If We Ran Our Household Like the Federal Government

 Full disclosure: my most significant issue regarding politics is the Federal Debt. What concerns me is that no one talks about it. They talk about abortion, immigration, transgenders, and how bad the other political party is. I wanted to make the Federal Debt relatable, so this post compares it to personal finances.

So imagine that each week, your take-home pay (after taxes and other deductions) was $1350. Immediately, you have to pay $290 interest on your debt (luckily, your interest rate is only 2.7% on your $557,000 debt). The remaining $1,060 never seems enough, so you borrow an additional $460 to make ends meet.

If this were you, you would argue that you have no choice. Have you seen the prices lately? What you need is a raise!

If this were a friend or close relative, you would immediately find expenses they could eliminate. Do they really need the expensive Starbucks coffee? Maybe they shouldn't be eating at expensive restaurants? Or eating out at all? Seriously, they are borrowing $460 a week to live extravagantly? Their finances are headed for a cliff!

Does that help?

I did read that this analogy is misleading and false. Governments can raise taxes and print more money. So, let's add these to our analogy.

Raising taxes is like asking a friend to help you out. "I'm spending too much. Can you spot me $460 every week?" Yes, this is different because the government doesn't ask you. It demands you pay them and jails you if you don't. So, yes, economists are right. The analogy doesn't work.

Printing more money is like counterfeiting. You find a really good copy machine and make some extra $100 bills—four or five a week in this case—except for the Federal Government, which prints $1.5 trillion a year. Your fake few bills don't cause a problem, but $1.5 trillion yearly MESSES UP THE ECONOMY. It causes inflation. So, yes, economists are right again. The household finances analogy doesn't work with government spending.

I agree with this comment pointing out the value of debt: "This added purchasing power, when spent, provides markets for private production, inducing producers to invest in additional plant capacity, which will form part of the real heritage left to the future."

But this is strategic debt. If your $460 per week extra was to start a business, then I would say, "Go for it!" But if, after 24 years, you had no income from your business and were still borrowing $460 per week, I would say, "Time to cut your losses and close the business down!"

Notes:

This assumes U.S. Federal revenues are $4.44 trillion, a Federal Debt of $35.34 trillion, an annual deficit of $1.52 trillion, and $956 billion in debt servicing.