Jun 24, 2010 - Issue 381
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"If My Family has to Balance Its Budget and Live Within Its Means..." - The African World - By Bill Fletcher, Jr. - BlackCommentator.com Editorial Board

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There are moments when a saying is repeated so often that it becomes common sense, irrespective of whether it is true. Most of us have heard, repeated ad nauseum, a critique of government deficit spending and debt that takes the form of: “If my family has to balance its budget and live within its means, why shouldn’t the government?” The political Right is very fond of rhetoric and many regular people repeat it without ever thinking about its supposed accuracy.

In point of fact, I know of few, if any, families that balance their budgets or actually live within their means. How can I say this? Well, think about credit cards; home mortgages; or auto loans. The reality is that every time you purchase based on credit you are not living on a balanced budget; you are going into debt; and you are engaging in deficit spending. If regular people were to live on a balanced budget, the reality is that the economy would collapse.

The problem with debt is not the existence of it, but rather your ability to repay the debt. Think of it this way. If you go to a store and purchase a new television for, let’s say $300, you usually have the option of paying cash (sometimes meaning a check) or using credit. Your choice to use a credit card, if you are thinking rationally, will be based on whether you believe that you have a good chance of new money coming into your possession, i.e., that you are going to get paid in the next cycle and not have to use up all the cash reserves that you may have. Let’s go further. If you go to buy a car, you can certainly pay cash for it, but most people don’t. They use credit based on the assumption that they will be able to pay the car off over time with their income.

Governments go into debt all the time. The question is not whether there is a debt, or whether they engage in deficit spending. The question is also not whether the debt is big or small. The question is whether the government anticipates that it will have the ability to repay the loans that it takes out. When governments have been suckered through various financial schemes, their ability to repay will be hurt, but that is not because of the debt but because of the financial schemes that they engaged in or were tricked into.

This is a critical point for us to get, particularly when you are watching TV and you see that commercial of the kids repeating an anti-debt message in a chorus that sounds like the Pledge of Allegiance. The political Right is trying to put the fear of God into the public around debt, but what is noteworthy is that when Ronald Reagan was in office and engaged in the largest peacetime military build-up in US history, thereby creating a massive debt, the political Right said almost nothing. When George W. Bush launched the US into two wars, thereby destroying the surplus that Bill Clinton had built up, the Tea Party crowd was nowhere to be seen.

So, as the cartoon character Bugs Bunny asks: what’s all the hubbub, bub? The concern for the political Right is not debt but what the expenditures are going towards. With the exception of certain right-wing libertarians, the political Right never sees a military build-up that it can or wants to oppose. But efforts that go towards any degree of redistribution of wealth and the expansion of social programs are automatically condemned as reckless spending. It’s really as simple as that.

In the context of a significant economic crisis - whether one calls it the Great Recession or a depression - the reality is that what is called for is deficit spending. That means that the government will need to put out more than it is currently bringing in. This is necessary in order to get the economy moving and, in fact, to encourage other spending. Obsessions with deficits and debts do nothing to address the economic crisis except prolong it, if not make it deeper.

So, the next time you hear anyone repeat the mantra about how their family has to balance their budget, ask them:

1. Do they have a credit card?
2. Do they have a mortgage?
3. Do they have a car loan?
4. Do they have a line of credit through their bank?
5. Have they ever borrowed any money from a friend?

If the answer to any of these questions is “yes,” then you should point out that they, if even for a moment, were living outside of their means. Ask them, then, to think of the implications of that reality for them and for government. Did they need that car, or were they prepared to wait until they had accumulated $20,000 in cold cash in their savings account so that they could put it all in a nice bag and bring it to the auto dealer?

Just because a saying sounds good does not mean that it is in the least bit accurate. It just happens to be cute.

BlackCommentator.com Editorial Board member, Bill Fletcher, Jr., is a Senior Scholar with the Institute for Policy Studies, the immediate past president of TransAfrica Forum and co-author of, Solidarity Divided: The Crisis in Organized Labor and a New Path toward Social Justice(University of California Press), which examines the crisis of organized labor in the USA. Click here to contact Mr. Fletcher.

 

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