Tuesday, April 30, 2013

Household vs. Government Budgeting

Believers in austerity economics often say that government budgets should balance like household budgets, as though there isn't any difference. They'll say things like, "We have to balance our budget, so why shouldn't the government?" It is curious to me because it betrays a lack of understanding of multiple key issues, from the differences between deficits and debts, to the whole idea of cash flow as it relates to budgeting.

In the first place, debt and deficit are very different things: deficits are annual shortfalls which must be covered by debt, or long-term borrowing. Declining deficits are a sign that our long-term debt will be growing more slowly, because we will be borrowing less in order to finance short-term spending shortfalls. Declining deficits are also a signal that we don't need to borrow as much because either our revenues have grown, our spending has dropped, or a combination of the two.

Fortunately, we have a recent point at which our budget was balanced to the extent that annual revenues were either equal to or exceeding annual expenditures. Put another way, we have a recent point at which our annual deficits were either zero or negative.

This point in our history was just before George W. Bush took office in 2001. Remember, though, that at that time our DEFICIT was zero, but our DEBT was still positive. This is important because this is the point in our history when our budget actually DID look like a household budget: the debt-to-income ratio may have been rather high by various standards, but the debt was serviceable because we weren't running deficits and actually had the option of paying things down faster.

Then the first Bush Administration happened: unnecessary and irresponsible tax cuts along with two new wars which weren't paid for and which had no exit strategy whatsoever. They didn't invest in infrastructure, debt servicing, education, research, health care reform... they decided to cut taxes, especially on the wealthiest, repeatedly invoking the exact supply-side fiscal policies which failed them LAST time they held the White House.

Six or seven short years later, we were heading into an enormous recession. Not only was the economy suffering, but government budgets were already strained from years of increasing deficits. We hadn't invested in our infrastructure in any substantial way, and we were presented with a unique opportunity (making lemonade here) to achieve national improvements while simultaneously digging ourselves out from the recession.

Heading into Obama's first term, the whole idea of the stimulus was that it would be one of several injections of capital and artificial demand into the private and public sector, maximizing employment (as best as a government CAN during a recession), improving infrastructure and schools and roads and sewage lines while we also keep as many people working as possible. We'd see how the first one was going as it began rolling out, and we'd do additional injections as needed.

Against all evidence, against all reason, against all logic, the Republicans (and later the Tea Party) fought against many of these ideas. Their "solution" was simple: cut taxes MORE to "unleash" job creators. You know, because all those jobs created during the 1990's were flukes. Cut "stifling" regulations that keep job creators from doing what they do best. Because all the jobs created during Bush's two terms only came about because regulations were relaxed.

Now we're hearing that we have a spending problem, not a revenue problem. "Our debt is unsustainable," they cry. "We have too much debt as it is!"

The problem is that we're hearing it from the same people who say that government budgets should be run like household budgets, an important disconnect in terminology and messaging. Yes, deficits drive debt, but if you're constantly calling for reduced revenues and you're constantly calling for reduced spending, then you'll never ever catch up. You'll fall behind faster because we still have deficits, so the existing debt will be increasingly difficult to service.

We're in a situation where, metaphorically, the Republican leadership seems united behind the idea of repeatedly giving the country a pay cut while ignoring urgently needed maintenance on the cars we need to get to work, the house we live in, our health, the quality of our diet, and so forth.

A spouse doesn't voluntarily quit working until it makes financial sense to do so. We don't cut back on our work hours by choice unless there is a VERY good reason to do so. That's the revenue side of this 'household budget' comparison: cut taxes ONLY in very specific circumstances, and be ready to raise them back to where they were if something comes up! A household budget acknowledges this. Republicans don't. Every time they possibly can, they try to cut taxes even if that drives up deficits.

On the spending side, there are legitimate times to go into debt: you need a car for work, you need a loan for a degree, you need emergency health care, you are forced to take leave from work due to a family situation, etc. There are plenty of times in a household budget where money is spent on critical events or issues and everyone is fine with the idea that the debt will be a bit higher for awhile. The household budget gets it. Republicans don't. Remember Eric Cantor holding his own constituents hostage for emergency relief after the earthquake in Virginia?

In summary: if you're going to run a government budget like a household budget, you're talking about running very low deficits, NOT being "out of debt." Household budgets understand that stimulus spending in a crisis makes sense - government budgets (and economic history, for that matter) do as well. But before we can get into some sort of routine of having zero or negative deficits, we need to spend a few years getting our vital infrastructure updated. There is far too much at risk with a number of key bridges, tunnels, airports, and of course water delivery systems.

If we could return to 2001 and hit a big red economic RESET button, I sure would love to see how things would be different today.

Wednesday, April 10, 2013

jobsanger: A Rising Tide For Marijuana Legalization

jobsanger: A Rising Tide For Marijuana Legalization: The chart above (from Talking Points Memo ) is a combination of many polls since 1995. It should come as no surprise that since that time ...