It was a good idea that has gone horribly wrong because economic and financial realities have been ignored in favour of dogma and political self-interest. US Democrats and Republicans had agreed to $85 billion (Dh312.63 billion) automatic spending cuts, beginning next month, if they fail to reach a deal on deficit reductions. As yet, they have not. On their own, the spending cuts are not a bad thing. Although the US can afford to service its spiralling debts, its deficits must be brought under control. The problem is that the cuts will be sudden, deep and indiscriminate. This fiscal shock is expected to be a drag on US economic growth when it — and the rest of the world — can least afford it.
The aim of government spending cuts must be to reduce debt and waste and free up resources for productive investment and sustainable social services. This requires a considered deficit reduction programme, not the indiscriminate slashing of spending, not protected by special interest groups. For now, the best hope is that the administration will be given the power to chose where the spending axe will fall. But the Republicans remain rabidly opposed to US President Barack Obama or any tax hikes necessary to help US finances. In any event, a possible solution will be part of the ongoing brinkmanship in US budget negotiations, which could end in a damaging shut-down of the government at the end of March.
Politics continues to trump good fiscal governance in the US, at great cost to global economy.
