Alternatives to Budget Cuts: Closing Your Budget Deficit without Cutting Costs
Budget cuts by business and government are the biggest scourge of society. Not only do they cause significant unemployment but they also demolish the infrastructure our society needs to survive. This book describes a method to prevent budget deficits from happening, the actual cause of budget deficits, some opportunities for companies to increase their revenue, and a brief history of budget cuts. More
Budget deficits are caused by a blind spot in the accounting system, which affects companies and organizations that are paid per unit. Accounting is a recording system in which financial transactions are recorded after they have occurred. Mistakes, accidents, and other problems cause raw materials and/or products to be damaged, such that they can’t be sold. Unsold products are not recorded in the accounting system. As a result, the costs of staff, raw materials, transport, etc., are not covered, and the accounting system does not contain information as to why.
Confusingly, companies never run into a budget deficit in their first few years of business. This is because a company can use unbudgeted income to pay for unbudgeted expenses, as long as the market grows. But when the market growth ends, companies may find in December that they are a little short for paying out salaries, and they start cutting costs.
Governments don’t actually have a budget deficit. But during the crisis of the early 1980s most governments in the world chose to restructure their accounting systems. By acting as though they received a specific amount of money per area, per action, governments hoped to gain a better insight into their income and expenses. This restructuring of accounting introduced that blind spot into governmental accounting systems, resulting in a perceived deficit.
When companies and the government cut costs, many things go wrong, the most important being that companies and the government don’t have the procedures in place to use the proceeds of the cuts to close the deficit. Companies are misguided into thinking that the proceeds from the cuts are extra profit and use those proceeds to extend their business or to pay the CEO a bonus. The government calls it a windfall and pays it to the treasury. The next year, with the closing of the books, the companies and the government find a “new,” even bigger budget deficit. And they feel forced to introduce harsher budget cuts.