Sequestration of Reason

The inability of Democrats and Republicans to arrive at an agreement has brought the U.S. to the brink of budgetary sequestration, i.e. the automatic application of cuts in public spending, anticipated for some time, with half of these in defense. It is bad news for the world economy. These measures could slow down the North American economy. Its growth forecast, near 2 percent, could see a decrease by nearly one percentage point per annum. The European economy is shivering, the Japanese economy is on life support and emerging economies are growing at a slower rate than the last few years. Therefore, the effects of sequestration on global commerce, above all in recessionary areas, will be negative. It will deter demand and punish growth.

For the U.S., the reduction in spending by $85 billion this year, or about 2.4 percent of the federal budget, is even more damaging: It contradicts the expansive orientation of monetary policy; it could increase unemployment by nearly 1 million people; it introduces arbitrariness in budgetary applications; and it scarcely became refined upon focusing on the catalog of cuts, thought of as a draconian script which would force the two parties to negotiate. And it has already begun to erode Washington’s military deterrent ability, having canceled the deployment of aircraft carriers in the Middle East.

The sequester is the third station of the cross initiated by the disagreement over the debt ceiling in August 2011. This was falsely closed, growing it and appealing to negotiate the reduction of the deficit toward the end of 2012 — the “fiscal cliff.” While this saved the fundamental aspect, the increase in tax rates which represented 80 percent of the package, spending reductions were left for March. The present failure, while bad, is not as catastrophic as the fall from the “cliff” would have been. It would have represented a 5 percent reduction in GDP and perhaps the United States’ entry into recession.

The Republican dogmatism about government spending is the principal cause of this setback. But it is seconded by the Democrats’ errors in negotiation: Once the tax increases were agreed to in January, what interest would their rivals have in adjusting positions? And neither did President Obama’s strategy, which gave precedence to distress over designing a comprehensive reform, do any favors. The U.S. is thus on the verge of a hopefully brief institutional-economic paralysis with a bitter Mediterranean flavor.