By Dave Anderson: Most middle class and above American households do not operate under a strict balance budget constraint on an annual basis.Some years, any particular household will disperse more than they earned, and other years they'll earn more than they will disperse. For instance, I don't think I have had two years since I was out of graduate school when my family income was within three percent of my family's disbursements.
This is not particularly unusual. Some years are good years, and some years are bad years. Some years have significant capital purchases and other years don't.
Individual households don't operate under strict balanced budget constraints. They operate under fairly loose balanced budget preferences if they have access to both reasonably affordable debt markets and very secure savings markets. This is what allows for Milton Friedman's permanent income hypothesis to work in reality. People will spend roughly what they expect their average annual remaining lifetime incomes will be even if they are having a great year or a crappy year. This hypothesis significantly weakens when the individual is unable to affordably or securely access debt or savings vehicles.
I say all of this because an anaology is pissing me off. The Federal budget is not a household budget and a household budget is not strictly balanced over a course of a year. It is balanced over the course of several years to a lifetime if the household can access credit markets.
Excellent point. In my case from the time I left home until I was 26 years old I lived on some combination of borrowed money and part-time jobs, with borrowed money outstanding the whole time except for a few months in the military when I got caught up (even at enlisted man's pay). All this chatter about running the country like we run household budgets is a meaningless, steaming pile of crap, not befitting intelligent people. But,as Twain might say, I repeat myself.
ReplyDeleteThis is why the Koch-Bros-pushed TABOR is devastating the budgets of the states that adopted it.
ReplyDeleteAlso your family like most, probably makes a distinction between borrowing to finance the kid's education or pay for needed medical care or purchasing a home and borrowing to buy a new Hummer or a 3D TV. Sometimes spending is a good investment in the future and sometimes it is a stupid waste of money. Of course the stupid wastes of money provide profits to campaign contributors (aka the owners). That's another distinction we don't hear made too often.
ReplyDeleteMy list would be much longer than yours. I was an engineer in the high tech industry. It was always a series of booms and busts. I would just recover from the last bust when the next one would happen. And the technology changed - I had to reinvent myself each time.
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