Hamish McRae: US's live experiment is a very harsh squeeze
Sunday 03 March 2013
Sequestration is a horrid word, and as far as the current US usage is concerned it is an inappropriate one.
The normal meaning on both sides of the Atlantic is the process of seizing something from its owner by law from the benefit of creditors or the state. But what is happening in the US now is different.
The word refers to automatic non-discretionary increases in taxation and cuts in spending, as enacted by Congress. It is not seizing; it is squeezing.
The US is conducting a live experiment in fiscal policy. There are decent arguments that the process is not a good way of engineering a fiscal squeeze. Much US government spending is mandated and cannot be cut, spending for example on Medicare and social security. So the burden falls on the relatively small amount of discretionary spending, which includes defence, infrastructure and education. There are tax increases too, for example the higher payroll taxes that came in last month, but arguably these are not well-designed either.
It is also an economic experiment, to determine how a fiscal squeeze affects the world's largest economy. First signs are that consumers in January ran down savings to offset the higher taxation. Incomes were down 3.6 per cent, but spending was up 0.2 per cent.
Real income – after inflation – fell by 4 per cent, the biggest decline since records began in 1959. Did you realise that this squeeze in the US is much harsher than anything we have experienced in the UK? As they say in New York, when the going gets tough the tough go shopping.
- 1 Alan Rickman admits editing 'terrible' script with friends in Pizza Hut behind backs of writers on Robin Hood: Prince of Thieves
- 2 18th century sex toy found in 'toilet of sword fighting school' in Poland
- 3 US? China? India? The 10 biggest economies in 2030 will be...
- 4 'I wish my teacher knew...': Young students share their 'heartbreaking' worries in notes
- 5 Rebecca Francis accuses Ricky Gervais of using 'influence' to target female hunters after receiving barrage of death threats
General Election 2015: David Cameron catching up in polls – but he badly needs a clear lead
Alan Rickman admits editing 'terrible' script with friends in Pizza Hut behind backs of writers on Robin Hood: Prince of Thieves
South Africa xenophobic attacks: Shops looted and violence on streets of Johannesburg as foreigners are forced to hide in police stations
18th century sex toy found in 'toilet of sword fighting school' in Poland
'I wish my teacher knew...': Young students share their 'heartbreaking' worries in notes
The only black face in the Ukip manifesto is on the page about overseas aid
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
Ukip is the only main political party to not address LGBT rights in its manifesto
Food banks: One million Britons will soon be using them, according to Trussell Trust
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
iJobs Money & Business
£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...
£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...
£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...