Growth IS the Answer

So the equity markets have their biggest one day fall since 2010 bringing up fears of 2008 and the fall of Lehman Brothers. The greed that led to the ever increasing leverage and more and more outlandish-some would say criminal-financial products that articulated the bull markets is now being overtaken by the other side of the equation.

Fear is now stalking the corridors of everyman. A continuing employment recession; a government trapped in its' own ideological straitjacket; a European fiscal crisis that keeps threatening to engulf the big players after swallowing the minnows- small wonder that the markets are in a tailspin.

And what is the apparent answer? Austerity. Cuts to the left of us, cuts to the right. It's as if none of the people making decisions, from the politicians at the top to the lowly employed at the bottom, have ever had to make any economic choices.

Throughout my years on Wall Street generally speaking when things got tough or when a new manager took over the first message to come across was the need to cut costs. Now that is not to say that one shouldn't look at the cost side of a business, but it was almost invariably done without any reference to the revenue side of the business other than to state the obvious-'there isn't enough revenue'.

And so the easy response is to cut costs. Easy because except for the guy who actually has to deliver the message it requires no great understanding or strategic insight other than to know-or more likely to think you know that that cutting costs will solve the problem.

But here is the crossover from the business world to the governmental one. One of the most apparent costs is headcount. You look at your headcount and make a quick revenue per headcount calculation and decide to cut 10 to 20%. So far so good.

But then something strange creeps in. How do you determine who to cut? The first to go are generally the youngest, therefore the cheapest and therefore the most expendable. They are followed by the politically inept, the complainers, and those that fall outside the golden circle which basically means are important to someone elses' business but not to the immediate business of the individual making the choices. The last to go are the big salaries who have a good track record and so despite the fact they might be having a tough year are saved.

So where is the crossover. In the range of spending cuts recently being enacted each party searches for cuts in the other's electorate. This is especially true of those congressmen following the dictates of their Tea Party constinuecy- or so the Tea Party members think. The truth is that they should all sit down together and actually come up with a bipartisan agreement as to what is important to cut "for the good of the country"- and what isn't.

And neither in the USA nor in Europe is there a serious discussion as to how to stimulate the economy, which of course would result in an increase in revenue. The focus is exclusively on the spending side. They introduce austerity in a Nimby sort of way and hope to have enough of a populist agenda to attract enough votes to stay in power.

Welcome to the continuing Great Recession.