Fiscally F*cked

Cutting federal government spending in a recession does not save money

You’re already hearing, and going to hear a lot more of, bad analogies comparing government spending to household spending.

You’ll hear things about “tightening our belts,” “saving for a rainy day”—clever metaphors that work for an individual household but do not work for a national government that prints its own money.

The key difference between a household and a government is that a household is one small part of a larger economy it has little impact on—a government the size of our federal government, with the power to print its own currency, makes decisions that shape and guide the entire economy.

Depending on economic conditions, the choice to “save money” by borrowing less can result in people sitting idle and not working. Holding off on large purchases may make sense for a family when economic conditions are uncertain—but it may be disastrous for a government, since that means people are not working, resources are sitting idle, and the nation as a whole fritters away time generating nothing of value.

I always struggle to explain this sort of thing—there’s a reason that the “government as a household” analogy is so appealing in its simplicity—but the simplest way to put it is that during a recession, lots of people and lots of resources are not being used, and no one benefits from that.

The federal government choosing to keep spending down to avoid increasing the debt is not like a household choosing to keep spending down to avoid increasing its debt—its like a household choosing to quit its job because it costs money to get to work.

If that sounds stupid to you, it’s because it is—quitting your job does not save you money.

Don’t let the federal government quit on its job—it’ll cost you yours.

Want more updates like this? Click to sign up below, or share this with a friend: