the Southern white Democrats filibustered and opposed all civil rights legislation, right?It was a white Republican President named “Dwight” who balanced 8 budgets, got us out of Korea, built our nuclear arsenal, kept us at peace and started the Interstate Highway system.Being white has nothing to do with anything.Got to run, we have our Klan pancake breakfasts on Friday mornings.JLM.

          3. ShanaC

            That was the 60s, this is now. There is a great history of what happened in the new republic:

          4. Guest

            .Don’t dare lecture me about the ’60s, I lived and bled them, cher.JLM.

          5. JLM

            .OMG, please do not lecture me about the ’60s, I lived and bled the ’60s, cher.JLM.

          6. William Mougayar

            You’re having way too much fun on this thread JLM :)I like your persuasion style

        2. Jim Ritchie

          I thought long and hard if I would reply as I don’t like to get in to racial discussions in this type of forum as I don’t measure a person by the color of their skin. How you think and act does matter though.With regards to welfare, I think you should check your stats:http://www.statisticbrain.chttp://quickfacts.census.go…Blacks 6 times more likely to be on welfare by my quick calculation.I live in a politically misguided city, San Francisco, and I personally don’t want us San Franciscan’s setting the agenda for the rest of this great republic. Our founders were smart enough to limit federal powers to those specifically enumerated in the constitution and pushing everything else back to state/local level. Unfortunately, feds have gotten out of control and need to be reigned in.Also, people pay taxes, not cities or states.

          1. RudyC

            Jim, I also live in SF btw. Again, I’m speaking about a majority of people, NOT a percentage of people. I brought up race strictly to make a point. I don’t mean to offend, just to bring up the subject of what I feel the GOP stands for today.

        3. ShanaC

          deflation terrifies me more than inflation

    3. JLM

      .OK, Rudy, now you have to repeat both Government and Charm School.Of course there is a reason why each state gets two Senators — to keep the big states from overruling everything.Want to be like California or Texas? I like Texas but even I would admit that the House should not be able to impose that on the rest of the country.Just for the record I think we SHOULD get rid of Nevada, maybe sell it through Groupon to some other state. You can only go so far on prostitution, gambling and large dinner buffets. Could just be me.JLM.

  19. Don Dodge

    Totally agree Fred. $16T debt and growing at more than $1T per year. These $Trillion annual deficits can not continue. Near zero interest rates can’t last forever either. Staying on the present course gets us in the same boat as Japan, Greece, Portugal, and others.Big government is great when it is charged to a credit card, and the bill never comes due. Just pay the interest and let the debt grow to the moon. That is how the US government operates. And it works….until it doesn’t. Sooner or later interest rates will go up. Investors will refuse to buy US bonds at such low rates. That is when the house of cards falls apart…just like Greece.Cutting $85B from a $2.7Trillion budget is easy. Even after the cut we will still run a $1T annual deficit. Much deeper cuts are needed, and tax increases must be part of the solution. Social Security and Medicare also needs major changes. 10,000 Baby Boomers retire every day. They will drain both programs like never before. When they started there were 10 working people supporting each retiree. Today about 2 working people, and in the next decade…less than two. The numbers don’t work. Few people seem to understad this.This is not austerity, just minor 3% adjustments to spending increases. Austerity is when you let the revenue vs spending get so far out of whack that 10% to 15% cuts are required just to keep the budget deficit below $1Trillion. We aren’t there yet, but we will be within 5 years if we keep up this spending madness.Republicans need to agree to drastically cut defense spending, and raise taxes. Democrats need to agree to big spending cuts, major reductions to Social Security and Medicare. Paul Krugman only has one play…continue to spend. He forgets the other half of the Keynesian theory…cut spending in good times. That NEVER happens. How can you justify cutting spending when the economy is doing well? Nope, they only want to increase spending through good times and bad. That is the only song they know.Take your medicine now or face major austerity later.

    1. Dan Abnormal

      Take painful, unnecessary poison now, or *maybe*, *perhaps*, *hypothetically* face austerity later? Easy choice.By the way, President Clinton and the Republican Congress DID cut spending in good times and we had a balanced budget. So it DOES happen.

      1. fredwilson

        and that’s what we need to do again. exactly.

      2. MTLinville

        big big difference between cutting spending in good times compared to bad. During good times spending should be cut, and we should run a surplus (i.e. rainy day fund). That way, in bad times government spending would be able to increase to pick up the slack that’s realized in the rest of the economy.

    2. pointsnfigures

      Major austerity will probably be a loss of more freedom. That’s generally what happens in times like that because the government doesn’t want to contract, and the people reliant on government don’t want it to contract either. Check out Illinois and California for “science labs”. Each state is losing population. I never thought cowboy boots would “go” with a fedora but lots of Chicagoans are moving to Texas.

