Sequester was, in principle, set up as a strategy of deterrence. The idea was to create an outcome that would be so terrible for all of the parties involved that the costs of standing on principle would outweigh the benefits of compromise. Hence, the language of the Fiscal Cliff, with which all Americans are familiar. The Fiscal Cliff was a combination of across the board automatic government spending cuts (sequester), the expiration of the Bush-era tax cuts, and the end of the pay-roll tax cuts. Unless Congress could pass a budget before the end of the year, taxes would go up and spending would go down, deepening the financial crisis. The budget debate dragged on throughout December as each side pulled the other closer to the edge of the cliff threatening to step off. Scrooge-like, the politicians begrudged the American public their holiday from partisan politics and the gloom of financial distress.
The fiscal cliff debate reads like a page out of Thomas Schelling’s instruction manual on nuclear deterrence. He instructs statesmen in how to manipulate the risk of nuclear war in order to prevail in a conflict of wills. Likening the situation to two individuals hand-cuffed to one another standing at the edge of a cliff, in order to prevail, one must convince the other that he or she is willing to jump, plunging both to their death, unless the other caves.
In the end, the threat of the Fiscal Cliff failed to do its job. It did not force a grand bargain, but rather a minor compromise (preserving Bush-era tax cuts for the middle class, but raising taxes on the top 2%. and delaying sequestration). Deterrence failed and sequestration has now taken effect. And now for the irony. As Jeffrey Lewis so nicely points out here one of the only things not being cut is support for the US nuclear deterrent.
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