We will soon be a full week into the foolish sequester experience in the U.S. So far it is way too soon to assess the damage to the growth rate and the slowdown in employment that cutting the first 100 billion $ from government spending will bring about. But it ought to be clear that even this relatively small amount in comparison to overall spending sends the wrong signal about how to recover from a recession and is nevertheless significant.
Key areas being cut back include defense , important aspects of services to the poor and general provision of services in the U.S. More importantly it sends the wrong signal to consumers and employees that the time for retrenchment is now just when the economy was showing some signs of recovery. The bullish tendency in the stock market if it continues, supported as it is by an accommodating monetary policy benefits wealthier Americans and the financial markets but this needs to be translated into job creating investments and not just increased savings for those who own stocks.
In the U.K. where growth has turned negative and the economy is on the cusp of a triple dip recession the senior Liberal Democrat minister of business Vincent Cable has called for a program of investment in education, infrastructure and housing financed by deficit spending as a partial alternative to the Osborne austerity program.He argues that the markets might well accept this as an alternative to the full speed ahead strategy of Osborne, Cameron and Clegg. Although Cable is proposing only a modest investment program in his article in The New Statesman this is an important break in the wall of the austerity co-alition that emerged out of the last election and it is an important development.