Monday, October 15, 2012

Beyond the meme: The federal budget is nothing like your household budget.

I have heard this argument from both sides of the aisle, “Government should operate more like a household.”  Typically this is an appeal to bring our expenditures more in line with revenue which makes sense.  I agree that it is not good to run at a 45% deficit which is around what we are currently running.  However I have seen this go much further in recent months.  In talking to people the rhetoric is more heated and has become, “The government should operate EXACTLY like a household and that is how I am voting!”  The more I think about it the more I find this idea impossible, impractical and also misleading.

Oh now I get it, said no economist ever

This infographic seeks to make something complex into something that is simple.  This is commendable and occasionally this is helpful.  It can also be misleading and do more harm than good.  Simplifying things may net short term results or tug at the heartstrings for elections but there is a danger in reducing complex problems to fit into simple solutions.  What we need to be doing is seeking to communicate complex ideas in ways that are understandable so we can have well rounded solutions.  This takes longer than the 140 character tweet but I believe is a more thoughtful and honest way to go about deciding who gets into office.
The federal budget is a huge issue in this election and I hope I can shed some light on how complex this really is and how proportionately thoughtful our response to it must be.  “Just stop spending” has the appearance of wisdom but I believe it is a solution that does not understand the gravity of the problem.  I am going to try and be nonpartisan and not put sole blame on one party or the other.  There is plenty of blame to go around and both sides of the aisle have used this logic. From my research comparing the federal budget to a family budget is like comparing parking your car to landing the Mars Rover.  Conceptually these things are similar but practically they are incompatible.  This article is a product of me working this out and trying to understand things in a way that goes deeper and an internet meme or sound byte. It is by no means comprehensive but hopefully it is helpful.  If you want to comment please do.
Unlike a household, for a government in a recession revenues go down but spending goes up.  For most of us our taxes are drawn from our income as a percentage of what we make; the income tax.  When unemployment increases, tax revenue decreases for a variety of reasons.  However, for the government, expenditures increase because people begin to file for unemployment, medicaid and other social programs.  While one may argue the merits/evils of these programs they exist mostly for our protection.  Anyone who has lost a job or been unceremoniously dropped from their company’s insurance will attest to the blessing social programs are. 

The “Government should be like a household logic” (GSHL from here on in) says that you can’t do that.  “You must only spend what you make,” but most households don’t even act like that.  If you loose your ability to create revenue (lost job, car accident, illness etc.) your children still get hungry and because of these necessary expenditures you may have to go into debt.  Thankfully there are social programs that attempt to keep that from happening.  "Just cutting spending" here does not help our country and if we are honest comes from a place of ignorance/borderline racism regarding “Welfare Queens.”    

It is in the government's best interest to go into debt to keep the economy solvent so you can get back to work and pay taxes.  This is the logic behind the stimulus and it worked...sorta.  The GSHL says that there can’t be any deficit spending but that is a flawed logic when applied to the government.  Governments spend counter to the business cycle in order to stimulate the economy back into a prosperous season.  This has been how good governments have worked for a long time.  The Congressional Budget Office has repeatedly said that if their was no stimulus in this current recession that the unemployment rate would have been between .05 and 1.6% higher.  People have plenty of things to say about government stimuli but the fact remains that they have helped the economy.  It may not have saved your job and for that I am deeply sorry.  It may have been a huge band-aid on a self inflicted wound. But it was needed and it worked, even if it did not work as well as we had hoped.
Furthermore, the U.S. Government is nothing like a household because most families don’t spend 19.6 percent of their annual budgets on defense.  It is amazing to me that most of the people who believe in the GSHL are the same ones that balk at the idea that we would make any cuts in defense.  We spend more than any country on national defence by an astronomical margin.  If a family were in as deep a debt as our nation and 20% of the money was going to buy Dad toys of mass destruction...well that would be an interesting discussion around the kitchen table.  True, much of our military spending is not just about weapons and killing people.  We have veteran's services to take care of our soldiers too, but it is still amazing how much we spend comparative to others.  If we were like a household, everyone else on the street would have a modest security system and we would have armed guards and a host of James Bond inspired booby traps.   

No government budget is remotely like a household one.  Most families do not print their own money, have the ability to borrow at 2% interest, make most of their money buying and selling to each other or have the ability to raise and lower their “salary” at will.  Most families haven't carried some form of debt since 1776 like the United States has.  Most families don’t decrease their income while at the same time going to war with two other families and a few homeless people.  See how silly this comparison is?

While one can argue the merits or flaws in these policies the fact remains that a government operates under a different set of rules, imperatives and models than any household.  Comparing them does not do justice to the problems governments face nor does it factor in all the services that we enjoy, take for granted and then blame the government for investing in.  While it is important that we reduce the deficit and only spend what we earn, during an economic downturn this can have devastating consequences.  As one writer put it, “The time to fix the fiscal roof is when the sun is shining, not when it is pouring down rain.”

Our government, flawed as it is, is charged with the welfare of its citizens and the liberty of all its people.  We may disagree on how that is done and what to spend but let us not be captured by simplistic solutions to big problems or be swayed by internet memes over real policy.  Whoever you vote for, and I really don’t care who it is, vote with your head as well as your heart.

A note on Comments:  Please be civil, if you are not I will delete your comment.  I am the final arbiter of whether you are civil or not.  Please respond with your voice and not just a pasted hyperlink, I won’t read it if I don’t know why you posted it.

Further Reading:

1 comment:

  1. interesting and thoughtful - thanks, Justin :)