I agree with iwire's points. But I would even suggest that caring and compassion don't have to have too much to do with it. I think there are appropriate times to take the loss at a slow time to make sure you are prepared for an upswing. Balance that loss against retraining or the expense of hiring. Ad, interview, wasted time, redoing the recently let go new guy's work.
When making difficult business decisions you need to take into account all costs, both the obvious and not so obvious. I have mentioned in the past about how difficult it can be to quantify productive momentum and the the types of decisions that kill it. I would consider this issue a business momentum issue on a different scale (much like the weak and strong forces in physics)
Odds are if you are panicked and stressed about downtime losses, you should probably let some people go. Doesn't mean the guy that retains his men at a loss doesn't know what he's doing. He probably understands his costs better than you.
