Fear, loathing, and the federal budget deficit

L. Randall Wray looks at the differences between the federal budget and household budgets in this piece at New Deal 2.0 and comes away wondering what all the deficit fuss is about.

Whenever a demagogue wants to whip up hysteria about federal budget deficits, he or she invariably begins with an analogy to a household’s budget: “No household can continually spend more than its income, and neither can the federal government”. On the surface that, might appear sensible; dig deeper and it makes no sense at all. A sovereign government bears no obvious resemblance to a household. Let us enumerate some relevant differences.

1. The US federal government is 221 years old ... There is no “day of reckoning”, no final piper-paying date for the sovereign government.
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2. With one brief exception, the federal government has been in debt every year since 1776.
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3. With the exception of the Clinton surpluses, every significant reduction of the outstanding debt has been followed by a depression
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4. The federal government is the issuer of our currency ... I don’t know any household that is able to spend by crediting bank deposits and reserves
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5. Some claim that if the government continues to run deficits, some day the dollar’s value will fall ... But only a moron would refuse to accept dollars today on the belief that at some unknown date in the hypothetical and distant future their value might be less than today’s value
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If the speaker claims that government budget deficits are unsustainable, that government must eventually pay back all that debt, ask him or her why we have managed to avoid retiring debt since 1837-is 173 years long enough to establish a “sustainable” pattern?

In the words of Michal Gold of The Big Chill, "I don't know anyone who could get through the day without two or three juicy rationalizations. They're more important than sex".

This is a pretty juicy one...

Surely there is wisdom in that last statement about 173 years of deficits in the U.S. - not too many people really believe we'll pay off the national debt, even if we could - but, surely there is also something quite different about the last ten years than the preceding 163.