Is it the truth though? Is the way to encourage consumer spending to take more jobs away? Logic would dictate that this would decrease consumer spending. The only way that it could possibly encourage a private sector led recovery is if the savings were passed on as tax cuts for small businesses or the self-employed.
Then there is a risk that this could fail. Less jobs equals less tax revenue. Less tax revenue equals higher budget deficits.
Its a vicious circle. Cuts in public expenditure would equate to falls in public revenue, not only through taxation of public sector employees but also through the loss of contracts to the private sector.
Yes a cut in public spending could be the long term answer, but only if the savings are used to introduce real incentives for entreprenuership and outside investment.
The US situation almost exactly mirrors the UK dillema, albeit the UK situ is even worse right now.
Those public sector jobs need to be replaced by private sector jobs. The likely effect is further falls in private sector jobs. Unless the government cuts corporate taxes.
What you have to answer is the following question.... "How do you encourage economic activity and a private-led recovery". Otherwise further job losses could be catostrophic.
There are two answers that I can think of. Number 1 is to devalue your currency by drastically lowering interest rates. Number 2 is to cut corporate taxes. It seems however that your interest rates are already as low as they can go. I don't know anything about corporate taxes or what US businesses have to pay on their revenues.
Ironically, your government has a plan to make US employees more attractive to corporations, which is rejected by the generally more capitalist right. By making healthcare the burdeon of the taxpayer, and not the employer, it is cheaper for corporations to employ domestically / relocate operations to the USA. The burdeon of healthcare would be placed on the employee through their tax payments.
This would ultimately mean less disposable income for those employed, but less people unemployed. Sounds fair to me.
I dont think that there is any easy answer to be honest. A cut in public spending could be more expensive to the country than maintaining current levels of public spending.
It is more than possible for cuts in public spending to cause a "double dip" recession. The alternative is to wait for the natural private recovery, whenever that may be, and then work on permanently reducing public spending only when the labour markets can handle the transistion.
Its a little like you or me reaching the peak of our spending power. Do we pay more than our required mortgage repayments when we get a $10000 pay rise? Or do we pay the same and hope that our earnings keep on going up for the 25 year term? With the ultimate risk that you may find yourself earning hardly anything 5 years ago thinking "damn, I wish I had put some money away when I was earning lots, or made more progress on my mortgage repayments".
What happens if you start making lots of money again in a few years? You learn from your mistake and pay as much of your mortgage off as you can, whilst you can.
Perhaps this is the lesson that western economies REALLY need to learn. When the times are good, reduce your debts, work at a surplus at all times. So that when the times are bad, you dont regret your wastefullness.
I see the UK, and the USA, as countries with really badly managed finances. Just like that friend that everybody has who once had it all and lost it. Thankfully the situation is pretty global, maybe that friend will make sure he never loses it again.
What would be your answer, leeberttea, to the cut in public spending? What would this achieve? Want would you want out of the deal?