      1. JLM

        .Hell, you know I am saving a spot for you, my friend. And, why the Hell not?Everybody is moving to Texas and cowboy boots go with everything including a swift kick in the Fed’s butt.On Earth as it is in Texas, ya’ll! Come on down!JLM.

      2. TBodily

        We’re seeing a similar trend in Utah, it’s getting easier to convince engineers to pick up and move. Beautiful summers and great skiing don’t hurt either πŸ™‚

    3. fredwilson


  20. ShanaC

    Many of the cuts are reckless:The NIH and the NSF? We lean on them for research that is extremely important to our economic growth. WIC and Foodstamps? 1 in 2 children go hungry, and going hungry rather than you know, concentrating on the things you are supposed to be doing as a kid like learning?Military spending: Fine, but don’t cut into DARPA (see above)Defunding schools?Healthcare: I’m sorry, my insurance is run more poorly than medicare. After reading about the efficiency of medicare, a part of me wants to sue my insurance company under rico for hiding prices from me so that I can’t cover my costs correctly.*sigh*

    1. andyswan

      Poor kids are fat as hell. not hungry

      1. ShanaC

        fat doesn’t equal not hungry – empty calories are actually designed to make you fat and hungrier (and it is cheaper to by soda and ramen to feed a child than brussel sprouts and milk)

    2. Dave Pinsen

      1 in 2 children “go hungry”? Cite?The vast majority of k-12 school spending is paid for at the state and local levels, not at the federal level.Medicare loses tens of billions of dollars per year to fraud. If you’re insurance company did that, it would go out of business.

      1. tenderloin

        I’ve heard this claim before. Apparently at any given time, 25% of children in this country are “food insecure” meaning they are uncertain as to where their next meal comes from. This 25% doesn’t remain static and the estimates are that in recent times as much as 50% of all US children will experience hunger for a significant stretch growing up.Not sure where they get those numbers but this documentary comes out tomorrow and is the most recent place I’ve heard them cited:http://www.hollywoodreporte

        1. ShanaC

          i heard it the same from the same place.

      2. ShanaC

        as a percentage, it is smaller than what people who defraud my insurance plan.

        1. Dave Pinsen

          And you know this how?

    3. pointsnfigures

      I might disagree with you on point 2, and points 4, 5. Most school spending goes to bureaucracy, not to the kids-or even teachers salaries. And the govt deals with costs on healthcare, not price so it will never be a market based price.

      1. ShanaC

        there are lots of other reasons it won’t be market based pricing (for healthcare).You’re life depends on how fast you get to a hospital if you have a stroke (may you never have one) what if the closest hospital isn’t covered under your insurance plan?

    4. LE

      “1 in 2 children go hungry, and going hungry rather than you know, concentrating on the things you are supposed to be doing as a kid like learning?We should be questioning why people are having children that they can’t afford to pay for.

  21. Girish Rao

    I think a key point here is that “the automatic spending cuts mostly exempted the disadvantaged”. Medicare and Social Security are mostly untouched by the cuts, which is a good thing. I’m also glad to see cuts being applied to the DOD. Might be a tough pill to swallow but hopefully a good move in the mid to long run.

    1. Jim Ritchie

      Not everyone receiving medicare and SS are “disadvantaged”, whatever that means. Entitlement programs must be cut going forward as the math just does work anymore.

      1. Richard

        ss is not an entitlement. it is a savings program that was raided.

        1. Jim Ritchie

          Putting aside semantics, SS is structured like insurance, not savings account. In fact, how it is funded is through Federal Insurance Contributions Act (FICA) payroll taxes. What you pay in today protects those around today and has nothing to do with what you may or may not withdraw in the future.

          1. Richard

            In the important field of security for our old people, it seems necessary to adopt three principles: First, non-contributory old-age pensions for those who are now too old to build up their own insurance. It is, of course, clear that for perhaps thirty years to come funds will have to be provided by the States and the Federal Government to meet these pensions. Second, compulsory contributory annuities which in time will establish a self-supporting system for those now young and for future generations. Third, voluntary contributory annuities by which individual initiative can increase the annual amounts received in old age. It is proposed that the Federal Government assume one-half of the cost of the old-age pension plan, which ought ultimately to be supplanted by self-supporting annuity planFDR

  22. Zachary Reiss-Davis

    I just don’t see what you’re seeing here — how does the across-the-board cut of discretionary spending help, well, anything? We agree it won’t fix the underlying problem, we agree it’s inelegant, and we (I assume) agree it’ll cut things that cost almost nothing but which are really important.It just seems like dysfunction in action.

