A well known political maxim is that politicians remain in office when they bring home benefits for their constituents. Nothing proves this point more than how the sequester process protects the senior citizen entitlement programs – Medicare and Social Security – while cutting federal spending for the most economically disadvantaged Americans. One of the nation’s most prominent sell-side analysts, Natalie Cohen of Wells Fargo, thinks the effects of these cuts have big consequences, and eventually could even be socially destabilizing. From Cohen’s recent report:
Medicare is lightly touched (2 percent) and Social Security not at all. We see Congress protecting the programs that matter most to retirees while traditional anti-poverty programs, largely managed by state and local governments, are being rolled back. In all, we see a more disturbing longer-term trend away from a vision of government that assures opportunity for all citizens while protecting the poor. Over the longer term, we believe this new approach will deepen the divide between ‘haves’ and ‘have not’s’ both generationally and racially, a trend that could lead to unrest, in our view.
Last December over 2,700 institutional investors voted Cohen the first place sell-side research director and generalist analyst in Smith’s Gradings municipal analyst poll. She is considered one of the leading thinkers in muniland.
Here is more of her analysis:
Many of the discretionary programs now subject to sequester were borne of the civil rights movements of the mid-1960’s. Programs designed to alleviate poverty and create opportunity such as Title I for disadvantaged schools, Head Start, Fair Housing and the current version of low-income rental assistance are examples. Apart from sequestration, the Voting Rights Act, also borne during that era, is now subject to challenge.
Although these programs, many of them focused on areas of concentrated poverty, were developed with lofty goals, they did not stanch the economic bloodletting of the Great Recession. Dionissi Aliprantis, Kyle Fee, and Nelson Oliver of the Federal Reserve Bank of Cleveland wrote in January, 2013: