The Most pernicious analogy in politics

Household budget = government budget gets my vote.  The reason this is so damaging is because it leads ordinary citizens to not just be misinformed, but have attitudes they think are informed that run exactly contrary to smart policy.  Karl Smith, via  Ezra Klein, does a great job spinning this out:

When economic times are good, households should spend and invest more, while government should spend and invest less. When they’re bad, households need to cut back, and the government needs to step in. But as Karl Smith says, that’s not the only place where the analogy breaks down. Another — and one that’s increasingly relevant — is “not realizing your personal control over spending versus revenues is essentially the exact opposite of the governments control over spending versus revenues.” He continues:

Most middle class folks can cut back on their spending with relative ease. They probably won’t get sick, malnourished or injured from exposure as a result of spending cuts. What this means is that if revenues are running higher than spending – a necessary condition for building up debt – the most obvious choice is to cut spending. Therefore, as a rule of thumb people develop the notion that debt comes from living beyond your means…to the government, the exact opposite is true.

It is much easier for the government to raise revenue than to cut spending. Moreover, most of the movement in the deficit is tied to movements in revenue, not movements in spending. Thus the exact same reasoning that leads you to associate debt and spending in your personal life should lead you to associate debt and revenue for the government.

Much like their impressive achievement in convincing Americans that rich people really need to pay less taxes and that we are spending too much on foreign aid, the continued emphasis on this fallacious (yet, seemingly straightforward) analogy helps underlie Republican victories in setting the economic agenda.

About Steve Greene
Professor of Political Science at NC State

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