The "Balanced Budget" Lie

[DKStories]

Over the last few months of debate about debt ceilings, budgets, etc., I've heard one lie over and over again that I can't believe people still believe. This is the old lie about a "Balanced Budget". We hear, mostly from Republicans, that "the average family balances its budget so why can't government?". This is the lie, and why do people actually believe it is true?

Almost every American family does not balance its budget annually. The biggest exception to this would be our retired population, but the average working-age family finances its debt over the long term. Let's take the two basic big-ticket item most American families have: our houses and our cars. Do you have a loan out for either of those?

Most Americans do have a car loan and/or a home loan. Even when I rented an apartment (as a single man), I still ended up carrying a car loan. Sure, I couldn't afford a brand new car, so I got a used car from a lot, but I still had a loan for that car. Unless you're either very rich and can pay cash for everything, or very poor and unable to get a loan so you have to scrounge up cash for everything, you use your credit to obtain loans or credit cars. Almost all of us will end up carrying over that debt from one year to the next - the same as our government.

So, let's look at this a little. Our family goes on vacation, but we don't have $5,500 cash on hand to finance the vacation. Instead we put $2,500 of it on credit cards and use $3,000 in cash for the rest. Over the next 6 months we pay off that $2,500 on the credit cards. Before it gets paid off, our refrigerator goes on the fritz and we have to pay $600 in repairs. We also put this on the credit card and pay it off over the next few months. At the same time, the kids have back-to-school expenses. Like our vacation we split this between cash-on-hand and credit cards, putting another $500 on the credit cards as a result. Take this cycle, rinse and repeat.

Meanwhile we have two cars that we bought new, right off the lot by obtaining loans. We pay loan payments on those vehicles for a combined total of $1,200 per month. The good news is that car #1 is paid off in six months and our payments will go down by $700. The car is in good condition so we'll keep it for use and use that extra $700 towards paying off more of the credit card debt. (at least for a year when the oldest kid turns sixteen and we buy another car so he can use the old one as his first vehicle). That leaves us the big investment, our home.

Houses are expensive. A good 2,400 square foot home cost us $250,000 (hey, we bought after the bubble). Thanks to really good interest rates, we financed that $250,000 over 30 years at an interest rate of 4.25%. That's a good interest rate, and after taxes, insurances, escrow account payments, etc. we end up making payments of $1,800 a month. Fortunately our income is enough to cover most of our credit payments so we stay current on paying our debt. Most people like to call this a 'balanced budget'. We have our debts, we pay them off and we stay current. Still, at the end of the year we might be carrying as much as $350,000 in household debt between our cars, houses and credit card debts.

Our government does the same RIGHT NOW. We finance purchases over the long term (what else do you call our bombers, ships, tanks, bridges, highways, national parks, etc and etc?). We have very expensive big-ticket items and we have expensive day-to-day items that we finance on a regular basis. In the end though, we finance our governmen the same way American families budget their households.

Where this break downs, of course, is that the government can decide what its credit limit will be. As a result our debt burden gets too high compared to our annual revenue. As a result, we DO need to hold serious conversations about what to cut in our budget, and whether we should increase our revenues. What we don't need, and would in fact be bad for us, is to force our government to match every expenditure to every revenue dollar. There are things that can, and should be financed over time.

Still, we need to put to rest that old adage about "balancing our budgets like the average family". The average family doesn't balance its budget its year, but rather carries over debt from year to year, sometimes paying that debt down, sometimes seeing it increase at the end of a bad year, but always that debt is there.

[Trab]

Great article and very accurate assessment, it seems to me. Certainly describes the balancing of my budget.

[Cole Parker]

I guess, simplistically, if one's financial life is like a sine wave, then credit can lower the peaks and raise the troughs. Sort of like an antidepressant, I guess.

What we don't need in this country right now is a tightening of credit. We need the opposite. However, if anyone pays attention to the stupid, ill-adviseded and possibly politically-motivated S&P downgrade of the US's credit rating and starts raising credit rates on consumers, and on businesses, the recession we've been in might well become the depression everyone is afraid of.

S&P is catching a lot of heat for what they, and they alone, did. Good.

C

[Chris James]

Someone should have cut up the national credit card years ago but who wanted to take on the responsibliity?

Be prepared for another year of political backstabbing, lies and half-truths. I would urge anyone who becomes interested in what the various candidates are saying to fact check those words, most of it will be seen as propaganda.

In reading about the latest meeting of candidates (GOP this time) I found this little fact in the article:

" The White House budget office has estimated that federal spending this year will equal about 25 percent of the country's $15 trillion economy — the highest proportion since World War II."

So if we immediately shut down the Iraq and Afghan nonsense how much money will we save? I say nothing, we still have the bills to pay. WWII did a lot to bolster the ecoonomy and create industry. When the war ended all those soldiers came home to the GI Bill, education, employment and job training...imagine trying to do that now.

If federal spending is high now, what will happen when all those troops come home? All those National Guard soldiers who have been forced into two, three or even four deployment periods. They have no jobs left here, what are we going to do for them after this sacrifice? And we think the economy is in a mess now....

[DKStories]

So if we immediately shut down the Iraq and Afghan nonsense how much money will we save? I say nothing, we still have the bills to pay. WWII did a lot to bolster the ecoonomy and create industry. When the war ended all those soldiers came home to the GI Bill, education, employment and job training...imagine trying to do that now.

If federal spending is high now, what will happen when all those troops come home? All those National Guard soldiers who have been forced into two, three or even four deployment periods. They have no jobs left here, what are we going to do for them after this sacrifice? And we think the economy is in a mess now....

