Political Animal


May 18, 2011 4:45 PM The misguided family budget analogy

By Steve Benen

It’s one of the most common budget arguments in the discourse: if American families can live within their means without massive deficits, why can’t the federal government? It’s well-traveled ground, but I was nevertheless glad to see Jared Bernstein, at his new blog, explain why the refrain is misguided.

First of all, it’s bass-akwards: when families are tightening their belts, the federal government is the one institution that can actually help the economy — and these belt-tightening families — by loosening its belt and running a deficit.

That deficit should be temporary and should come down when the private economy climbs up off the mat — which again tweaks the analogy: when families start to loosen, gov’t should eventually start to tighten (“eventually” because these transitions can be fragile and if gov’t tightens too soon, it can reverse the early gains — see England).

But there’s another fundamental way in which this family budget analogy gets misused. Families borrow to make investments and to get over rough patches. They run deficits too. I went into pretty deep debt to finance college and grad school and I’m glad I did.

The whole credit system is based on the fact that if we had to pay cash-as-we-go for everything, we’d seriously under-invest. And that’s true for families and governments….

I’ve written about this more than a few times, and I’m glad to see Bernstein make the case so well.

When a family goes to buy a home, its members don’t simply write a check; they take out a mortgage. Almost no one can afford to simply and literally buy a home, so we take out very large loans, and make payments, with interest.

The same is true when a family wants a car, tackles college tuition, or thinks about starting a small business. American families, in other words, take on debts, some of them huge relative to their incomes, all the time. There’s nothing wrong with any of this — these are just routine examples of people investing in themselves, as they should.

The government’s debts aren’t identical — there is no mortgage or car payment, exactly — but officials take on debts to invest in things they consider worthwhile, too. A family that relies on student loans to pay for college should be able to relate to a government that relies on loans to pay for public services. The family thinks it’ll be worth living in the red for a while, so long as it can make the payments and afford the interest, because they’ll be better off in the long run — and the government believes the exact same thing.

The comparison between families and governments “living within their means” tends to annoy me because of the lack of parallels, but I’m wondering if I should just embrace it and turn it around. If Mr. and Ms. America take on debts they can afford to improve their position in life, why is it outrageous for their government to do the same thing? Forget macro- vs. micro-economics; shouldn’t this make intuitive sense to the American mainstream?

The answer from Republicans, I suspect, is that we can’t afford this much debt. (They weren’t thinking this way when they inherited a national debt that was $5 trillion and shrinking, and turned into a debt that was $10 trillion and growing, but let’s put that aside.) But we can afford it; that’s the point. Like a family making its monthly payments, the government is doing the same. Indeed, we’re doing so well on this front that others keep loaning us money at low interest rates, confident that we’re good for it.

It’s one of the most remarkable aspects of the debt-ceiling debate. A family faces a debt crisis when it runs out of money and has exhausted all options for borrowing money. The federal government hasn’t run out of money and has all kinds of borrowing options, but Republicans nevertheless want to create a debt crisis, on purpose.

It’s exactly why the GOP approach is nothing short of insane. If the country couldn’t find creditors and/or faced crippling interest rates, we’d be having a very different conversation. But we’ll be just fine, as soon as Congress takes a simple, procedural step — which Republicans don’t want to take for purely ideological reasons.

Steve Benen is a contributing writer to the Washington Monthly, joining the publication in August, 2008 as chief blogger for the Washington Monthly blog, Political Animal.


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  • chi res on May 18, 2011 4:52 PM:

    Hey, if we have to, we could even increase our income a bit by doing some moon-lighting (translates as "tax the rich" for government).

  • joan on May 18, 2011 4:54 PM:

    All the time the republicans hammer Obama about the debt and deficit I have to wonder if they know the debt is mostly 3 trillion in tax cuts, Bush's wars and Bush give away to the drug companies as a medicare drug plan.I remember Bush (when first elected) saying the surplus he inherited proved we were paying too much tax and he was giving it back - he gave it mostly to his cronies, the super rich. I also remember Cheney saying deficits don't matter. Surely if we have to trim our debt the folks who got our money - the super rich should pay a big part of it back!

