Apocalypse, No: We need to watch our debt, but it's no time to panic
The other day, I was speaking with a woman whom I love dearly but who regularly quarrels with me about pretty close to everything relating to economics, social policy, religion, comportment, dress, diet, optimum bedtime, and favorite Beatle (me: Paul; her: Glenn Miller). She may have given birth to me, though I’m still waiting on the DNA results – such is the breadth and depth of our disagreement on all matters, foreign and domestic.
Adoptive mother or no (in all seriousness, it seems unlikely; people I’ve never met before have literally stopped to ask me if I was her son), she has taught me well when it comes to a great many things, including fiscal responsibility (i.e., pathological cheapness).
A child of the Depression, my mom is a notorious pinchpenny. In other words, she’s my hero – or financial role model, rather.
You’ve probably met one of those thrift store warriors who can turn the dregs of their purses into a closet full of clothes in less time than it takes to get Bill O’Reilly to speak in tongues and burst the main artery in his temple. My wife is one of these – but I remain unimpressed. Here’s a typical post-thrift store exchange:
Cheryl: I found eight brand-new Brooks Brothers dress shirts in your size! They cost me 19 cents, a Malaysian knock-off Aquaman pog, and two tickets to a 1986 showing of ThunderCats on Ice.
Me (visibly irritated): I already have a dress shirt. Sheesh. (Silent, long-distance telepathic high-five with my mother.)
Anyway, during a recent phone conversation with my mom, she busted out the old bromide that “if the typical U.S. household managed its budget like the government does, we’d all be in trouble. Families have to balance their budgets every month. Why can’t the government?”
My trenchant response: Shriek of pain as I stubbed my toe lunging for the half-empty emergency bottle of Kahlua hidden above the ceiling tiles.
Of course, I’ve heard this one before – from many mothers, fathers, sons, and daughters, not just my own kinfolk.
Here’s my somewhat less flustered reply:
1) To some degree, families do manage their budgets like the government does. Who among us doesn’t have a mortgage? How many families manage their monthly affairs without carrying some debt?
2) Government debt simply is not analogous to household debt. As University of Missouri-Kansas City economist Randall Wray points out in an article for the Roosevelt Institute, “Since 1776 there have been exactly seven periods of substantial budget surpluses and significant reduction of the debt. From 1817 to 1821 the national debt fell by 29 percent; from 1823 to 1836 it was eliminated …; from 1852 to 1857, it fell by 59 percent, from 1867 to 1873 by 27 percent, from 1880 to 1893 by more than 50 percent, and from 1920 to 1930 by about a third. Of course, the last time we ran a budget surplus was during the Clinton years. I do not know any household that has been able to run budget deficits for approximately 190 out of the past 230-odd years, and to accumulate debt virtually nonstop since 1837.”
Wray then goes on to point out that “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.)”
3) Very few families have a working money press. Nor can they issue Treasuries, though it would be quite awesome if some of us could.
So I think we should all be like little Fonzies when it comes to the deficit. Granted, we need to keep an eye on our debt to make sure it doesn’t get out of control, but the best way to do that is to grow the economy, not take it out at the knees through austerity policies.
After all, as a percentage of GDP (the only really relevant metric), both federal spending and the federal deficit fell in fiscal year 2012. (Just ask the Congressional Budget Office; it’ll tell you the same thing.)
So while my mother and I largely agree when it comes to personal frugality, we depart when it comes to the government’s squeezing the life out of the economy.
Unfortunately, that’s what we’ll almost certainly do if we continue to preach and pursue austerity.
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