Kelvinwright's Blog

postmodern thoughts

Fiscal disaster

According to an article in Harvard Business Review, the USA is on its way to fiscal disaster, with experts projecting that the federal government will take in far less money than it spends—indefinitely. If this were a company, small business or multinational, its bank and finance department would tell it to change its strategy and policy, or risk bankruptcy. However, either traditional economic policy is different for countries than for companies, or if it is not, then not just the USA, but many western European countries are on a path to fiscal disaster.

http://hbr.org/2012/03/macroeconomic-policy-and-us-competitiveness/ar/2

A company has to make money, or at least not lose money, over a mid to long term. One would question the viability of a company that does not at least break even, not just from a common sense basis, but a basis of its long term survival – if you spend more than you have or produce over the long term, then you need another to bankroll you, and there will come a point when they will no longer do this. When an employee is not productive, this has a micro effect in the department where s/he is based, and a larger macro effect on the company, paying the salary, social security and taxes of an employee who isn’t productive. If the performance of that employee was such that they were completely unproductive, then few would complain if the company took the decision to lay off the individual. If a company had 10% of its employees in this situation, the negative effect on its bottom line would be dramatic. If a company gave social benefits to its staff that it was unable to maintain or could not afford, then the HR department would be forced to change its policy, or again, the company would risk financial ruin.

If we translate this to countries, then the more citizens who are unproductive (not earning) the more noticeable the impact on the country’s fiscal policy – it will have less money coming in, and more going out (unemployment benefits).

Does national fiscal policy have to mirror that of corporations? If it doesn’t, then what must countries do in the short, medium and long term to prevent a very unhappy ending if they keep borrowing and spending more than they have? Somebody needs to come up with a plan that will either reduce outgoings, or increase output.

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March 14, 2012 - Posted by | Uncategorized | , , ,

2 Comments »

  1. Hi Kelvin. The democratically appointed government continue the process of eroding the counry’s assets so that these can then be purchased by corproations, further on down the line, as part of the ever expanding military-industrial-complex. The cold steel handshake of private-public ventures. I’m not saying it’s a bad thing but I’m not feeilng it’s a great thing either.

    Comment by davidjrodger | March 15, 2012 | Reply

    • I’ve got to agree with you there, David. Not sure if it is a good thing, or a bad thing. One thing is for sure, while governments continue to spend more money than they have, they’ll need to sell assets. The roads in the UK are the next step in this direction: you’ll either be able to drive on a nice new, fast toll road, or a less maintained, but free one

      Comment by Kelvin Wright | March 23, 2012 | Reply


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