Why isn’t a family an apt analogy for the government?
Today Krugman’s got a post up mentioning the incessant use of a family as an example for the government to follow; when times are tough, the family tightens its belt and lives leaner. Krugman’s promised to provide a more thorough discussion of it upcoming.
This ain’t that. Not thorough, not expert. More smartalecky.
Let’s say the family’s breadwinner is paid on Fridays. Well, today’s Monday. With no money coming in today, shouldn’t the family cut back today? Sorry, kiddies, cabbage soup for dinner tonight.
Tuesday comes, with no inflow of income. Here’s your catsup sandwich for lunch, laddie.
Wednesday, and no new cash. Why’s it so cold? Had to turn off the gas – we can’t pay for it today.
Thursday, and still no money coming in. Yes, I know we overslept, but I had to turn off the power. We didn’t bring in enough money to pay for it today.
Friday! Payday! Hurray! Look at all this money! Spa day, theater tickets, and dinner at The Palm for everybody!
Absurd? Of course. But not absurdly absurd. With a longer-run view, it’s obvious that prudent borrowing can – and should – be used to improve life from time to time. America will not always be in a recession; tax revenues will not always be depressed by a weak economy. Our “family” debt burden is far below what it’s been in our past, and less than half of what Japan’s is today. Every bank in town would loan us money in an instant; not one sees any risk at all. We can borrow from them for almost nothing, smoothing out our family’s consumption until more income flows. We can prevent our family’s “business cycle” from drastically impacting our short-term well-being.
As long as we actually contain ourselves from splurging too much on future paydays. Our record here is spotty at best.