Hagel faces up to contradictions in the US economy

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At the beginning of this month another major package of cuts was due to began taking its toll on the US economy.

Though it lacks some of the drama of the so-called "fiscal cliff" that caused so much Congressional chaos at the end of last year, this latest bout of fiscal tightening isn't lacking in severity. Unlike previous mandatory cuts packages, this "sequestration" of funds, originally put forward by President Obama in August 2011, is due to kick in gradually over the next ten years. This will involve budget cuts amounting to an eye-watering $1.2 trillion.

The Medicare (healthcare for the elderly) budget is set to be slashed by $123 billion, while unemployment benefits and other social services will be hit as well. But the largest cuts will fall on military spending - and this is where splits in the US ruling class are likely to manifest themselves.

The US is shifting its military focus to the Pacific. While it is facing a growing challenge from China, the US military is still vastly superior to any other army in the world. But sequestration of Pentagon funds totalling $600 billion will put further pressure on America's ability to assert its military dominance around the world.

All this will be a major headache for incoming defence secretary Chuck Hagel, whose appointment faced opposition. At least he can rely on the Republican's displaying their usual sagacity - Texan Republican Ted Cruz suggested Hagel might have been in the pay of North Korea. But the Republicans could split over sequestration - not of course out of any concern for the damage it will cause to users of Medicare or the unemployed, but because right wing hawks fear its impact on the military.

Analysis by the Financial Times suggests that sequestration will damage US growth, especially in the short term, without bringing down national debt.

Jack Farmer