When the private sector deleverages, does the government have to compensate by higher deficits? | LinkedIn Answers | LinkedIn

When the private sector deleverages, does the government have to compensate by higher deficits? | LinkedIn Answers | LinkedIn

When the private sector deleverages, does the government have to compensate by higher deficits?

The conventional wisdom seems to suggest that when private sector stops spending, the government must step in to keep consumption going...is this model really workable...when the private is usually sector spends, it is always well accounted for in therms of sound economic principles...there might be investments which will fetch returns later on, there might be salary increases to match market rates for labor, there might be higher working capital to reflect higher volumes or prices...


However when the Indian government spends more, it is for salaries of bureaucrats who do no work, it opens more schools where unionized teachers' productivity is a fraction of their private counterparts, ditto for government hospitals where medicines are pilfered and sold in the black markets, ditto for the public food grain distribution system where the bulk of the supplies are diverted to the black markets and some even exported to neighboring countries....


Subsidies for kerosene fuel are used for adulterating diesel fuel in commercial vehicles thus damaging their engines, Employment guarantee schemes are packed with bogus payments to non existent workers....even the payrolls of municipalities like the Delhi Municipal Corporation have a vast number of ghost workers...people who either do not exist or just take salary credits to their accounts without them even knowing about it...someone else operates these accounts....


So if the private sector deleverages, at least in India the response must be to cut government expenses to reflect lower tax collections...not a stimulus towards increasing government staff salaries...that is what the government did in 2008 and the birds came home to roost in 2011 in the form of double digit inflation....