By John Rapley
Midnight passed in Washington last Thursday, and still no last-minute deal was reached on the sequester - the automatic spending cuts which are the latest instalment in the United States' rolling fiscal cliff. After agreeing to tax rises at the end of December, which took effect as the year begin, congressional Republicans refused to budge any further. Discretionary spending will now be slashed at rates that could make Jamaica's austerity look tame.
Despite President Obama's efforts to paint a dire picture of the impact of spending cuts, Americans seem pretty complacent at the moment. In part, this is because many of them will not feel the impact of austerity very deeply, at least not initially. Some sectors, like defence contractors, will be very hard hit. But other constituencies, like pensioners, won't.
Meanwhile, spending cuts will be spaced out in such a way that layoffs and leaves might not really ramp up until later in the year. By then, a new deal on spending may have been reached.
Still, it would be wrong to adopt a don't-worry-be-happy attitude to America's political bumbling. The calm that prevails may remove the sense of urgency which has forced budget compromises in the past. Few economists believe that the cuts won't have some kind of restraining impact on the US's fragile economic recovery.
Wear on confidence
Most important, this constant lurching from one crisis to the next is starting to wear on the confidence of ordinary Americans. They have taken to postponing major saving and investment decisions because they are uncertain if their incomes will drop, or taxes go up. Humans are infinitely adaptable creatures, and we find ways to live with environments and governments we don't like, be they socialist or conservative. The one thing we're bad at is adapting to an environment that is uncertain.
And it's not just in America that the future course of politics looks so unsettled. Italy's recent election plunged the Eurozone back into uncertainty, as a majority of voters opted for parties that want to take the country out of the common currency. Mar-kets, and the Germans, had been hoping for a moderate, centre-left coalition that would continue with the harsh austerity programme needed to wrestle down Italy's debt and restore confidence in the euro.
They didn't get it. Instead, former Prime Minister Silvio Berlusconi, presumed dead just a few months ago, rose from his political coffin, like a weathered Bela Lugosi hearing the organ music. Meanwhile, the Five-Star Movement, led by a former comedian, surged in popularity on its platform to oppose all Italian parties.
Italians, quite understandably, resist the German-inspired austerity policies that have helped worsen the country's recession. The problem is that the alternatives proposed so far are scarcely viable. And investors can only be rattled by the potential for a return to power by the clownish Berlusconi, whose principal contribution to the dispute with Germany was reportedly to say he could never imagine wanting to sleep with German Chancellor Angela Merkel (though he used a slightly pithier choice of words than The Gleaner would want to publish).
But with no clear winner in the Italian election, and with nobody able to agree who should be the next leader, Italy is drifting at a critical time. And if Italy drifts, uncertainty will cloud Europe. And uncertainty clouds Europe at a time when unemployment is rising, and the economy bumping along bottom.
And now the Americans step into the mix, adding their own uncertainty in the midst of fragility, if not recession. It's no way to run a country. But it is a democracy, and the people are reminding the powerful few who concoct the economic policies that are supposed to save the rest of us that they, too, would like a seat at the table.
They may not, at least not yet, be able to articulate a vision of what they want. But they evidently know what they don't want.
John Rapley, a political economist at the University of Cambridge, is currently on a visiting professorship at Queen's University in Canada. Email feedback to firstname.lastname@example.org and email@example.com.