  • estamm on May 18, 2011 4:55 PM:

    Also, a worker can ask for a raise. The boss might say 'no', but the boss might say 'yes' too. This boss says 'you can have a raise'. As in 'raise my taxes'. Screw Norquist.

  • Mnemosyne on May 18, 2011 4:59 PM:

    Hey, if we have to, we could even increase our income a bit by doing some moon-lighting (translates as "tax the rich" for government).

    Apparently, in Republican families, you cut back on your hours at work when you're in financial trouble so you can earn less money and the Magical Money Fairy shows up when you earn just little enough.

  • kevo on May 18, 2011 5:11 PM:

    The water's depth will always, eventually swallow every rock of an argument the Republicans keep skipping along the surface in their sophist attempts to hit the other side before any depth of thought is there to deluge it!

    If substantive, serious policy demanded the submerging of effort into the watery depths of debate, then the Republicans have a lot of explaining to do to tell us why they are still only wet behind the ears! -Kevo

  • DAY on May 18, 2011 5:22 PM:

    Americans are fiscal morons- (well, actually, forget the 'fiscal' part)- and so are easily distracted by bright and shiny objects. (Obama owns T Bills, he has a Kenyan view of the world)

    If I take out a loan to buy a car so I can deliver pizzas, it is an investment in my future. If I do the same thing because a 'vette is a chick magnet, then I better have a good job, so I can make the payments- and the alimony.

    Too bad that so many American Morons are now members of Congress. . .

  • Danp on May 18, 2011 5:33 PM:

    Yeah, but when the kids get sick, isn't the most logical response to cut off the kids' allowances and tell the bank we're not going to pay the mortgage anymore? I mean, we gotta cut somewhere, and I ain't giving up my gun collection. It's the only thing that keeps the bank honest.

  • jdog on May 18, 2011 5:36 PM:

    Families are definitely NOT like governments. Governments have both fiscal policies and monetary policies. Families have fiscal policies only. Governments are MUCH bigger than any family, and thus have MUCH more influence in economic activity. Governments are (theoretically at least) single entities; there are millions of families in a polity. Governments can thus act without needing to confront a collective action problem (in the same way--they may be worried about the collective actions of individuals and families, and of corporations and companies--but do not need to coordinate with other sovereign entities [well, they do when it comes to international coordination, but that is different as those sovereigns cover separate territories {yet note even this is weakened by mobile capital that crosses borders and subverts government efforts to stimulate economic activity}]).

    The problem we have is (1) we need to deficit spend during a financial crisis, since businesses won't hire; but (2) we also need to slow that spending once businesses hire again; yet (3) it requires a government capable of recognizing these imperatives and acting appropriately; but (4) Republicans refuse to admit any of this, and have veto power over legislation by controlling the House of Representatives; the result is (5) a policy mess that perpetuates mass unemployment.

    The policy the Republicans SHOULD be following, if they were actually interested, is to make sure that any deficit spending is temporary, and not a new entitlement. Good luck with that.

  • demisod on May 18, 2011 6:09 PM:

    While I agree that the family budget analogy is terrible (among other things, the federal government presumably has an infinite "working life" as opposed to any individual), it is somewhat disingenuous to suggest that the federal deficit is due to spending that can be considered an investment in the future like a house or college education. There is little return on pensions and health care for seniors. Don't misunderstand me, there need not be. That is a worthy use of the state's funds, and you can argue that the demographic bulge of the boomers is an unusual event that requires borrowing, but we do have a structural, long-term cash flow problem in the federal budget.

  • FlipYrWhig on May 18, 2011 6:15 PM:

    yes yes yes. This line should _also_ be the common-sensical justification for why it would be a good idea to undertake further stimulative spending: we're taking out the equivalent of a college loan or a small business loan because that's how we feel about Investing In America. (It's not going to happen, I realize.)

