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Households, Businesses and Government are NOT the Same

Why do we keep hearing this crap from politicians and media talking heads that the federal government has “to start operating like a business” or “my family cuts back when the income isn’t coming in”, blah, blah, blah?  It is utter non-sense to equate the federal government to households or businesses.  It is a way to whip up hysteria about the federal budget deficit and to use that as an excuse to privatize social security and medicare.

We have been conditioned through the media and politicians that all three are the same.  They are NOT.  Why?:

1)  Federal government has a monopoly over issuing its own currency.  Don’t you wish you can print money or credit bank accounts at will - for us that’s illegal?

2)  Federal government has the power to tax.  Sure, we can work for wages or earn profits but there are surely more constraints on the two than federal government’s ability to tax.

3)  Federal government cannot go INSOLVENT.  I know, I know, as much as we hear it in the media about the looming insolvency of the federal government - IT CAN’T HAPPEN.  Sure there are other things that could happen like severe devaluation of U.S. dollar or severe inflation but insolvency - NOT POSSIBLE.  But insolvency is a real possibility for households and businesses as we are sadly all to familiar with during this Great Recession.

Did you know the following fact courtesy of Prof. L. Randall Wray:

The United States has also experienced six periods of depression. The depressions began in 1819, 1837, 1857, 1873, 1893, and 1929. (Do you see any pattern? Take a look at the dates listed above.) With the exception of the Clinton surpluses, every significant reduction of the outstanding debt has been followed by a depression, and every depression has been preceded by significant debt reduction. The Clinton surplus was followed by the Bush recession, a speculative euphoria, and then the collapse in which we now find ourselves. The jury is still out on whether we might manage to work this up to yet another great depression. While we cannot rule out coincidences, seven surpluses followed by six and a half depressions (with some possibility for making it the perfect seven) should raise some eyebrows. And, by the way, our less serious downturns have almost always been preceded by reductions of federal budget deficits. I don’t know of any case of a national depression caused by a household budget surplus.

Got that - significant reductions in debt and budget deficits PRECEDED every depression period in the U.S. and still may happen again - particularly if the deficit hawks have their way.  Now, this may be very hard to digest for many people but here is another fact:  the U.S. has been in debt every year since 1776 - that’s added for some perspective.

There will be someone who reads this and accuse me of being “a tax and spend ‘libural’”.  To that I respond: your intellectual capacity is severely limited and bullshit.  Distinguishing between the federal government, households and businesses is important to understand if we are going to see a real economic recovery with job growth.

What this does NOT mean is that all government spending is useful or not wasteful.  The federal government should NOT just spend to spend.  The following are very important standards for government spending:

1)  That it should advance a public purpose - bailing out the financial oligarchy without regard to homeowners is NOT advancing a public purpose; and

2)  The goal for government spending should be to generate Full Employment - yes that means jobs, jobs, jobs for anyone capable, old enough and willing to work - either in private sector or more likely in the public sector.

Sure, these statistics or ratios comparing debt to GDP or budget deficit to GDP are ugly and scary but they are only scary because GDP (a measure of our economy’s strength) has tanked and the Wall Street bailout has helped.  Economic growth, as reflected in an GDP increase, has a way of curing a lot of concerns.  The federal government’s emphasis should be on economic growth and putting people back to work instead of concerns over the budget deficit.

I leave you with the following from Prof. Wray:

I realize that distinguishing between a sovereign government and a household does not put to rest all deficit fears. But since this analogy is invoked so often, I hope that the next time you hear it used you will challenge the speaker to explain exactly why a government’s budget is like a household’s budget. If the speaker claims that government budget deficits are unsustainable, that government must eventually pay back all that debt, ask him or her why we have managed to avoid retiring debt since 1837-is 173 years long enough to establish a “sustainable” pattern?

Good luck.