Austerity America: The United States face an uncertain future

The munificence of Uncle Sam may suddenly be diminished as of late tomorrow night when a slew of painful and indiscriminate government spending cuts are due to come into effect. America, land of the free-spenders, is about to get its first taste of European-style austerity.

A product of the failure of Democrats and Republicans to agree on a prescription to cure the country’s deficit disease, the cuts – $85bn by the end of this year and $1.2trn over 10 years – are due officially to come into effect at midnight tomorrow. No one wants them; no one seems to know how to avert them. A nation has been left to stumble blindly into unknown fiscal territory.

For its part, the International Monetary Fund warns that, if fully implemented, the reductions will trim about half a percentage point off the country’s economic growth rate in 2013. All across the US, interest groups and industries are warning of particular areas of calamity. Farmers, for instance, are predicting the “first widespread shortage” of meat, poultry and eggs in decades because of cuts to food inspection teams.

The impact will not become clear all at once but, without a political truce soon, it may quickly become unmistakable. Exempt are welfare programmes for the poor and vulnerable and military salaries. But everywhere else, government will be forced to pare back on budgets. First to feel the brunt may be federal workers who will be asked to take furloughs – periods at home without pay – starting 30 days from today.

But the list of potential victims is much longer, particularly in the defence sector, because half of the cuts will fall on the Pentagon. The industry warns that the reductions – known as the “sequester” – will end up costing 2 million jobs. Among others are airports where security screeners and air traffic controllers could be culled, the medical research community where funding is likely to dwindle and national parks where money for rangers will be slashed. Glacier National Park in Montana says snow ploughing to clear its famous Going-to-the-Sun Road may not happen this summer.

“It will be like watching a multiple-car pile-up on the highway that’s going in slow motion,” Emily Holubowich, a healthcare lobbyist who has being trying to steer Congress away from the brink on behalf of 3,000 clients, told USA Today. “It’s like that old saying, ‘You don’t know what you’ve got ‘til it’s gone’.”

The “sequester” is the bastard child of the debt ceiling negotiations that nearly went so badly between President Barack Obama and Congress in 2011. A deal was finally done (though one credit agency had by then already withdrawn America’s triple-A rating) but only after the White House tabled this sop to Republicans: if we can’t agree a further $1.2trn in spending reductions over 10 years between now and 2013 they will come in automatically. Half will come from the Pentagon and half from elsewhere. That is how the “sequester” was born. A super-committee of members of Congress was convened to agree on an alternative, less arbitrary route to reducing the country’s $16.4trn debt pile, but it failed.

Even until recently the White House was seemingly gambling that the Republicans would still blink and be forced into negotiating an eleventh-hour alternative package of cuts – one of which would include increasing tax revenues for the government as Mr Obama insists should happen – because such deep defence spending cuts would be simply unpalatable to them. The strategy didn’t work – the Republicans haven’t budged.

Last minute manoeuvrings by Senate Republicans to craft an alternative to the sequester appeared to be going nowhere (one envisaged giving the President discretion in deciding where the spending cuts would fall). And this morning, President Obama is due to meet with congressional leaders in the White House, including Republican house speaker John Boehner. No one in Washington thinks they will be doing anything however beyond trying to place the blame for the mess on the other side.

So tomorrow night’s deadline will almost certainly not be met and the axe of the sequester will fall. But politically, this is a disaster that foretells a much bigger calamity. Or two calamities. At the end of March, the arrangements for funding government altogether expire and if they can’t agree on a new law to extend it, a government shutdown could happen. Then in May it will be time to raise the debt ceiling yet again.

The passing of tomorrow night’s deadline might go largely unnoticed by the wider American public, at least for a while. But the political incentive for resolving the differences between the parties before the next two deadlines will be much greater. Nothing scares Washington more deeply than a failure to agree an increase in the debt ceiling and the prospect therefore of American failing to keep up with the payments on its debt. That may be the moment when a grand-bargain on deficit reduction that has eluded Washington for the last several years might finally be mashed together. To assume that will happen may still be rash, however.