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Why the national budget is different than a household’s

Jeremy Hobson Dec 14, 2012
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Why the national budget is different than a household’s

Jeremy Hobson Dec 14, 2012
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The latest round of talks between President Obama and House Speaker John Boehner are being described as “frank.” There are now just two and a half weeks until the fiscal cliff deadline — and still no deal.

Now throughout the debate about the deficits and debt, you’ve probably heard a certain metaphor: One that compares the nation to a household. Well, that metaphor bothers one of the nation’s leading economists, Robert Shiller of Yale University.

“I think that when we think about the nation, we think about the family,” Shiller says. “And we think that if bad times come, we need to tighten our belt; cut back on our spending.”

That metaphor doesn’t work so well when it comes to the nation’s economic tough times, he argues, because the income of a nation depends on spending.

“If we in one family cut back on our spending, it won’t effect our income,” he explains. “But if everybody cuts back on their spending, it will lower the national income.”

So what’s a better metaphor that policy makers could use in its place?

A winter on the farm, says Shiller.

“Sometimes cold, harsh times come on the farm. So people might sit around and not feel very active. But people love to work, within limits. So someone on the farm should say, ‘Hey, let’s go fix the barn now because there isn’t something else to do.'”

To extend the metaphor out, Shiller thinks the government should be investing in infrastructure projects instead of trying to cut spending in a slow economic growth period — like the one we’re in now.

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