A Family Budget Is Not Comparable To A Government Budget-- Unless Your Goal Is To Mislead Your Listener

Over the course of the last year, we've spent a lot of time going over Joshua Holland's wonderful book, The Fifteen Biggest Lies About The Economy and you may have noticed that we often use the above graphic to introduce the discussion. A graphic like that could work just as well to introduce Michael Tomasky's column for the Daily Beast Saturday, The GOP's Three Fiscal Lies.

I've been waiting-- and waiting and waiting-- for Professor Obama to come out one day and explain, precisely, why the GOP obsession with budget deficits is utter bullshit designed to trick the American people. Economists often do but without the impact or clarity Obama needs to bring to it. If that cat's had his tongue, maybe Tomasky's essay will loosen it up a little. I hope so-- for all our sakes.

Dick Cheney went a little overboard (as he was wont to do) when he said “deficits don’t matter,” and of course it was quite a hoot coming from a member of the party that has been haranguing us about deficits for half a century now whenever it suited their purposes to do so. But as hypocritical as he was being, he had a point. Today, the GOP has completely flipped on this point and is cynically hyping three fictions that will harm the economy-- but (maybe) help them electorally.

The first is this canard that we have to balance the budget. Absurd. There is no reason to balance the budget. None. Ever. Oh, it’s nice if it happens-- that is, if it happens as a result of an economy that’s shooting skyward like a bottle rocket, as Bill Clinton’s was. That’s something to feel good about. It was an astonishing accomplishment for Clinton, that he brought us into surplus for that brief golden age before George W. Bush and his advisers, those secret agents of world communism, started destroying American capitalism.

But there is no need for a balanced budget. Deficits of modest size as a percentage of the gross domestic product are entirely sustainable. Please read this brief (15 pages) and lucidly written report published last December by the Congressional Research Service. It explains the whole thing in very straightforward language. High deficits of the sort we’ve had since the meltdown are unsustainable over the long-term because they’ll require that too much money be spent servicing the debt. So that would be a problem. However, the deficit has already fallen (since 2009) from 10 percent of GDP to 7 percent, and it’s falling even more. It’s probably headed down to 4 percent of GDP. That’s fine. It’s going to be fine.

Provided: the economy comes back strongly. And this brings us to the second key point. What would help a still struggling economy come back strongly? A little boost, obviously. A little-- dare I say it!-- stimulus. A modest infrastructure program. The one thing that will hurt the economy, serious economists agree? Austerity. Austerity slows the economy down. Ask David Cameron. Well, he might not tell the truth. So don’t ask him. But ask most Britons.

And this in turn brings us to the third falsehood: the idea that balancing the budget will create jobs, which Paul Ryan says every time he opens his mouth lately. This is not just wrong. It’s ass backwards. Jobs can help balance the budget, because of all the extra tax revenue collected from all those employed people and all those cooking-with-gas businesses. That’s what happened in the late 1990s.

...The Democrats have to do a much more forceful, unapologetic job of exposing these fictions for what they are. For starters, no Democrat should ever again compare the federal budget to a family budget. The two aren’t remotely comparable. Please read this column by Josh Barro of Bloomberg on why: essentially, people have a life cycle, so it makes sense for people (and families) to seek to retire their accumulated debt as they age, so that they don’t die as debtors. But governments, like corporations, will exist indefinitely, which makes the calculations completely different.

All this can’t be said often enough. Modest deficits are perfectly sustainable. Budget cutting, far from being “responsible,” hurts the economy. And balanced budgets don’t create jobs-- it’s the other way around.

And just in case anyone doesn't feel like Barro's aforementioned (and linked) column, here are a couple of salient bits to consider-- or, for our political elites to consider... although they won't unless we push them to:

There are appropriate times for individuals to borrow, such as when getting an education or buying a home. But over a lifetime, the individual is supposed to be working to pay down debts and build wealth, so he or she can afford to stop working in old age. Thrift and saving (and a downward trajectory for debt balances) are virtuous traits in people, because of our life cycles.

But the government does not have a life cycle; it plans to exist indefinitely. So it makes much more sense to compare the government to a corporation, which also plans for indefinite existence and therefore may have debt as a permanent part of its capital structure. There is not necessarily an expectation that a firm will decrease its debt load over time, and if a company keeps growing, its debt load may keep getting larger without being a sign of financial distress.

That’s not to say that a corporation (or a government) can never borrow the wrong amount. A company can expose itself to excessive bankruptcy risk by overleveraging. Or if it’s not leveraged enough, it may be paying too much for capital. Similarly, government deficits do matter-- they just don’t always matter such that smaller is better.

The U.S. does have a medium-term deficit sustainability problem, though it looks a lot less dire than it did a couple of years ago. This is because Congress and the president have taken steps to reduce deficits and medical inflation has been slowing. Still, over time, lawmakers will have to put more downward pressure on the budget deficit. But there is no need to take further deficit reduction action this year or next, and the deficit will never have to go to zero.

Friday night Virginia corporate whore Mark Warner, with a net worth somewhere between $76,372,212 and $309,088,999 , introduced an amendment to the budget to repeal or reduce the Estate tax. It passed, in a chamber filled with multimillionaires and corporate whores like Warner, 80-19. Frank Lautenberg is sick and old and he missed the whole week in teh Senate today. He's also one of the wealthiest men in Congress. His voting record indicates clearly that had he been there, Warner's dreadful anti-family legislation would only have passed 80-20. Of course, every single Republican voted with the wealthy. But so did way too many Democrats-- not just teh usual kiss-ups like Mary Ladrieu, Max Baucus, Joe Donnelly, Claire McCaskill, Mark Pryor and Joe Manchin, but gold-star progressives like Barbara Boxer, Mazie Hirono and Elizabeth Warren. I wrote to Boxer and Warren to ask them why. I'll let you know if eiher responds. Here's the list of the 19 Democrats who voted against Warner's horrifying amendment. Keep the list-- the sadly short list-- in mind when the DSCC comes begging for contributions later this week and next week and the week after:

• Tammy Baldwin (D-WI)
• Sherrod Brown (D-OH)
• Chris Coons (D-DE)
• Dick Durbin (D-IL)
• Al Franken (D-MN)
• Kirsten Gillibrand (D-NY)
• Tom Harkin (D-IA)
• Tim Johnson (D-SD)
• Angus King (I-ME)
• Carl Levin (D-MI)
• Bob Menendez (D-NJ)
• Jeff Merkley (D-OR)
• Chris Murphy (D-CT)
• Jack Reed (D-RI)
• Jay Rockefeller (D-WV)
• Bernie Sanders (I-VT)
• Chuck Schumer (D-NY)
• Tom Udall (D-NM)
• Sheldon Whitehouse (D-RI)