Deficit Spending

There’s a viral FB post that compares our government’s deficit to a family which keeps outspending it income – going deeper into debt each year.

This is a choir-pleasing, but flawed analogy. While fiscal discipline over time is important, the Federal Government of the largest economy on Earth does not, and should not, behave economically like an individual household.

During times of economic crisis, deficit spending by the government is precisely the right thing to do. Domestic spending—particularly aid to low-income citizens—doesn’t leave the economy, but is recycled, and can increase overall income as the money is recycled through the economy. This is not a controversial assertion; it’s basic macroeconomics. 

But for the sake of argument, let’s run with the household analogy. A more helpful example would be a family which makes plenty of money overall, but where the primary breadwinner holds back much of his income, leaving the family to rely heavily on Mom’s ‘Pampered Chef’ money, and the proceeds from the kid’s paper route.

And as a kicker, Dad’s a gun nut. He’s got the best collection in the neighborhood – more, in fact than all the neighbors combined. And he keeps buying more – not with his own money, but by tapping into (and borrowing against) the family’s butter-n-egg money.