Wednesday, August 17, 2011

Yes, the federal budget is like a household budget scaled up!

Althouse sounds like an academic economist, a lot of whom I've heard say "The federal budget is not the same as a household budget scaled up." but in practice, I've concluded the federal budget is almost exactly like a household budget. To wit:

* No, you can't raise the debt ceiling, but as a household you can certainly overextend yourself and go too far in debt. There's millions of households out there, apparently, who have borrowed exactly like the federal government, and let's not forget they've probably voted accordingly.

* No, you can't command other people to give you money as taxes, but really, Barack Obama cannot command anyone either, it's Congress that controls tax policy, and their jobs are frequently lost when they tell folks to pay more taxes. There are significant trade offs to a government when they make a tax decision, just like its a costly decision for families to give up more of its scarce "free time" to get a second job, or a better-paying one in order to bring in more revenues.

The analogy can actually be very sophisticated and accurate if you think it out. The fact that Barack Obama did a ham-fisted and contemptible job of it doesn't mean the analogy itself is ham-fisted and contemptible, just Obama's use of it.

Bonus points... no, the government would never actually default on their debt when they can just print more money, which a household can't do, but the practical effects wouldn't be much different. Monetizing the debt is the government version of personal bankruptcy and will come with similar costs in terms of damaged credibility and ability to borrow for necessary expenses in the future. Focusing on the pedantic differences while ignoring the obvious similarities strikes me as... odd.

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