Why Doesn’t the Government Have to Balance Their Budget Like Everyone Else?
Posted: Thursday, February 04, 2010
by Vince Robertson
This morning I received a rant from a family member who has decided to blast his friends and family with the populist rant which asks why the government doesn't have to balance their budget just like everyone else does.
I hear this complaint a lot, and without engaging directly so I don't start a family rift, I would like to use my first article on SearchWarp to address this issue.
Credit and debt are not bad in and of themselves. Of course no one likes to borrow money and it's better not to not borrow money than to borrow it, but if used properly, credit can be a good thing.
Consider the average Joe Blow citizen. He has a job and he's working his way up the career ladder and things are going good for him and his family. One day, all of a sudden, he gets a notice that says that he has been laid off .
Joe's savings are nil and his first round of monthly bills can not be paid completely without borrowing from his credit cards.
Actually, Joe thinks his unemployment can be turned into a positive thing because he's always wanted to go to school to finish his degree. He borrows more money for school, while supporting his family with the use of his credit cards and maybe income from his wife's job.
Eventually, Joe finishes his degree and gets a new job, which pays more than enough to pay off his school loan and credit cards. This is the smart way to use credit.
It would have been a lot more difficult for Joe if he would have run up his debt during his good years of employment. This is the dumb way to use credit.
I hope you can see the parallel here. The U.S. economy is in trouble, not just because of our outdated job skills, but because we have increased our national debt even during the good years. This was dumb, and it makes it more difficult now that we need to borrow more to turn things around, but it doesn't negate the fact that we need to borrow more to turn things around.
This is not the time to cut up the credit cards, this is the time to be smart and prepare for the future. Can you imagine a person running up their credit cards while they were employed, and when they lose their job cutting off all borrowing? That is the opposite of smart and will lead to no where except maybe homelessness. This would also be a good time to put in the checks and balances that would prohibit over-spending during good times.
There are a lot of unemployed Americans right now, angry at the Federal Government for going deeper in debt. I would guess that they themselves are having to borrow to get through this time until they get their next job. I also expect that many of them have spent money on more than just the bare minimums in the hope of improving their future earning potential. This is what the Federal Government needs to do too, so maybe their anger is mis-directed.
I hope you understand my analogy. In answer to my family member's question, the government does have to balance their budget like everyone else. It would be a lot easier if the government hadn't gone on a spending spree during good times, but now is not the time to cut up the credit cards.
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Top-level comments on this article: (9 total)Thank you for sharing your thoughts on this.
I don't see much hope for getting politicians to agree to balance the budget. They refuse to agree on anything, and I can't imagine how this is ever going to change. The country and Washington has become too divided.
Wonderful question - if we did what they consistently do we'd be thrown into jail..... something to ponder.
When Joe's unemployed his credit is nil. When a government's debt is approaching a third of it's GNP and the annual debt is more than the budget was 10 yrs ago it's credit will soon be nil. It's currency will fail inflation will skyrocket and all services will have to be cut. In my opinion.Starting with the bloated, adventurist, stupid military, not food stamps.
Very insightful article, Thanks.
A very good article addressing the issue of credit very simply!But at the same time after reading this article I feel that a small portion of our monthly income can always be saved up for the rainy day! I am sure many of you will agree on this though ?But on the whole a highly insightful read Vince, good going!
Your simplistic grasp of economics is astounding. The USA's AAA bond rating will be down-graded this week. Obama has added more to the debt (and deficit) with his first two budgets than the last 5 presidents together. Lowering the bond rating means not just that it will cost much more to borrow money to pay for the budget, but it will also cause inflation...that means you pack of gum will cost more...and that cost will rise faster and faster.Bush's deficit TOTALED $800 Billion over 8 years! Obama's has been more than $3 Trillion in just two years. As a country we can't afford that. Go buy macro economics for dummies. Keynsian economics posits that government will spend money to jump start the economy. What it doesn't do is bail out state governments who unwisely have spent far more than they can afford. That is what most of the "stimulus package" went for, that and for pay offs to Democratic constituencies. It certainly hasn't gone to increase jobs.Now this administration wants another "stimulus package" only this time they're going to call it a "jobs bill." They want to spend it on infrastructure...but the 150 billion that was actually spent on infrastructure has been shown NOT to increase jobs. Now they want more money...what they didn't pay off everyone the first time around?You're unemployed, aren't you, Maynard? Are you living on borrowed money?I would bet that a year ago you were saying that the U.S. economy was about to fall off a cliff. At some point you will have to admit that President Obama hasn't done such a bad job at handling the economy. This will probably happen after you get a job.
I too used to think that the federal budget was similar to a family budget, but I have learned better. Though I no longer use credit cards or recommend them, I still like your analogy. Yours is an excellent first article, whether one agrees with you or not. Continue writing, Vince; you've got what it takes to write well. ~mogama~
Perhaps if you had taken academic courses in economics you'd really understand what it means when a country's bond rating is downgraded as this country's will be in the next few weeks. Currently the bond rating is AAA, but that is now under review to be reduced to AA.That means that in order to fund the debt, much higher interests rates will have to be paid in order to sell bonds. That in turn will fuel inflation. I don't suppose you were alive in the late 1970's when the inflation rate was near 20%. That caused the last deep recession where unemployment was up above 10%. That was caused by the economic policies of Mr. Carter...whom was "retired by the electorate" (his phrase for the defeat he received at the hands of Mr. Reagan) in the 1980 election. His policies are much like those of Mr. Obama...unless we learn from history, we're doomed to repeat it.Perhaps, Mr. Vail, if you weren't so motivated to discredit Mr. Obama and the Democrats in Congress for saving the countries economy, you could see what is plainly in front of you.If the country's economy would have cratered like you and so many of your cohorts wish would happen on President Obama's watch, the Federal deficit and the bond rating would be much worse. Conservatives are too short-sighted to see the bigger picture and make the hard choices when they don't fit into their populist dogma.Vince...it is happeningReagan was the middle classes worst nightmare, and Bush repeated that with tax cuts for the wealthy. See what happened? I'll take Carter over Reagan any day.
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