(Why Comparing the United States Federal Government to a Family with Out of Control Spending is Wrong)
(What is the Proper Role of Government)
Whenever any politician gets up and says something like the following, you can be sure you are listening to an ignoramus:
“Hi y’all. My name is Billy Babble and I’m your congressman from the great state of Kenbobbie. Tonight, I’m here to talk about the President’s plan to ruin our nation. RUIN OUR NATION, y’all hearing me?
"Now friends you know that if your family can’t balance its budget, if you using your credit card to pay your mortgage and your food and your healthcare and your holidays, if you are running your family deeper into debt each month, well, it plum can’t go on that way. You in trouble, real trouble. Y’all hearing me?
"That’s what our President be doing to this here great nation of ours…”
Now comparing the U.S. to a family is the most preposterous, pretentious bullcrap you are likely to hear this year. If you know a family that can do this, please tell me, because I want them to adopt me:
1. Issue new money (this is called seigniorage which is the difference in value between the cost to produce and distribute new currency and its face value);
2. Influence interest rates via monetary policy such as raising or lowering the discount rate or changing the direction of the Fed funds rate;
3. Create new economic activity by priming the pump via fiscal policies such as lowering prices (aka taxes) or increasing expenditures;
4. Collect revenue from new economic activity generated by changes in fiscal or monetary policy;
5. Borrow from domestic or foreign sources;
6. Lower (or raise) duties on imports;
7. Create a central bank (i.e., the Federal Reserve) that can sell or buy t-bills and notes as well as extend (or contract) credit to lenders to further prime the (economy’s) pump;
8. Create (legal) monopolies;
9. Use police power to enforce increases in prices or taxes and ensure compliance with efforts to collect overdue receivables;
10. Generate confidence at times when the public or business are seized with a malaise
These are just a few of a virtually unlimited list of things that a federal government can do in the event that recession, war or disaster threatens to crater a national economy. Comparing the problems that a U.S. government faces to a family in a debt crisis is disingenuous at best.
The proper role of government is:
First to keep order, for without that you can create nothing of lasting value (take note, Detroit).
Second is the defense of the nation.
Third is honest, competent, transparent government.
Fourth is guaranteeing persons the opportunity to freely exchange goods and services without undue restraint.
Fifth is the education of the people.
Sixth is the health of the nation and protection of the nation’s environment.
Seventh is the provision of effective infrastructure.
Eighth is to guarantee human and property rights without regard to race, religion, creed, gender, sexual orientation, caste or economic status.
Ninth is to provide citizens with access to a court system that provides justice again without regard to race, religion, creed, gender, sexual orientation, caste or economic status.
Tenth is to take timely corrective action whenever something threatens any of the above priorities and that includes economic meltdown.
These are or should be the priorities of every nation in my view.
Without question, governments needed to take effective action during and after the sharp economic contraction of 2008/09 when there were real fears (on the part of then President George W Bush and his senior advisers as well as leading bankers and chair of the Federal Reserve) that you would go to your bank after the weekend collapse of Lehman Brothers and your accounts would be frozen. You wouldn’t be able get any money out of your bank’s ATM machine, your credit cards wouldn’t work and your debit card would be just as useless.
Not many people alive today in North America can say they have seen a run on a bank but it is an ugly thing to witness. So be careful what you wish for.
Having said all of this, while governments must be proactive during economic calamities, they must also act to restrain “irrational exuberance”. So in good times, taxes can and should go up and expenditures should be restrained by government.
But governments must not act the way children tend to, that is, overreact. They must be both ahead of the curve and behind it acting as a gradual accelerant or brake.
Postscript: I wrote this during the 2008 recession:
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