March 1 has come and gone, and the sequester deadline has been reached in the United States. As this piece goes to the electronic press, federal agencies and government administrations are beginning to determine where cuts will be made, expenditures reduced, employees furloughed and so on.
It sounds like a dire scenario, and politicians and the media have been somewhat alarmist about the sequester's effects on the American economy. But I'd like to offer a different point: I want to challenge all of us to consider the future, rather than reacting to an event that makes up a very small portion of the economy.
Remember, the sequester cuts themselves are only a reduction in the increase in budgeted expenditures from year to year. There is no reduction in absolute terms in the amount of government spending attributed to the sequester. It's a good time to get some perspective on how fiscal austerity is now a permanent part of the national, if not global, conversation.
It's important to take a step back and look at the bigger picture in this story because the implications of austerity will be with us for several years-less spending, increased government obligations and more. What does all of it mean for you, the CIO?
1. There's a Long-Term View to Fiscal Reckoning, Reconcilement
The sequester is getting a lot of attention, probably because it was this fixed date with easily identifiable and quantifiable repercussions and consequences that everyone said they wanted to avoid. (Whether everyone actually did want to avoid them is a deeper political story for another site). But the story is much bigger and longer term than the next few months or even the next year. We may be grappling with yet another "new normal" as the United States-and the world as a whole, to a degree-get its fiscal houses in order.
As Wells Fargo senior economist Mark Vitner said in a December 2012 interview with the Charlotte Business Journal , "The fiscal cliff [was] the beginning, not the end. Fiscal policy will continue to restrict the economy and the bite from taxes will continue to get higher and higher as deductions get whittled away over time."
A resolution to the sequester's effects, if it comes, is by no means the end of the challenging time. The moves you make during this period of uncertainty-investing in certain kinds of staff, shifting services and producing consolidation savings, and identifying new business opportunities within the information you already have-will set you up well for the future, as the economy continues to internalize the effects of getting back on a positive track.
2. Austerity Is a Managed Decline, Not a Free Fall
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