Wednesday, December 7, 2011

Cut jobs to create jobs

The New York Times reported yesterday that threats of budget cuts are leading public sector employees to retire early.  Couple that with Republicans in Congress threatening to reduce the federal payroll, and you are seeing a massive destruction of the American economy based on bad economic policy.

Right now, consumer spending is responsible for 2/3rds of GDP, with private capital investment and government spending covering the other third.  If you cut back on government spending by reducing payroll, this will affect the amount of money in circulation to comprise the 2/3rds of GDP that is the result of employed people spending money.  If you reduce demand of consumer goods, then what capitalist is going to invest in a business if there are no customers?

This is why the idea of cutting government jobs to create jobs will lead to a contraction of GDP... or will make this recession into a bone fide depression.

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