  23. Ben La Marca

    Well put, Fred! The election is over and Obama was re-elected. It’s now time for him to lead and stop the national campaign tour. Deal with the realities of our economy and rising debt and work with Harry Reid and across the aisle with Boehner and Cantor to cut spending to complement his recent tax increase.

  24. LIAD

    Sequester…Fiscal Cliff…Debt Ceiling.Enough with the bullshit language.Enough with the prevaricating.Enough with the PR spin.Enough with the politics.Enough with the faux doomsday deadlines.Enough with kicking the can down the road.Time for everyone to *$&! or get off the pot.

    1. Tom Labus

      They would have to define “pot” and differ greatly

  25. Herman Chandi

    From an OECD post:http://www.oecdbetterlifein…”The chronic deficits however come from uniquely American characteristics. The SGI describes these as β€œin large part caused by Bush era policies, with tax reductions, especially or upper income groups, along with spending increases, especially for Medicare (prescription drug coverage) and the wars in Iraq and Afghanistan.”These are genuine American exceptions. No other country finds itself so indebted because of not taxing the wealthy, an extremely costly healthcare system absorbing 17 percent of GDP (about twice as expensive as other developed countries), and military spending. On the plus side, this means the U.S. has a significant amount of β€œlow-hanging fruit”. Theoretically simple actions could drastically increase revenue and reduce expenditure. If the U.S.’s tax revenue, health costs and military spending were brought into line with the OECD average, this would represent fiscal and economic gains of perhaps 15 percent of GDP. Admittedly this is a fantasy, but it shows the U.S. has considerable room for maneuver fiscally.”Point being, US Fiscal problems are actually easy to solve if people threw out their ideology and actually looked at data sets from other countries (hey, isnt the rage right now all about Lean Startup and the importance of data analysis and how that should form judgements about strategy????) and use that as a basis for solutions. It’s easy to revert back to bumper sticker lines like “spending is too much…government is too big”….which represents a dumbing down of discourse in the US since 1980. This is especially true on the revenue side…..try implementing revenue rates of peer nations who tend to have better stats related to a whole host of living standard metrics and debt as percentage of GDP. This means things like a national sales tax. Why is US healthcare spending at 17% of GPD when similar peer nation groups are half that? Data tells me it has to do something with gov’t involvement.

  26. Andrew Rasiej

    Fred, I agree with most of what you say, but because of your distinct position and experience, I wish you had additionally made the point that Gov’t could do much more to save money using commonly available technology to make Gov’t more efficient and effective, not to mention more transparent and accountable. Otherwise you sound like just another capitalist complaining about Gov’t spending. πŸ™‚

    1. Jim Ritchie

      If you have ever been involved in Fed Gov spending then you know there is no motivation to save money. In fact, it is the opposite. You are motivated to spend your current budget so that next year you will get your budget + next year increase. There is just so much waste and overall bureaucracy that only solution is deep across the board cuts.

      1. kidmercury


      2. Richard

        political industrial complex

    2. fredwilson

      “This won’t be a long post because I’m still not feeling 100%”opening line

  27. StreetEYE (@streeteye)

    If America was a startup the employees would all have quit and I guess the VC would be putting in new management?…Anyway, if we’re still at the zero bound, borrowing money and paying for productive stuff, like gigabit Internet and repairing crumbling infrastructure, is a good investment and doesn’t crowd out private investment.Leaving poorly educated kids with a country that’s falling apart and that can’t agree to do anything about it is the real debt problem.

    1. StreetEYE (@streeteye)

      btw, this is what government spending (Fed, state and local) as a percent of GDP looks like, excluding transfer payments (SS/Medicare etc.).There is a problem with rising SS and exploding medicare as boomers retire. There is a problem with inferior infrastructure, transportation, schools, Internet etc. And there is a problem with people not wanting higher taxes.A ‘spending problem’ is simplistic and inaccurate.(a) Real Government Consumption Expenditures & Gross Investment, 1 Decimal (GCEC1), Quarterly, Seasonally Adjusted Annual Rate, 1947-01-01 to 2012-10-01divided by(b) Real Gross Domestic Product, 1 Decimal (GDPC1), Quarterly, Seasonally Adjusted Annual Rate, 1947-01-01 to 2012-10-01

    2. JLM

      .Every 4 years we put in new management.The real question is — did we put in GOOD management?Based upon results, we apparently have not put in “good” management in a couple of elections.JLM.

      1. StreetEYE (@streeteye)

        If you want good management the board needs to have a basic understanding and agreement on the thesis and the business plan.

