Amid the wreckage of the 2008-09 Wall Street collapse and Great Recession, orthodox economists and political elites in both the United States and Western Europe have been strongly and consistently pushing the idea that the only way out of the mess is to deliberately make life worse for almost everybody. Details aside, this is the basic idea behind the austerity agenda that has become the conventional wisdom in both the U.S. and Europe, regardless of which political parties happen to hold office. It is the underlying premise for both the Democratic and Republican sides of the current debate over sequestration—i.e., imposing across-the-board cuts on social spending and defense, starting this coming Friday.

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This strange animal called sequestration is certainly wreaking havoc with our customary ideological boundaries.

If you’re an advocate, like I am, for revamped federal priorities that shift resources from a bloated Pentagon budget toward neglected domestic priorities, your take on this animal can’t be simple. You say cutting everything indiscriminately is a bad way to run a government (this view is nearly universal). You oppose the cuts in the domestic budget that will leave us with fewer food safety inspectors, medical researchers, Head Start teachers, and airport baggage screeners on the job. But you can reel off long lists of ways to cut waste in the Pentagon budget to the levels prescribed by sequestration, and show that these cuts will leave us completely safe.

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The austerity debate is now returning to center stage in Washington economic policy circles, after having been briefly pushed to the sidelines by the “fiscal cliff” deal struck by Congress and President Obama at the very end of 2012. Whether to cut social and/or military spending, how much to cut, who takes the big budget hits, and, most basic of all, why the mainstream political debate is still fixated on the deficit rather than on mass unemployment, are all huge questions. Many sensible people, including my co-bloggers here, and I have discussed these issues many times, and will continue to examine them.

But before plunging into these specific matters yet again, I want to return to an equally important feature of austerity in the U.S. today which receives almost no attention (the outstanding blog post by Jane D’Arista here being one major exception). The issue is very simple: small businesses have been starved of credit since the onset of the Wall Street crisis at the end of 2007.

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