Government budgets v. Family budgets by Mitt Romney

[one...two...tree 2,762]

The Romney campaign today pushes a line we've all heard countless times: "Your family has to operate on a budget, so why doesn't the federal government have to do the same?" Team Romney even put together this "infographic," which presumably helps prove a point the campaign considers important.

Given how common this sentiment is, it's worth taking a moment from time to time to occasionally reemphasize why this analogy is so very wrong.

At first blush, I can appreciate its appeal -- the argument has a certain down-home, common-sense sort of quality to it. If American families and American businesses can't run massive deficits and borrow billions from China, the argument goes, why does the American government?

The point that generally gets lost is the detail that matters: families and businesses borrow money and run deficits all the time. This is a positive, not a negative, development.

When a family goes to buy a home, for example, its members don't simply write a check; they take out a mortgage. Almost no one can afford to simply and literally buy a home outright, so we take out very large loans, and make payments, with interest.

The same is true when a family wants a car, tackles college tuition, or thinks about starting a small business. American families, in other words, take on debts, some of them huge relative to their incomes, all the time. There's nothing wrong with any of this -- these are just routine examples of people investing in themselves, as they should.

Businesses to do this, too, borrowing money to make capital improvements, expand locations, buy smaller companies, etc. Companies generally create jobs this way, and do so with the blessing of investors.

The government's debts aren't identical, but officials take on debts to invest in things they consider worthwhile, too. A family that relies on student loans to pay for college should be able to relate to a government that relies on loans to pay for public services. The family thinks it'll be worth living in the red for a while, so long as it can make the payments and afford the interest, because they'll be better off in the long run -- and the government believes the exact same thing.

And they're both correct.

Romney probably understands this perfectly well, but is working under the assumption that voters are easily fooled. It's a cynical game, and it's wrong.

Indeed, maybe the Romney campaign could answer a straightforward follow-up question: If Mr. and Ms. America take on debts they can afford to improve their position in life, why is it outrageous for their government to do the same thing?

The answer from Republicans, I suspect, is that our current debt is simply too large and we can no longer afford it. (They weren't thinking this way when they inherited a national debt that was $5 trillion and shrinking, and turned into a debt that was $10 trillion and growing, but let's put that aside.) But we can afford it; that's the point. Like a family making its monthly payments, the government is doing the same. Indeed, we're doing so well on this front that others keep loaning us money at low interest rates, confident that we're good for it.

The Romney campaign's infographic concludes in all caps, "Stop the insanity. Stop the spending." In reality, the Obama administration has already put annual domestic spending on a path to become the smallest share of the economy since Dwight Eisenhower held this office.

The more appropriate phrase would be, "Stop the lying."

Steve Benen

[Obama 2012 1,714]

The idiot who wrote this forgot one thing. Families don't have a bottomless check book. They have a CREDIT LIMIT.

[SMR 368]

In reality, the Obama administration has already put annual domestic spending on a path to become the smallest share of the economy since Dwight Eisenhower held this office.

The more appropriate phrase would be, "Stop the lying."

Really? "...put [it] on a path to become..."? When and under what assumptions? I guess I can't call this an outright lie because it really doesn't mean anything in specific. But the hypocrisy is still deafening. I don't know how the author measures "domestic spending" or the size of the economy, but the growth of the national debt is vastly outstripping the growth of the economy and is expected to continue to do so for many years under Obama's plans. Anything that Obama is projecting much past 4 years is just hot air.

As far as the family analogy, although families (or businesses) can have debt and be in a healthy financial situation, they must be consistently shrinking that debt. You might make an argument for student loans to be the exception, but that is a short period of time and experience is starting to show that exorbitant student loans never were a good idea for individuals either. As far as loans for houses, that is very different as the loan is secured and the value of the collateral should be greater than the value of the loan. When this isn't the case, a family is not in a healthy financial situation.

Basically, the author is arguing that since businesses and families can have healthy amounts of debt, debt is healthy for the government no matter what. Consider that the debt of the government is several times its annual income, exceeds its assets by several times, and is consistently growing. If that were true of any business or family, I don't think it would take a financial expert to say that the outlook is bleak and action is needed. If the US government were so good at making payments and the outlook so rosy, credit agencies would not be downgrading it.

[mawilson 2,133]

The idiot who wrote this forgot one thing. Families don't have a bottomless check book. They have a CREDIT LIMIT.

Indeed. And unlike Congress, they can't just "vote" to raise their limit.

[Usui Takumi 1,562]

The idiot who wrote this forgot one thing. Families don't have a bottomless check book. They have a CREDIT LIMIT.

They also live to the ages of 70 or 80 etc. instead of their 240s+

[mawilson 2,133]

They also live to the ages of 70 or 80 etc. instead of their 240s+

And they typically don't get interest-only mortgages with a term of "forever".

[Bad_Daddy 2,209]

Let them eat cake!