There is this idea that through austerity economies will clear out debt and then businesses will have the confidence to invest in the economy. The problem is that it is not working. As we hear talk about getting government "out of the way", so businesses can invest, we need to look at what exactly means.First of all, it is important recognize that government spending represents a significant part of GDP in virtually all nations. When we talk about cutting government spending, we are cutting government jobs as well. That is not to say that there aren't places where the government that need to be adjusted from time to time. However, as we make these adjustments, doing so "willy nilly" can bring great peril.
Already, government at all levels are cutting spending and jobs from municipal, state and federal budgets. Just today, it was announced that the Houston area lost 14,300 public sector jobs, and worth noting that the overall unemployment rate in Texas inched up for July. As we cut government jobs, if those jobs are not replaced by private sector jobs, we have a net job loss, more people unemployed, and an economy that is tipping back into recession.
On the other hand, the potential for growth is what attracts businesses. Governments in the past invested in their infrastructure, so that money, goods, and jobs were flowing more freely through the economy. Then businesses wanted a peice of this action, and competed against each other to be able to take advantage of the superior infrastrure. Wouldn't that be what we want now?