The Government Is Not A Household, And Shouldn’t Be Run Like One - Ezra Klein/WaPo

[WillyT]

The government is not a household, and shouldn’t be run like one
By Ezra Klein - WaPo
Posted at 12:19 PM ET, 04/15/2011

<snip>

It’s increasingly well understood — at least among the tiny slice of Americans who read wonkish economic blogs — that thinking about the government as a very big household that happens to employ an army is a bad thing. When economic times are good, households should spend and invest more, while government should spend and invest less. When they’re bad, households need to cut back, and the government needs to step in. But as Karl Smith says, that’s not the only place where the analogy breaks down. Another — and one that’s increasingly relevant — is “not realizing your personal control over spending versus revenues is essentially the exact opposite of the governments control over spending versus revenues.” He continues:

Most middle class folks can cut back on their spending with relative ease. They probably won’t get sick, malnourished or injured from exposure as a result of spending cuts. What this means is that if revenues are running higher than spending – a necessary condition for building up debt – the most obvious choice is to cut spending. Therefore, as a rule of thumb people develop the notion that debt comes from living beyond your means...to the government, the exact opposite is true.

It is much easier for the government to raise revenue than to cut spending. Moreover, most of the movement in the deficit is tied to movements in revenue, not movements in spending. Thus the exact same reasoning that leads you to associate debt and spending in your personal life should lead you to associate debt and revenue for the government.

<snip>

More: http://www.washingtonpost.com/blogs/ezra-klein/post/the-government-is-not-a-household-and-shouldnt-be-run-like-one/2011/04/13/AF21jOjD_blog.html

Full piece by Karl Smith: http://modeledbehavior.com/2011/04/15/taxes-spending-and-debt/

:kick:

[Liberal Veteran]

1. Nor is it a corporation trying to turn a profit.

That is what really pisses me off. I keep hearing uninformed people saying how we need "a business man" in charge of the government and my first thought is always, "The government is NOT supposed to be a business, moron!"

[hansberrym]

3. Goverment doesn't need to turn a profit, but it does have to balance its books

Even non-for-profit corporations need to balance their books.

The 77 cents on a dollar that I will get on my SS contributions is clear evidence that politicians simply do not give a shit about the numbers, but the numbers will matter when we go to collect our benefits, so maybe they should mean something to us now.

[girl gone mad]

2. He's still missing the big picture.

He's right that the government is not financially constrained like a household is, but the federal government also doesn't have to take in revenue (tax) in order to pay for spending. We have a sovereign fiat currency. The government spends dollars into existence and taxes dollars out of existence. As long as the private sector is deleveraging and moving money offshore, the public sector must expand or we face negative growth and a host of related economic issues.

The deficit, in and of itself, is not really a cause for concern. High unemployment and underutilized productive capacity are far more dangerous to our long term economic health. Japan is better off right now for having run high deficits, which in part kept their construction industry in a healthy state. They are going to need the equipment, skills and knowledge base in order to rebuild. Imagine if they had listened to right wing economists for the past two decades, and made deep cuts to spending instead.

[hansberrym]

4. Does the author really imagine that most middle class folks have never been either college students

For the man on the street its really hard to control your revenue. You can’t easily boost your salary by 30%. Even getting a second job entails such hardship that its rarely the first or even second resort of settled middle class Americans. College students and poorer folks get second jobs all the time, which ironically gives them better intuition about how federal budgets work than a typical middle class family


Does the author really imagine that most middle class folks have never been either college students or poor?


When economic times are good, households should spend and invest more, while government should spend and invest less.

It is well accepted that governemnt spending should be counter-cyclical, but government should invest MORE in times of plently. Taxing more heavily during booms and plowing the revenue into investments rather than spending will dampen the business cycle (prevent overheating/bubbles), and also enable Increased government spending during bad times.