Budget Balancing Act for Families and the Government
What if the U.S. Government were a family? You may have seen the analogy floating around the last couple of years comparing the debt and income of the U.S. government to that of an average family. How does the nation’s budget compare to the standard family? Let’s have fun with this example again.
Our fictitious family, the Joneses, earn $100,000 a year. Even though $100K a year is a nice income, our family spent over $135,000 last year, which means they borrowed the additional $35,000. Unfortunately, this is not the first time the Joneses borrowed to maintain their lifestyle. In fact they have about $500,000 in debt already.
So the Joneses (like our government) have recently adopted some cost-cutting measures. But the cost-cutting amounted to a little over $1000 a year. That doesn’t make much of a dent into their overspending and its impact on their total debt load is almost non-existent.
If this was your family budget, you’d probably be freaking out. You wouldn’t be arguing whether you needed to cut spending or increase income…you’d do both. You know it’s painful. You know there is no way around it. You know it will take a long time. It won’t be pretty. And those promises you made the family about paying for college; that vacation in Hawaii; and your retirement dreams—well, prepare for disappointment.
Of course, when it comes to the Fed and their budget, the money they “make” (income--mostly from taxes) isn’t spent on themselves. Instead, they have a family business and, as citizens, we are their customers. As a service to us, they help us make more money (jobs, worker training, child care, and infrastructure); thereby increasing the amount of money they get in return from those taxes. That is why there is a good argument to spend even more money on us (stimulus) to generate even more income down the road.
The danger is that they may not make back their investment, they may run out of money before the income starts to come in, and, well, they already are spending a lot. If our Joneses were spending money on their kids’ education with hopes of higher income to help out with their debt, they may have the same problems (the biggest being getting the kids to pay their parents back).
Of course the federal budget differs considerably from a household budget. A family has an eventual end to their earnings, while a country lives many, many generations. Our country is also in a good position to borrow a lot of money at very good rates. And the Fed can even make more dollars if they want to (quite illegal for a family to do).
Still, most of the family budget analogy works. Which is something to think about.
This article was published under the title "Compare federal, family budgets" in the Wichita Falls Times Record Newson May 19, 2013.