        1. JLM

          .Of course you are perfectly right.On the other hand, the Board should fire the management based purely upon results when the results are this bad.Then they should hire someone who actually has a VISION that is pragmatically possible and focuses on the policies set by the Board.Policy: balanced budget, lean operation, deficit reductionJLM.

          1. StreetEYE (@streeteye)

            if you want balanced budget and deficit reduction and one party rules out revenue, you’re gonna have a bad time.The notion that there is a party or constituency that is in favor of balanced budgets and deficit reduction is disingenuous.Everyone thinks, what government does for them, is progress, what it does for the other guy, is socialism.

          2. StreetEYE (@streeteye)

            if you want balanced budget and deficit reduction and one party rules out revenue, you’re gonna have a bad time.The notion that there is a party or constituency that is in favor of balanced budgets and deficit reduction is disingenuous.Everyone thinks what government does for them is their right as a citizen, what it does for the other guy is socialism.

          3. Druce

            BTW this is the sort of thing that makes me rage about Disqus… I post a comment, it apparently goes into black hole. Post again… right now I have 2 browser sessions open, one of them it shows up twice, the other one not at all. Seems like a shame. But mostly I think the UI scales poorly when you have 200+ comments, unlike reddit, where you can scan quickly, and where 1000s of comments magically turn into something semi-coherent, with the good stuff at the top.

          4. Montgomery Kosma

            Yes. It feels like Disqus was designed for a different use case than what happens here on AVC.

  28. Dale Patterson

    I agree on the point of Defense Spending/Pentagon. It’s time to make some responsible cuts. Oh and Steph Curry was cookin’ last night!

    1. fredwilson

      that kid is so good.

      1. LissIsMore

        should have been a knick

  29. mike

    A lesson in negotiation and trust. Boehner gave on the tax increases a month ago without getting anything “on the record” in return in terms of spending redcution. Did Obama move the goal post as Woodward says? The problem is this is not a game. They are playing with peoples lives. Will we look back on this time and call any of those involved a statesman?

  30. matthughes

    Great post Fred – may this good sense washeth over everyone involved.

  31. Patrick Keefe

    I’m just going to pretend I didn’t read this post because this is one of my favorite feeds in my reader.

  32. Lois Whitman

    You have managed to get my angry Republican friends to email me your blog post saying “Even the mighty Fred Wilson doesn’t think Obama knows what he is doing.” Thanks a lot.

    1. Tom Labus

      not so sure about that last one. The President may want these cuts and this gives him cover

    2. fredwilson

      i am an equal opportunity hater!

      1. William Mougayar

        I’ll nominate that one too as 3rd best quote of the week, since you prob won’t self-nominate it πŸ™‚

  33. Vasili Pupkin

    Sorry, Fred. You got this one wrong. There is no budget problem in the US, except for one thing: long-run growth in healthcare costs. A sequester that cuts a lot of useful things without addressing the actual root problem is complete non-sense. Yes, we do have a lot of waste in defense. So should we cut DARPA research funding ? of course not. Not saying that Obama is blameless but this is mostly a stunt by the GOP to avoid dealing with entitlements and still claim the mantle of deficit reduction, and you are going along

  34. Dian5

    The sequestration is far from perfect, but it’s miles ahead of the status quo!!

  35. JLM

    .This really has next to nothing to do with politics, it is about financial reality and the good news is that it can fixed easily if folks will just apply a dram of common sense. Here’s a military example.First — Let’s stop STUPID. In any turnaround situation, the most important thing is to stop the bleeding. The STUPID bleeding.Small thing — years ago the military replaced the M1911A .45 caliber pistol with the Beretta 9 MM S-92. StupidNo improvement in killing people because the military does not shot too many folks with pistols.Small example but cost millions of $$$.Let’s stop STUPID.We could DELAY — not cancel — every major weapons procurement program in the Pentagon (8″ howitzer,refueling, all ships, 5th gen fighter, etc) and literally save billions without cancelling a single program.Let’s stop STUPID.We could relocate every Division in the Army and Marines to a total of 6 posts (Ft Lewis, Ft Hood, Ft Bragg, Ft Stewart, Camp Lejeune, 1000 Palms) and save billions. NW, South, SE, E, E, W — great geographical dispersion.We need to stop bringing the fleet home every tour. Leave them in the Med, Diego, Australia, Pearl, Azores. Let them stay out there instead of steaming home.We could take every 1-2-3 star General and give those jobs to 30-year Colonels (as they once were). Consolidate all school locations to two in the entire US.None of these things impact readiness.Could easily hit the targeted numbers and then some.Ruffles some feathers? Yes.Blunt the tip of the spear? NoJLM.

    1. fredwilson

      “let’s stop stupid” and “SET HOUSE ON FIRE” are competing for comment pull quote of the week at AVC

      1. Montgomery Kosma

        Heh. I’ve been walking around all week quoting Frank the Bunny from Donnie Darko: “BURN IT TO THE GROUND.”