If we end Afghanistan right now, it will reduce federal spending by about $6.9 billion dollars per month. Iraq is approximately another $2.6 billion per month at this time. I think $9.5 billion per month is a damn good start. Unfortunately, in order to be smart about it, we need to switch some of that spending over to veteran support and employment programs. As a nation we need jobs, jobs, jobs more than we need deficit cutting.

Let's see. We have hundreds, if not thousands of bridges that are falling apart. There are dozens of national and state parks across the nation that could use a facelift. Our hospitals and schools are falling apart. What would happen if we took all that money spent on wars and applied it to employing veterans (and unemployed for a period equal to how long we've been in BOTH Afghanistan and Iraq?

Let's say an average wage roughly $35,000 per year. That is $7,000 more per year than an active duty military rank E-5 base pay (not counting war zone pay, dependent pay, etc.). Let's say we use a workforce of 2 million (encompassing more than every person currently in uniform and ten percent of all those currently unemployed). That comes to about $5.83 billion per month.

Now what would be the impact of having an additional 2 million people in the United States, right now, making a somewhat livable wage, doing work on our nations infrastructure, our schools, bridges, etc. Let's throw in another $3 billion for supplies and other costs. We are now spending $8.3 billion, only saving a measly $1.3 billion per month.

Yet, what would be the impact on our economy of having 2 million more people working, producing and spending that money back into the economy? What happens as the private sector ramps up employment to meet the increase of demand? What happens when in two-three years, as tax revenue increases from the improved economy we begin to shift people out of these public works projects into education and then into the private sector workforce?

Government isn't the long term answer, but it is the only entity in our nation that is capable of single-handedly making a difference.

[Cole Parker]

While I absolutely agree that more jobs for more people is what this country needs, basically because it gets people off welfare and again increasing tax revenues, I've always had a problem when it's infrastructure jobs that are mentioned as the panacea.

I was out of work a couple of times during my working career. But I never would have been able to take a job building bridges, or paving highways, or policing park grounds. That's great work for those that are able to do it. The question is, how many can?

To do that work, one has to be able to go to where the job is, and then do the physical labor required. Neither of those things would have been easy for me.

I think we need more that infrastructurestrure jobs. If we need two or five or ten million jobs for people wanting to work, we need a wide variety of them. All sorts of skills should be required. Then all those people wanting to work could be accommodated. At, hopefully, the locations where the workers live.

C

[Trab]

2 million people getting new work would require training personnel, administrative personnel, more safety inspections, purchasing agents, etc. Even just studying the needs within the crumbling infrastructure would require professional in the form of engineers, surveyors, etc. There would need to be more food catering, accommodation needs, the list goes on. Somewhere in there there would be a place for you Cole, even if it were to be motivational entertainment for the non-drinking workers.

[DKStories]

While I absolutely agree that more jobs for more people is what this country needs, basically because it gets people off welfare and again increasing tax revenues, I've always had a problem when it's infrastructure jobs that are mentioned as the panacea.

I was out of work a couple of times during my working career. But I never would have been able to take a job building bridges, or paving highways, or policing park grounds. That's great work for those that are able to do it. The question is, how many can?

To do that work, one has to be able to go to where the job is, and then do the physical labor required. Neither of those things would have been easy for me.

I think we need more that infrastructurestrure jobs. If we need two or five or ten million jobs for people wanting to work, we need a wide variety of them. All sorts of skills should be required. Then all those people wanting to work could be accommodated. At, hopefully, the locations where the workers live.

C

Infrastructure is about more than bridges and roads - although those are the most visible and easily understood. Trab is also right that some of those 2 million are going to be engineers and architects that have been out of work since the collapse of the building industry. As for who can do the work, military veterans returning from ten years of incessant warfare in the most difficult environments of the world come immediately to mind. There are a lot of them, and they can take the heavy load required by such difficult work.

Building a school, or refurbishing it, is also a difficult job. Still, there are millions of construction workers who would be more than happy to do that instead of trying to stay on the unemployment rolls a little longer. Still, they're also going to need people to act as couriers, office assistants, etc. What about the cities and neighborhoods that need blight removed and then remodeled into a park? Clearing rubbish is boring work, but a lot of people can managed to do that - and if it pays more than you're getting on unemployment, there's plenty willing to do that work.

The main point is that ten billion PER MONTH that is going into war can instead go into a massive temporary jobs program that will help put this nation back on its feet. Spending that money for two to three years we can bring this nation out of a bad recession and back into a situation where private enterprise can reassert itself. This is part of what government is for, part of our social contract with one another. Yes, it is going to incur debt, but if things do not improve the situation will just get worse.

To paraphrase an old sci-fi classic, the money must flow. How the money flows is important though, and so far it's done little except flow into pockets of bankers. The American people are willing to work, if they are given the opportunity. If the private sector will not, or cannot, then it is up to our government to make it happen. The government is, after all, the sole entity in the United States whose purpose is the preservation and welfare of the American people.

[TracyMN]

I'm pretty sure EVERY bridge in Minnesota is been either replaced or repaired, in typical American knee-jerk response style. A look we wear all too well, IMO.

It is, indeed, an excellent assessment, DK. As always with this crowd, it pays to be late. Any point worth making has likely been, and well; and here at least, its own or the sake of argument is reason enough. It's all I can do not to choke on the obvious much of the time; to breathe in the presence of certain things almost feels like a gift.

LOL, "feels like" is reason enough for a thank-you in my world. Here's mine, to all.

Nice to see you Chris, whether you're news or just news to me. Well, news here. Your work, of course, is not.

Tracy

p.s. Sacrifice our involvement in the affairs of others to save 10 billion a month? The illusion of control is priceless!