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Sequestration – Compare and Contrast

Spending other people’s money (OPM) is fun. Just ask the federal government, and the crew running Detroit.

But the sequester will rattle smaller companies already toughening metals, crafting parts, and writing software for planes that won’t be ready for years. Some of these suppliers, analysts predict, will leave the defense industry or go out of business, imperiling the weapons they build. “With sequestration, what looks like modest cuts at the top of the system, down at the supplier level looks like the difference between life and death,” says Loren Thompson, chief operating officer of the Lexington Institute think tank and also a consultant to Lockheed. “It could be the difference between making and losing money for a small enterprise located far from the capital.”

Even for those that survive, the cutbacks will likely change the way they build their budgets, forcing them to reduce risk by raising costs—at taxpayer expense. Unexpected reductions will strain already-thin margins. If a company has prepared for more business, for instance, it may have invested in machines, buildings, staff, and even parking lots. Less volume means charging higher prices to defray those costs. It’s like a shared apartment: If one of three roommates moves out, the others still have to pay the same rent. They may need higher salaries to afford it.

The Sequester Will Lift, Not Cut, Defense Costs

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