        1. fredwilson

          All in the same vein

          1. Montgomery Kosma

            Like a failing startup or marriage, sometimes hitting the big reset button is the best thing to do. I’ve experienced both and have no illusions that it’s easy.I’m not sure how that applies here. Probably just fantasy.

  36. JLM

    .Administrative and personnel issues —Let’s stop STUPID.Pay freeze, hiring freeze, 5% layoff starting with the #2 guy in every department, 10% across the board pay cut.By getting rid of the #2 guy you do not impact functional expertise. You flatten the organizations.Get rid of all czars.Let’s stop STUPID.JLM.

  37. JLM

    .Take each and every license issued by the Feds and double the applicable time period — 1 year licenses become 2 year licenses — add 50% fee and get rid of 10% of the processing staff.You just got rid of half of the administrative burden right?Every member of Congress with a $10MM liquid net worth works for $1 for the next 2 years.Let’s stop STUPID.JLM.

  38. JLM

    .Social Security —Means testing — sorry FredIncrease age eligibility to 68 — we are all living too well for too long, right?Competitive bidding for all meds, set national prices for everything but only through competitive biddingVeterans —Combat vets get 1.5 years for each year in combatStaff guys get 0.9 years for each year in serviceRetirement at 30 total years serviceVeterans Administration —Turn all VA Hospitals over to military.In one day a vet goes from being treated on base at the base hospital to being treated by the VA the day they get out or retireGet rid of the VA and let them be treated by the base hospitalLet’s stop stupidJLM.

    1. fredwilson

      don’t apologize to mei plan to refuse social security when it is offered to mei don’t need it, don’t want it, and would prefer to see my payments go to those who do

  39. JLM

    .Let’s get a energy policy —Drill everything public or privateApprove refineriesApprove nuclear — two per stateBuild KeystoneBuy Mexican, Canadian oil — every barrel being exported then stays at homeGas goes down to $1.25/gallonNo need to protect the Straits of HormuzLet’s stop STUPID.

      1. JLM

        .Totally insignificant from a money perspective and therefore outside the kill zone.The big low hanging fruit is things like moving the A-10 — the best tank killer ever invented — out of the inventory because of its perceived age when it has an imbedded base of pilots who can fly it like Beckham and there is really nothing out there more effective.Use even old stuff that works and delay huge, costly programs developing stuff that the entire pilot community is going to have to be retrained to fly.Use the pick up trucks and avoid the Ferraris.Just for the next 5 years.Not a difficult financial concept to master.JLM.

        1. William Mougayar

          Got it, but I was thinking ahead- if they like the research outcome, they might say let’s do thousands of tanks that way, and suddenly you have a multi-billion dollar project.

          1. JLM

            .That’s the part of the military budget that CAN be managed.Do the basic research. Get to the viable product. Hold the production until the financial situation is better.JLM.

  40. JLM

    .We have lost in A’stan. You cannot build a partnership with a narco – corrupt nation.Come home. Admit it.Let’s stop STUPID.JLM.

  41. Donna Brewington White

    “Might as well start taking our medicine now.”Either we will or our kids will. I’d rather it be us.If these past several years haven’t given us an appetite for strong medicine, I’d hate to see what it WILL take.

  42. David Petersen

    Reminds me of Jack Welsh’s GE days — just cut the bottom 10% of everything.Given the bloated state of our government, it’s unimaginable that they can’t find things to cut without really impacting anything.

    1. JLM

      .The wisdom of that approach is too simple and direct.JLM.

    2. LE

      ” just cut the bottom 10% of everything.”The bottom 10% of a GE employee has a much easier time getting a job then the average person who has been laid off.

  43. jason wright

    ‘the guillotine’ has a more visceral ring to it.

  44. rfradin

    My only issue with the sequester is the ridiculously bad media coverage. The CUTS are only cutting against PLANNED GROWTH. After the cuts, the government in 2013 will STILL BE LARGER than it was in 2012. That is the craziest part about Washington. We are arguing about cutting spending and acting as if we are severing a hand while, in reality, we are still growing the size of government spending.

  45. morefromalan

    Tough Republicans boldly protecting the earnings of their wealthiest constituents no matter the cost to society. I’d laugh if I didn’t feel a little bit nauseous.

  46. Steve

    US revenue as a percentage of GNP is (at about 16%) near a 60-year low. We need to get this economy going faster. With business sitting on $2-3T of cash, it’s clear that business can’t do it by itself (4 and 1/2 years later). I wouldn’t mind more well-targeted stimulus spending by the government. The sooner people have jobs, have money, and start spending, the sooner total tax revenue will go up and the faster the deficit will decline. Time is our biggest enemy. The longer this economy stays in slow-growth mode, the longer it will be until the federal budget is balanced.

  47. Lois Whitman-Hess

    Many of my sore loser Republican friends sent me your blog post saying even you are upset with Obama. Just what I needed.

  48. kirklove


    1. fredwilson

      haters gonna hate

  49. Montgomery Kosma

    What’s bloody insane is the 1984-ish language of the Beltway. The “cuts” in question simply mean slowing the rate of growth in spending. It would be a massive victory simply to get this vocabulary issue into the public consciousness.Holding spending constant year-over-year would yield significantly greater “cuts” than anything that’s on the table today.Insane or inane, take your pick. I think it’s evil.

  50. jason wright

    “6) Obama is acting like chicken little running around the country claiming the sky is falling. he doesn’t need to earn points with me or anyone anymore. he’s done running for office. it is time to start leading instead of stirring up fear.”There’s always the next election for his party though. If it loses then defense spending is unlikely to be significantly curtailed. The military economy keeps GOV in business.

  51. Dave W Baldwin

    Thanks for posting Fred and you’re 100% right.I won’t get into everybody’s comment, so many only have to do with who they voted for. If you look realistically at the cut, it isn’t much. It is the chance for those who’ve assumed responsibility to spend wisely.

  52. Montgomery Kosma

    Isn’t our buddy FAKEGRIMLOCK from DC? He should start eating the bastards. “Common sense or death” may be the only thing that can stop the Beltway practice of mindf**king the public and running America into the ground.



      1. Montgomery Kosma

        But, they are quite filling.

  53. Prokofy

    *Feels your forehead*. Fred, you’re running a fever here. You’re not yourself. Hope you feel better. This can’t be you.

    1. fredwilson

      Its me. I am not a communist after all πŸ˜‰

  54. jonwerbell

    The federal government needs a capital bugdet likes all cities and states.

  55. fltron

    The problem with this post, and with the sort of thinking @fredwilson and others exhibit, is it is more a matter of faith than logic. Fred makes statements that he’s sick of hearing Obama run around like chicken little and Krugman saying the same old thing. Sure, those are accurate emotional statements for Fred and others, but they’re not a reflection of what the right course of action is and what should be focused on. These emotions have absolutely no rational connection to the solution that is needed.Reality is that austerity hasn’t worked. Anywhere. The only economies that are doing well are the ones that are avoiding cuts. Sure there are outliners where the deficit is so terribly bad that probably nothing can be done, but the US is not in that position.What I’ve observed is when people get frustrated with a situation that has no solution, they move to extremes and whomever happens to annoy them more gets the brunt of their anger. Nothing in Fred’s position, or in the position of others that take this stand, is logical. Its all faith. ‘Austerity works! Glad something is being done! Yay!’When we’re frustrated we’re not able to dig deeper into issues and we go for the basic solution that makes the most immediate sense. This is like flipping a coin on where our mood strikes and a personal fault human kind generally has. We all do this. I’m not here saying I’m above this sort of illogical behaviour. However, it is important to point out when this behaviour is taking place.Fact: US spending has been decreasing since Obama took over on a federal and state level.Fact: If not for government spending cuts, the economy would have had a far bigger recovery (government cuts have consistently killed any progress the private sector has made on the unemployment rate).Fact: The reason for the mounting debt is tax cuts. That’s the primary reason. Tax cuts that never did help the middle class, but only helped the wealthy get richer.Fact: The only European economies healing are the ones not taking austerity measures.These are all facts. They’re only disputable in the way people dispute religion, in that you can dispute what you personally believe by ignoring reality. The sooner we step away from irrational frustration that leads us toward the simplest denominator, the quicker we’ll find solutions.To put differently, when we evolved we survived through impulse responses to things. Back then this was a matter of running away from animals, or competing tribes, or fighting to defend ourselves. These days we respond the same way to stressful situations, but our life is far more complicated. These situations are far more evolved. Our gut response to complex situations is not often the best one (exception: Unless we are very well educated on the subject, then gut responses are awesome. They’re not great for part-time economists)We need to grow a pair and think things through, and look at the facts. Not just react. And stop giving into a belief system when trying to solve the economy. Look at the facts. Challenge your beliefs.

