Government should be run like a family. Really?

by Barry Johanson of The Review staff

Most of us have heard the popular refrains: “We must run our government similar to the way we run our households,” and “Each of us live on some sort of budget to balance things out, when will you have a budget and live within it,” or “living on debt is wrong.”

Last week it was Plymouth Mayor Don Pohlman, an accountant, who repeated these opinions in a Letter to the Editor in the Tuesday, Oct. 1 issue of The Review.

The sayings are simple and easy to understand. But do they make sense?

“It is true that if a family spends too much the family must stop spending until income balances expenditures. It is not so simple for a state,” writes Mark Blyth, Professor of International Political Economy and a Fellow of the Watson Institute for International Studies at Brown University. He is the author of “Austerity: The History of a Dangerous Idea”:

* “Families do not get to issue their own currency and pay down the debts they owe themselves with that same currency: states do.

* “Families do not get to tax their members to back up the debt that they issue: states do.

* “Families, apart from marriage, do not get to import new members into the family in order to tax them: states do.

* “Finally, families do not get to issue the global reserve asset: the USA gets to do this.

“In short, states, especially big states like the USA, are nothing at all like families, so making analogies from family budgets to state budgets leads only to bad policy.”

Blyth adds that “For someone to save they must have income from which to save. So if all the people that you trade with are trying not to spend, then you will have less income from which to save. When everyone tries to save all at once we get into the self-defeating spiral of competitive cutting, where everyone trying to make themselves more solvent makes everyone collectively insolvent.”

He makes the case that “We are told that we have all lived beyond our means and now need to tighten our belts. This view conveniently forgets where all the debt came from. Not from an orgy of government spending, but as the direct result of bailing out, recapitalizing, and adding liquidity to the broken banking system. Through these actions private debt was rechristened as government dept while those responsible for generating it walked away scot free, placing the blame on the state, and the burden on the taxpayer.”

The repeated revival of what he calls the “zombie” economic theory of austerity has almost always led to low growth along with increases in wealth for a few and greater income inequal- ity. Saying “we all need to tighten our belts,” overlooks the fact that we are all wearing massively different trousers.

With the exception of the two years 1835 and 1836 the federal government has been in debt every year since 1776. Is debt sustainable? Since 1837 it has been sustained. Is there any household that has been able to run deficits for nearly 190 of the past 230-odd years?

According to Roosevelt Institute Braintruster L. Randall Wray, Professor of Economics at the University of Missouri-Kansas City, “ With the exception of the Clinton surpluses, every significant reduction in the outstanding debt has been followed by a depression, and every depression has been preceded by significant debt reduction.” Less serious downturns have almost always been preceded by reductions of federal budget deficits.

“Distinguishing between a sovereign government and a household does not put to rest all deficit fears. But because this analogy is invoked so often, I hope the next time you hear it used you will challenge the speaker to explain exactly why a government’s budget is like a household budget. If the speaker claims that government budget deficits are unsustainable, that government must eventually pay back all that debt, ask him or her why we have managed to avoid retiring debt since 1837? Isn’t that a sustainable pattern”?

As Blyth notes: “As the government cuts, unemployment goes up, taxes fall, and the revenue needed to pay the debt, along with the economy itself, shrinks. Reciprocally, the debt burden relative to the size of the economy just got bigger without the government issuing any more debt.

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