That's not to say a business should never cut costs. Sometimes you simply have to in order to survive. But once you begin down that road, once you adopt an austerity mindset, the game is over. In the long haul, you cannot cut your way to sustainable profitability.
In the case of my business, we lost a big client one year and it wrecked our financial situation. We cut costs, yes, but we also borrowed a million dollars, twice as much as we actually needed, with the intention of investing in our future. Some thought we were crazy, but we had confidence in our ability to choose a winning path. We made a big bet and it paid off a fifty times over. While competitors retrenched, we built new capabilities, hired the best talent, and kicked ass.
When it comes to government, today's Republicans and scaredy-cat Democrats have doubled down on austerity in the mistaken belief that you can cut your way to prosperity. The result is an entirely predictable downward spiral, the toilet bowl effect, which is accelerating even as elected official continue their happy talk about economic competitiveness and growth. They've got it all wrong.
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