Saturday, February 9, 2013

Economy: Fruits Of Austerity

These days the economic news is really encouraging. In the US retailers report the strongest sales gains for January since 2011, manufacturing is accelerating, the service sector is growing with a solid speed and the job market is healing (bloomberg scottgrannis). The UK reports a second month of manufacturing growth (bloomberg), Germany`s  companies are hiring (businessweek) and the stock markets are rallying all over the world because of climbing company profits.

It looks like the US and the European economies are beginning to earn the fruits of the austerity policies. Yes, the huge public spending cuts are painful and very unpopular. You could read a lot of negative headlines in the media. Those complaints remind me of Amy Winehouse`s song "Rehab" ("They tried to make me go to rehab but I said 'no, no, no'" She had to pay a high price for her refusal. I reckon that the austerity policies work like a rehab or a radical cure for the whole economy.

The US and European economies are addicted to ample government spending, including subsidies, which is slowing down the incentives for private businesses. Public organizations are less efficient than private companies and tend to waste money, hampering economic growth.  

The public spending cuts lead to less government influence and less bureaucracy. In the final quarter of 2012 the US GDP (gross domestic product/economic growth) fell 0.1%. as a result of shrinking public spending (especially for defense), but private spending (consumer expenditures and company investment) rose (washingtonpost).

The current austerity policy in the US and Europe will lead to leaner economies and less bureaucracy.  This will give private enterprise more scope and animate more private investments. Money will be used more efficiently leading to higher returns which should rekindle economic growth in Europe & the US.

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