As you know, I don’t think we should understand the budget policies of a large country able to borrow in its own fiat currency via analogy with the budget practices of a prudent household. But I’m always puzzled by people like Rep. Pat Meehan (R-PA) who seem to think that household budgeting is similar to a balanced budget amendment. In the course of making the case for such an amendment, he observes that “[e]very day families in southeastern Pennsylvania make tough decisions in order to live within their means.”
I’m sure that’s true. But even without being intimately familiar with conditions in southeastern Pennsylvania, I feel confident that every day families in southeastern Pennsylvania do things like get mortgages to buy a house. Certainly that’s what families do in the Washington, DC area. And as I recall from my college years, people often take out student loans to go to school. Certainly I have a mortgage. I’ve used my credit card. Over the long term, clearly, a household’s income has to equal its expenditures. But what kind of a family balances its budget on a year-to-year basis? How would anyone ever start a business in a world like that? It’s kind of amazing to me what can be passed off as common sense if you just repeat it enough.