Jahangir's World Times First Comprehensive Magazine for students/teachers of competitive exams and general readers as well.
There is a popular belief that ‘reducing spending will solve all of our state’s financial problems. People who hold this belief obviously haven’t thought through the statement very carefully
Let’s consider a few simple examples so that everyone can understand what the problem with austerity measures is.
Suppose that a middle-aged person has enjoyed a prosperous career with a competitive middle-income salary and good benefits. One day, his boss lays him off. Despite his best efforts to find a job, he remains unemployed for quite a while. The nest-egg he had saved for retirement is gone. He has nothing left but the bills keep coming in.
The worst bit of advice one could give him is to ‘cut back on your expenses.’ He probably has cut back on all expenses, leaving just food and shelter costs to carry on. Cutting back on expenses can only do so much for the individual before other measures have to be implemented to improve one’s financial position.
Businesses are no different than individuals on this count. When a business is failing to connect with customers, two things are usually to blame (1) overspending or (2) the product/service offered is not good. Failing businesses typically believe that overspending is causing the business’ failure. So, businesses cut back on spending. The trouble is that it’s likely that the business is not overspending but that the product or service offered is poor when it is compared with its competition. Business owners rarely think of this as the root cause of the business failure because they’re delusional. Business owner thinks, ‘Well, I like my product/service and other people are just like me, so others like my product/service.’ It’s hard for business owners to find out that their product/service is not at par with current standards. Again, as with individuals, for businesses to succeed it is not enough to cut back spending. Other measures must be implemented for the business to prosper.
If austerity measures don’t work for individuals and they don’t work for businesses, why in the world would we think they should work for governments? To some people’s minds, governments ought to be run like businesses, and they believe that those most qualified to run for office are former business owners, investors, etc. So no part of this argument should be anything new to these highly qualified individuals.
They should know that cutting funding for educational opportunities or cutting funding for transportation projects is not going to solve the financial crisis. Given what is mentioned above about the failure of cutting spending for businesses and individuals to succeed, the same should apply to governments.
It is incumbent upon politicians to find new and innovative ways of improving the products of government and the services it provides to citizens. If the government fails to do this, then all the spending cuts in the world wouldn’t solve the financial crisis.
Don’t take whatever is said to be correct. Listen to what others have said.
For example, people like Warren Buffett (who’s quite wealthy) suggest that it is in dire economic times when one ought to risk investing. Investing when stocks are priced low and when real estate is priced lower than it has been, etc., will likely result in one’s eventually making some money.