    The discussion around debt is SO WEIRD. We're all in debt. The country's in debt. So the fuck what? Short-term debt, long-term payback. Let the "deficit hawks" work on the latter, if they're actually serious.

  • ET on May 18, 2011 6:26 PM:

    I think they need to stop using this because many families don't actually live within their means. They use their house as an ATM and/or use credit cards.

  • max on May 18, 2011 6:41 PM:

    "The federal government hasnít run out of money and has all kinds of borrowing options, but Republicans nevertheless want to create a debt crisis, on purpose."

    Exactly, because they have no other option for 2012.

  • Bernard Gilroy on May 18, 2011 7:17 PM:

    Almost no one can afford to simply and literally buy a home
    But isn't the problem that the levers of power -- and the "serious" types who report on them -- all have enough money that they could just write a check to buy a home?
  • Doug on May 18, 2011 7:52 PM:

    "...(They weren't thinking this way when they inherited a national debt that was $5 trillion and shrinking, and turned into a debt that was $10 trillion and growing, but let's put that aside.)..." Steve Benen

    Why? If the national debt is now $14 trillion and $10 trillion or so of it is due to what Republicans did, why shouldn't we call attention to that? If only to call a halt to a false and misleading analogy that ONLY benefits the Republicans. Why should the country be forced to listen to disingenious statements from Republicans that don't even address an issue that was CAUSED by the Republicans?
    Sooner or later, by 2013 at any rate when the Bush tax cuts expire, tax rates are going to increase. If we don't call out the Republicans on their hypocrisy and misleading statements you can bet that Republicans will IMMEDIATELY blame Demcorats for raising taxes to pay off debts INCURRED by Democratic policies.
    Whenever the "debt crisis" and the "deficit crisis" are brought up, Democrats should immediately counter with any of the following questions: "How did YOU vote on Medicare Part D? How did YOU vote on cutting taxes for the rich? Did YOU vote on ANY legislation that increased taxes to pay for Iraq and Afghanistan? Did YOU introduce ANY legislation that would have done so?"
    If we don't stamp on this fake analogy quickly, WE are going to be the ones to suffer from it.

  • SW on May 18, 2011 8:06 PM:

    Here is my 'Gang of one' solution to all our horrible fiscal problems.

    End all Bush era tax cuts

    Remove the cap from S.S. payroll taxes.

    Do not let the lunatics repeal the affordable care act

    Add a public option

    End the endless wars

    That's it. That is all that is required to put the country on the road to long term fiscal health. And I don't want to hear another word about it.

    All the other nonsense that you are hearing is from people who have a vested interest in NOT doing one of the above and would rather risk all the dire consequences that they attribute to the debt than to sacrifice their perk.

  • Bloix on May 18, 2011 9:22 PM:

    Comparing a family's finances to the government's is a mistake on the order of claiming that the earth can't be round because if it were people in Australia would fall off.

    We as individuals take gravity as a something provided by something outside of ourselves; but something as big as the earth creates its own gravity.

    In the same way, families take money as something that exists independently of them. But the United States of America creates money, and money has no existence except as it is created by the United States.

    If you don't understand this, you will wind up reaching conclusions that make as much sense as believing that the earth is suspended in space because it rests on the back of a turtle.

    Unfortunately, "it's turtles all the way down" is the level of discourse in the prss and in Congress.

  • leo on May 19, 2011 12:02 AM:

    "Yeah, but when the kids get sick..."

    When the kids get sick we beg and borrow every way we can to get them the care they need. We don't wipe our hands of them just because we're currently out of a job.

  • pj in jesusland on May 19, 2011 4:02 AM:

    American business history is replete with stories about entrepreneurs borrowing from family members, taking out loans, "maxing out credit cards", selling dubious shares of yet-to-be-realized companies to friends and investors -- all in order to realize a dream of making a go of a good idea. Without going into debt most American businesses would never have gotten started.