    1. JLM

      .Ummm, the only problem with your comment is that it is glaringly wrong.Study Eisenhower — who delivered 8 straight balanced budgets — who not only routinely balanced budgets but cut defense spending on the heels of WWII and Korea. Built American nuclear arsenal. Kept us out of war. Initiated the Interstate Highway system.The first thing that has to be done in any budgeting process is to identify the foundation financial principles.Eisenhower started out with the premise that he WAS going to balance the budget. He started with the question — how much revenue will we have?Look at the State of Texas which requires its Comptroller to certify to the Legislature the projected amount of revenue to be available for the next two years.The Legislature cannot allocate anything more than that.Outcomes:1. Thriving economy;2. Balanced budgets routinely;3. Current surplus; and,4. Huge Rainy Day Fund.Most importantly — Texas controls its own destiny.Compare to California which does not adhere to those foundational, fundamental, pragmatic, financial disciplines.There is absolutely nothing even remotely emotional about financial discipline. It is a skill that requires discipline and honesty.It is being done at the State level routinely in the US today and when done the outcomes are very, very good. Take Texas out of the US jobs picture and the US creates NO JOBS.Compare Texas v California — very similar states, very different policies. Very different outcomes.Over 1MM Californians have moved to Texas in the last 5 years. They can’t all be wrong.Bottom line: Pres Obama, the current administration, the Congress cannot hold Pres Eisenhower’s jock.It is all about policy and not a whit of emotion. We are spending crackheads and Eisenhower was a grown up.JLM.

      1. fltron

        Hate to burst your bubble, but do you know the tax rate during Eisenhower’s era? 92% was the tax rate on the richest Americans. I completely completely agree with you that Eisenhower was doing things right. The thing is, he did it on the backs of the rich by taxing the hell out of everyone and keeping spending reasonable. This is, as you say, completely logical.What’s today’s rate on the rich? 35% theoretically, less in practice. The richest companies in the US are getting money from the government in tax breaks as they make record profits.What I’m suggesting is that while I agree with you, we have a long way to go. We can’t increase taxes 5 times in a matter of a year or two or ten. We can’t drastically cut on services in a year or two or ten. We need to gradually get out of this hole.Also, I agree with you that California is really messed up. However, so is Texas. While Texas is doing better financially, they’re doing really poorly as far as education and caring for the sick. We need to prioritize education, and Texas is not a model for a sustainable recovery.So.. are you willing to be as responsible as Elsenhower and accept a 92% tax rate? That’s what I’d be paying in the 60s and I gotta tell you, I wouldn’t be very happy about it.

        1. JLM

          .Nice try.Marginal tax rates on the richest are not tax rates. Period.Rich people were not paying those rates then just like Warren Buffet is not paying the highest ordinary income rates now.Rich people are shielding assets, borrowing against equity (not a taxable event), moving assets offshore and, at worst, paying capital gains rates.You are fundamentally FOS as it relates to Texas and any “sustainable recovery” — it has already happened. Unemployment in the Oil Patch is about 2%, friend.Any statistics about Texas have to factor in the immense impact of the illegals and recently arrived legals.You cannot compare Texas #s without making an adjustment for the impact of illegals.As to education, look at the Texas university system and the Texas Permanent Fund — UT Austin/San Antonio/Dallas/El Paso/Valley, etc. Texas A & M, Baylor, Texas Tech, TCU, SMU…..list goes on forever. We be doing OK down here.Look at and then decide which city in Texas YOU are going to move to.We would love to have you.Facts, they are MFers.JLM>

          1. fltron

            You know far more about Texas then I do, so I’ll bring it back to Krugman… he’s less then impressed. And he does use facts as well:…If you’re disputing that the rich were taxed insanely high during Eisenhower’s era, that’s fine, show me proof. All I’m able to find is insanely high tax rates.. certainly much higher tax rates then we have now.There is certainly a difference between the top rate and what was actually paid, but the taxes were far higher. Have a different statement, show me proof.

          2. JLM

            .Ooooooooooooookaaaaaaaay, let me double check something here, now let me see………………OK, I was right.Krugman lives in NY and I live in Texas and have been in business here for a third of a century. Whew, OK, I was confused for just a minute there.I thought Krugman might actually know WTF he was talking about but as it turns out, he does not.When in doubt, go with the locals.On Earth as it is in Texas.JLM.

          3. Derek

            Since the majority of 1% incomes are in the New York metro area, does that disqualify you from talking about their tax rates?

