Thursday, August 25, 2011

LA Times Op-Ed — Bad Budget Analogy



The federal budget is not like a household budget, and it's misguided to try to apply similar austerity measures given the shaky economy.

5 comments:

Adam said...

Here is a pretty good comment on that OP.

As you can see by the comments, the houshold analogy has been successfully drilled into us. I gave up trying to directly refute it. Rather, I add to the household analogy those things that are overlooked and deliberately omited. The nation as a household consists of all of its members, ranging from poor to rich, sick to well, disabled to able, non-human companies to humans. We deal among ourselves on the basis of money that we ourselves have to print. So the most honest and well policed members of the houshold are given that printing job so that just the right amount is in circulation to maintain stable prices and enough to pay other members for their work output. What they print is given to other members (banks) to loan out at interest (as low as zero). The money comes about no other way. It was not a gift from heaven nor a wonderful inheritance at the beginning foundation of the household.

Although, of course, still wrong since it is talking about the loanable reserves hypothesis.

Mike Norman said...

This is an excellent piece in a major newspaper.

Hugo Heden said...

The author's blog, where he mentions the Op-Ed,

http://twentycentparadigms.blogspot.com/2011/08/better-analogy-for-deficit.html

- and comments:

Of course, the ideal is to simultaneously have an expansionary policy now, but also a plan for a (roughly) balanced budget in the long run (i.e., after the economy has returned to health). But the debt ceiling fight illustrated how raising the issue of long term projected imbalances starts a big fight over the ultimate size of government (which isn't what countercyclical policy is about). With 14 million people unemployed - and interest rates very low - that is a dangerous distraction.

(An update on sectoral balances would perhaps be useful there)

CybrWeez said...

I unfortunately read the comments. This country has no hope.

MortgageAngel said...

The analogy of the bad analogy is only about half right since he gets this part wrong

-In a healthy economy, large-scale government borrowing can drive up interest rate..

Jeezlaweez - does he really not understand the whole of it?