MADISON, Wis. — Perhaps I'm the only layman in America watching the dueling-budget show right now in Washington. I know I should ignore it.
I know that the warring parties will forge no compromise, nor are they even likely to approach a deal — despite the fact that failure will likely slow America's recovery to a snail's pace. This spectacle of non-negotiation will reach its nadir at the moment some Congressperson compares the budget of the United States to the finances of a typical middle-class American household, and says — verbatim — “If the average family can balance its budget and live within its means, why can't our government do the same?”
The simple answer has always been that the US government bears no resemblance to the average family.
This flawed analogy would be slightly more accurate if it cited not an average family but “the richest family in town.” America remains, by far, the richest nation on earth. Still, the metaphor fails because even the world's richest household — unlike Washington — has the right to mind its own business.
For instance, let's say the richest guy in town — let's call him Richard Cory — bumps into Joe Sixpack at the hardware store. Joe has lost his job. Richard Cory takes pity and slips Joe a “loan” of $50 to help him through the week. Both men understand that Joe never has to repay the money.
However, if the Cory clan were truly equivalent to the US government, Joe Sixpack wouldn't accept that $50 quite so meekly, nor would he pretend he was going to pay it back, nor would one generous impulse end the relationship. Instead, Joe would expect from Richard Cory a weekly stipend equal to as much as 75 percent of his former wages, for a period of at least 26 weeks. And every other laid-off worker in town would expect the same from the Cory family.
growth will outpace the interest payments.
Moreover, as the richest guy in town, it wouldn't suffice that Richard Cory protect himself and his property by erecting a fence and keeping a .357 magnum under his pillow. He would be obligated — as the government is similarly obliged — to recruit, outfit, arm, and train a professional town militia to protect every neighbor against the militias of all the surrounding towns.
However, silly though it is to compare the household cookie-jar to an entire nation's fiscal responsibilities, there are instructive parallels. For example, both the federal government and the average family survive, thrive, and serve the greater good by embracing the concept of a substantial and prolonged deficit.
Consider the national debt. Right now, it's somewhere around $16 trillion, which sounds catastrophic. But it's only dangerous if we have to pay it off all at once.
And we don't.
The household version of that $16 trillion debt is a mortgage. Most mortgages — adding up all the payments — equal anywhere from three to ten times the borrower's annual income. Indeed, early in the mortgage, a fat down payment and the expense of having a child or two plunge a typical family into a condition we call “house-poor,” strapped by the mortgage despite a respectable income.
The mortgaged family is a family in deficit. If the bank demanded full payment, the family would face bankruptcy. But the bank, by extending the loan to a typical duration of 30 years, is a partner in the deficit.
The reason both family and bank willingly join together to shoulder this big fat debt is the linchpin of capitalism: growth. Although the interest charged by the bank will grow, the family knows that the equity in their house, combined with their increased earning power as they get older, will almost certainly grow faster.
They know that, barring some unforeseen disaster, they will erase their deficit over the mortgage's 30-year span. But over time, they've learned something more important — not to fear the deficit. They understand that if they manage prudently, they can live comfortably, despite a little debt, 'til the day they die.
As the family goes, so goes Uncle Sam — at least in this respect. The US government is always in debt. We've balanced the budget seven times in the last 60 years. The worst deficit in history resulted from World War II, and we never really never paid it off. We didn't have to. Saddled by the biggest debt ever accumulated, America just went on growing anyway and, by 1956, it was gone.
Likewise, eventually, despite the wailing of the Pharisees on Capitol Hill, America will surely — again — outgrow what we owe.