I’ve written about this before but my first response is always: No! No we don’t! Since when? American consumer debt, which doesn’t include mortgages, is $2.43 trillion as of March 2011. Total U.S. revolving debt, which is almost entirely credit card debt, was $796.1 billion, as of March 2011. In fact, in March U.S. credit card debt increased for the second time since 2008, which the Wall Street Journal presented as a good thing:
U.S. consumers in March increased their credit-card debt for the second time since the financial crisis flared, giving a sign of hope that consumer spending could boost an economic recovery that has lost some steam.
In its monthly report Friday on borrowing, the Federal Reserve also said overall consumer credit outstanding rose, up $6.02 billion to $2.426 trillion. The increase, the sixth in a row, was bigger than expected. Economists surveyed by Dow Jones Newswires had forecast a $4.8-billion rise in consumer debt during March.
I’m not going to say whether this is bad or good, I’m just saying it completely debunks the ol’ “American families have to live within their means and so should the government” meme. No, we don’t! We never have! We have always been a country of consumers who satisfy their every need and whim with the swipe of plastic. We have well over a million people who declare bankruptcy every year. And our economy depends on this debt! Imagine if Americans did live within their means, paying cash as they go, never borrowing. Our entire economy would implode!
It just annoys me that no one ever calls the pundits and politicians on this shit when it’s so obviously wrong. So thank goodness Jared Bernstein writes about it on his new blog. Bernstein was Chief Economist and Economic Adviser to Vice President Joe Biden and a member of President Obama’s economic team before leaving the White House to become a senior fellow at the Center on Budget and Policy Priorities.
But there’s another fundamental way in which this family budget analogy gets misused. Families borrow to make investments and to get over rough patches. They run deficits too. I went into pretty deep debt to finance college and grad school and I’m glad I did.
The whole credit system is based on the fact that if we had to pay cash-as-we-go for everything, we’d seriously underinvest. And that’s true for families and governments—and yes, you can overdo the borrowing thing. But to flip too far the other way is equally dangerous.
So, while it sounds good and has some merit, I’d use the “gov’t budget=family budget” argument with care and I’d discount those who want to use it as a hammer to insist on instant cuts.
American families borrow money to buy houses and cars and invest in their businesses. They run up credit card debt and take out loans to pay for college. Families default on their loans all the time. We don’t live within our means any more than anyone else does. So can we please retire this stupid analogy once and for all? I mean it's ridiculous, I hear people repeating it whom I know to have declared personal bankruptcy or have had their cars repo'd. It's like people don't even engage their brains before opening their mouths to repeat these tired old pieces of supposed conventional wisdom. Have they all been brainwashed?