Sequestration Spending Cuts Are Nothing Like European-Style Austerity


With the advent of the sequester, we are seeing a set of cuts that were designed specifically not to take place.

The worst effects of the sequester have yet to come into effect, with a government shutdown and enforced public-sector furloughs due to take place within the month. These cuts have, so far, failed in their aim to prompt meaningful action on behalf of Congress and the White House. While the situation remains grim, the comparisons with European austerity are somewhat premature.

Here in the United Kingdom, Chancellor George Osborne has doubled down on austerity measures. Operating under the slogan “we’re all in this together,” the Conservative-Liberal Democratic government has decided to embark on deep cuts to social programs, and raise taxes on middle-income earners, while eschewing a proposed tax on homes over £2m in value. Ratings agency Moody’s has weighed in by downgrading the UK’s credit rating from AAA to AA1, due to their expectations of “sluggish’’ UK economic growth extending into the second half of the decade. While this move is likely to have greater political ramifications than tangible fiscal implications, it serves as a damning indictment of the country’s strategy of cutting its way out of the crisis. In an attempt to defer blame from his parties’ own policies, Cameron has floated a referendum on Britain exiting the EU, implying that this would be a solution to the floundering economy. In truth, the problem is ideological, and is facilitated by a system of government that generally affords considerable power to the legislature.

What we see in Europe differs from the current sequestration battle. The difference with this current debacle is that it has been manufactured by inaction, rather than policy. As mentioned, the sequester was designed as a deterrent, with both sides engineering it as a reason to make progress. Rather than intentional and targeted cuts, it is a case of dramatically underestimating the quagmire that is this current stand-off. The ham-fisted nature of the cuts, while more amenable to Republicans, do not represent a permanent strategy. Government shutdown and worker furloughs are not sustainable in the long-run.

As these cuts are unsustainable, it is likely that we will, once again, see an agreement that does just enough to get by. What appears to be likely is an agreement to extend to the end of the fiscal year. Based on the history of this continued debacle, and the likelihood that both parties will want to avoid a repeat of the 1995 shutdown, it appears that we will muddle through to another arbitrary deadline.

Rather than an attempt at creating European-style austerity measures, we can view the latest sequester fight as another example of Congressional gridlock. While there may be those who crave such measures, we can’t expect any dramatic turn in policy while the current malaise continues.