The Government is Not a Household

I’ve discussed it before, but this fact still doesn’t seem to click with some folks. Many small-government proponents suggest that the federal government shouldn’t spend as much money as they do, and shouldn’t borrow as much as they do, on the grounds that there is a parallel between the federal government and an individual family. This is the “Families are tightening their belts, so the government should be tightening its belts too” argument – and it just doesn’t hold up.

The federal government differs from your household in many ways. For example, when borrowing, it has a level of credibility your household does not. It also has a responsibility to provide certain services for its citizens – national defense or health care for the elderly, for example – which are not in the typical household budget. The parallel just doesn’t work.

So, here is a graphic from Heritage making this exact claim:

I’ll leave the response to Brad Plumer:

If the typical family — let’s call them the Smiths — really did spend like the federal government, a few other things would also be true:

— The Smiths would spend 20 percent of their budget, or $12,800 each year, on an arsenal of guns, tanks and drones to defend their house against threats or to invade the occasional neighbor over lawn-pesticide disputes and access to the gas station.

— The Smiths would spend another third of their income financing retirement and health care for Grandma and Grandpa. Part of that would have been prepaid by money that Grandma and Grandpa socked away while they were working, but some of it would be paid for by the parents and kids who are chipping in.

— Actually, come to think of it, the Smiths spend nearly half their money — 43 percent — operating a massive insurance conglomerate whose main beneficiaries are family members.

— Over the past few years, the Smiths have been able to borrow a vast amount of cash at negative interest rates. Banks have essentially been paying the family to hold their money. That’s partly because everyone assumes the Smiths are more or less immortal and will always be good for it. They’re the wealthiest, most dependable family in a neighborhood full of upstarts and imploding Greek restaurants. Plus they have all those tanks.

— The Smiths, by the way, own their own printing press. For whatever reason, it’s totally legal for them to print more money, although they have to be selective about this. This makes it very unlikely that they’d ever default.

— Of the $312,000 that the Smith parents have borrowed so far, about 47 percent of that is owed to outsiders, including the Chens down the street. But much of the rest they borrow from their kids with a promise to repay.

— The Smiths could also, crucially, tap into the kids’ extra income from their lucrative million-dollar lemonade stand business if they ever wanted to whittle down the debt, although this would come up for a family vote and the kids aren’t keen on this.

Anyway, it’s a good analogy. The U.S. federal government really does resemble your typical money-printing family that owns lots of tanks, operates a giant insurance conglomerate, can borrow money at extremely low rates, and is assumed to be immortal.

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