    Most people starting companies in the US don't have a Harvard MBA, a board of directors and a team of investors. Most of us pulled ourselves up by our own bootstraps, negotiating for terms, bartering for services, begging for more time, struggling to meet payroll.

    Isn't this why immigrants still cram all their belongings into a suitcase, sail here on leaky boats and crawl through rat-infested tunnels -- to get a chance at prosperity and controlling their own financial destiny? Debt is woven into the very narrative of the American Dream. It's a great leveler -- with access to financing and a lot of hard work anyone can take a risk on a good idea, not just the wealthy.

    Republicans used to view risk-taking as part of the GOP's identity. They used to call debt "financing." When did these country clubbers become such a bunch of woosies? Now they whine like the corrupt, entitled plantation owners of old.

  • paul on May 19, 2011 9:53 AM:


    There are several forms of return on investment for pensions. First, of course, people will work for lower wages if they know that they don't have to save as much for retirement or disability -- especially if they know that their coverage is guaranteed.

    Second, unless society promotes an ice-floe mentality where we just let seniors and the disabled starve, the work of housing, feeding and taking care of them is going to be done by someone. Usually that someone (in the absence of social security and similar schemes) is going to be one of their children who would otherwise be heading toward the peak of their earning years, generating income, economic activity and tax revenue. Take them out of the paid economy so thatthey can care for aged parents, and you're not only making everyone miserable, you're putting a big dent in the economy and hence government revenue.

  • ErikaF on May 19, 2011 11:48 AM:

    I loathe the "family budget" analogy - and so few actually remark on the basic levels of debt that most family take on.

    I've been making the comparison of the gov't as a non-profit organization that provides infrastructure and basic support for their constituents. The constituents send money to the gov't non-profit, who then uses it to fund jobs and infrastructure. When times are hard, and their constituents cannot send enough, the non-profit cannot go out of business, so they take on debt and fund jobs and infrastructure to the constituents so that the constituents can at least maintain. When the constituents have more money coming in, they send money back to the non-profit, and the non-profit can retire or pay down that debt.

    Gov't has a financial symbiotic relationship - for gov't to be healthy, the citizens must be healthy too. If the citizens aren't healthy, gov't isn't healthy. But gov't cannot quarantine itself; like the doctors in plague hospitals they must help heal the citizens so that health can return to everybody. In the sick times, gov't extends itself to heal the citizens, and will retract when the citizens are healthy and do not need special care.

  • toowearyforoutrage on May 19, 2011 5:15 PM:

    Echoing others, you lost me with the

    A family that relies on student loans to pay for college should be able to relate to a government that relies on loans to pay for public services.

    part, Mr. Benen.

    College loans are worthwhile because they boost income potential.

    "Services" don't as readily provide such a rationale.

    You can say saving seniors lives through Medicare pays dividends if those seniors are still earning income, but I don't know that the country is ready to claim that retirees are unworthy of borrowing to save them too. I merely say the analogy with a college loan starts to falter at that point.

    Loans for food-stamps might qualify. We are informed that such outlays generate large multipliers in our economy and create demand for the food our nation's agriculture industry produces. This, oddly, ALSO is a poor comparison with college because the benefits are immediate rather than something we must wait for.

    Id discourage the comparison of government services to a college loan. Too many debatable counter examples come to mind.

    Has anyone inquired whether about dollar multipliers for a Medicare dollar? Without such outlays, medical device companies and pharma will take it on the chin to SOME degree.

    Maybe there's more merit than I think.

  • okie from muscogee on May 19, 2011 11:57 PM:

    Unlike a family the federal government is never unemployed, never retires, and never dies. A family like that could borrow on extremely favorable terms; which is why Treasury bonds are the most bomb proof investment in the world and why people from all nations are standing in line to loan us money, and will continue to loan us money.