          4. JasonBoisture

            @fitron Here are the facts about Eisenhower-era tax rates:”In 1958, the top 3% of taxpayers earned 14.7% of all adjusted gross income and paid 29.2% of all federal income taxes. In 2010, the top 3% earned 27.2% of adjusted gross income and their share of all federal taxes rose proportionally, to 51%.”Certainly income inequality has increased (no argument on that issue), but what these numbers show is the share of federal taxes paid by the top 3% was about twice their share of adjusted gross income β€” in both 1958 and 2010 β€” despite the huge difference in the top marginal rate. Why wasn’t the burden much higher when the top tax rate was 91%? Two reasons: Because lower-class and middle-class earners now pay comparatively less, and because “…the confiscatory top marginal rates of the 1950s were essentially symbolicβ€”very few actually paid them…” More here:…Your argument that Fred (or anyone drawing similar conclusions) is relying on emotion, faith or illogic is, ironically, more of an emotional argument than the one you seek to dismantle. Your psychological analysis, lecture on human behavioral tendencies and history lesson on evolution is all very interesting, but irrelevant. If someone has made a fallacious argument, simply point out the fallacy and offer a sounder argument.Let me give you an example of how to do this. You said:”Fact: The reason for the mounting debt is tax cuts. That’s the primary reason.”This is a false statement. No credible source (if you find one, please cite) blames tax cuts as the primary reason for our growing debt since 2001 (the first year of the Bush tax cuts). Many sources have attributed the debt to a combination of spending, tax cuts, foreign wars and interest on the debt. A Pew Research study of the subject said 41 percent of the new debt since 2001 was attributable to new spending and 27 percent was attributable to tax cuts. It’s quick, interesting reading for anyone who really wants to know where our last decade of debt came from:…What’s funny is that in January 2001, the CBO issued a projection that the US would pay off its debt and post a surplus over the next 10 years. Obviously, we’ve gone full-speed in the opposite direction. Bush, Obama and their congresses are all responsible for what has essentially become the mismanagement of an entire nation’s economy for political gain. But if you don’t think they spent their way into this mess β€” and that this spending must be cut, no matter what happens with revenue β€” perhaps you are simply running on too much emotion. πŸ™‚

          5. fltron

            These are obviously complex issues. And statistics are always convenient.The Walmart family owns more wealth then the bottom 40% of the US population. Do you think they’re paying their fair share of taxes? Your statistic on the top 3% of earnings is kind of pointless because the real wealth is in the .1% these days, and they don’t generally earn an income.I get that these numbers back your belief, but percentages are only relevant when comparing like-models. The top 3% in the 50s is far different compared to today’s top 3%. If you don’t believe that the 1% is paying far more taxes now compared to the 50s then I’m not going to be able to change your mind. The WSJ article is filled with convenient statistics.But let’s move on, because arguing about something from the 50s is just turning into an irrelevant pissing contest.This is my all-time favourite chart. Wars and tax cuts will be to blame for half of the debt by 2019:…There’s a hundred charts like that one above. Tax Cuts are absolutely responsible for the deficit.In the 2000s the budget was balanced. The US decided that hey, they don’t need all that revenue coming in, so they’ll just stop taking it. The assumption was it would help the economy. It didn’t.I guess your statement of ‘no credible source blames tax cuts as the primary reason’ is true. But let’s not fool ourselves. Had those tax cuts never happened, the US would have been in far better position today.The January 2001 projections would have been absolutely true if not for the tax cuts and the wars.

      2. Aaron Klein

        JLM, just remember. When you try to argue with people who are anti-math, common sense rarely works. πŸ˜‰

    2. fredwilson

      my belief system is that institutions (and i believe governments are institutions) should run balanced budgetsi believe that deeplybalanced budgets are the key to sustainability

      1. fltron

        I absolutely agree with you. 100% Just not how we’re going to get there.Canada is a reasonably good example. Canada has always done ‘work projects’ to spend its way out of downturns and has far better managed its deficit up to this point. They did it not by drastic cuts, but by careful adjustments to the economy.I do think that debt is a part of having a balanced budget. Most people have mortgages and this is perfectly acceptable. Building bridges and roads means you take on debt sometimes, but like any business, there should be a reasonable way out of that debt.Question for you though. How much did we benefit from the reckless government spending around the world? Had we had stuck to a balance budget philosophy from the 80s and onward, I wonder if the US economy would have grown nearly as fast as it did.

  56. Swift2

    Remind me to spit on VCs.

    1. fredwilson


  57. George

    There’s really no skin in the game unless they cut entitlement spending! I share your thoughts on the above points.

  58. Derek

    Agree on everything but the last point. Are we actually raising revenues? My impression is the GOP won’t budge there.

  59. Le-el David Sinai

    Regarding point 6, I don’t think Obama is trying to win his reelection (regardless of the fact that he can’t run again). I think he wants to make sure the democrats maintain the seats the have in Congress, if not gain seats, after midterm elections in 2014. He doesn’t want his hands tied during the last two years of his presidency.

  60. fredwilson

    Maybe so. Its unfortunate that everything is about elections. But i get it

  61. ShanaC

    when is it not about elections?

  62. TBodily

    Seems a little generous… πŸ˜‰