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Businesses and Families Have Already Endured a 'Sequester'

Rick Newman

Airport lines will snake out the door. Teachers and firefighters will get laid off. Military training will be canceled, leaving the homeland vulnerable.

These are just a few of the calamities that will supposedly occur if "sequestration" goes into effect on March 1, cutting about $85 billion in government spending through the rest of 2013. Yet the majority of Americans have already dealt with more sizeable cutbacks in their own lives, while finding ways to prevent disaster. The federal government, in fact, may be the only big institution that hasn't slimmed down lately, giving taxpayers yet another reason to distrust the feds.

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The whole sequester scheme dates to 2011, when Republicans and Democrats agreed to across-the-board spending cuts affecting most government agencies if Congress couldn't come up with a more coherent way to reduce annual deficits. Congress couldn't, so the sequester is poised to go into effect.

Like most of the wearisome budget battles inside the Beltway, the sequester wouldn't be that big a deal if Washington had simply laid out a predictable timeline for austerity measures to be phased in gradually. But instead, political brinkmanship has generated yet another all-or-nothing standoff, with nobody quite sure what will happen once the fateful deadline arrives.

On a full-year basis, the sequester is supposed to reduce spending by about $110 billion per year for nine years. That amounts to about 3.8 percent of federal spending in 2013. In a $15.8 trillion economy, the sequester represents about 0.7 percent of GDP.

Many families and businesses have had to make far more drastic cutbacks. From 2007 to 2011 (the latest data available), median household income fell by 8.1 percent. Most families have adjusted to lost income by spending less, downsizing where they can, and doing without things that aren't absolutely necessary.

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As most workers know, doing more with less is a major corporate trend as well. Here are just a few of the prominent companies that have had to deal with sizeable drops in revenue, according to data provided by S&P Capital IQ:

--Ford: 21 percent drop in revenue since 2007.

--General Electric: 15 percent drop.

--Home Depot: 11 percent drop.

--Allstate: 9 percent drop.

--Whirlpool: 7 percent drop.

All of those companies are profitable today. They had to slash costs and in some cases lay off employees to adjust to tougher circumstances. But that's the point: Companies must adjust when revenue falls--no matter how painful--or risk going out of business. Companies that don't adjust end up like Hostess, Borders, and many other firms that landed in bankruptcy court.

Many budget experts point out the federal government isn't like a business and shouldn't be held to free-market standards. The government is supposed to do things that can't be done by the private sector, such as defend the nation and maintain a social safety net. The profit motive that governs ordinary companies doesn't apply when services must be offered equally to everybody, or when cost cutting would be counterproductive. But the idea that the government can't trim expenses without causing havoc is absurd to the millions of Americans who have already cut back in every other aspect of their lives. When President Barack Obama and his Cabinet officials warn of chaos from the sequester, they're basically saying the government can't adapt to leaner times the same way taxpayers who fund it have already done in their own lives.

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Since 1980, government spending has surged by three times the rate of inflation. There are now at least 20 different Cabinet-level agencies (depending on how you count), and there has been no meaningful consolidation of the federal bureaucracy since the end of World War II.

In the business world, by contrast, just about any company trying to do things the way it did in 1980 or even in 2000 is dead and gone. That makes the federal government about the only institution left in America that's still clinging to the ways of the past.

Rick Newman's latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

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