We commonly run deficits in our households, too July 7, 2011

There's been a lot of jumping up and down and screaming lately about the US budget deficit and debt.  One of the mantras... in fact it's a mantra that I've been hearing since I was a young Reagan Republican back in the early 80s is that "we can't run our households like our government, running deficits and increasing our debt."  Some claim it's a false analogy and I tend to agree that a single household is a false analogy to the collective that we call the US Federal Government.

However, even if the analogy is false, the statement itself is false as well.  In fact, as far as I can tell, most people who are in the top quartile social-economically in this country run a deficit for all but 15-25 years of their lives.

Everybody runs a deficit from the time they are born until the time they start working.  Are infants and children, we run a deficit by leaching food and time and stuff and education off our parents.  Those who have the luxury of running the deficit for longer and are able to get advanced education are able to earn more over their lifespan.  So, running a larger deficit in terms of early care, early education and advanced education leads to something better both for the individual and for society.

When we buy a house, we go into huge debt.  Typically that debt is on the order of 3-5 times our annual income.  In terms of the US, if the US had a national debt of 3-5 times GDP (GDP is national aggregate income), folks would be rightfully apoplectic.  Our current national debt is roughly 80% of GDP.  That's on the order of a new car loan in terms of annual income to debt ratio.

People lose jobs or change jobs all the time.  It would be absurd to expect that if someone lost a job that they must take the next available job, not matter how little it paid in order to have income, even if it meant reducing the quality of lifestyle.  In fact, some executives will go 1-2 years looking for the right job and perhaps learning and increasing their skills while they are looking.  During this period of time, they are running a deficit and presumably increasing their aggregate debt, but as a long term matter, they will wind up making more money.

When we retire, we run a deficit against assets we've accumulated during our productive working years.  Nobody complains about retirees running a deficit, yet those household typically do.

There's a magic age that typically lasts for about 25% of our lifetimes when we've paid off our college debts, we've paid down our mortgages and we're actively saving for our kids' college and our retirement.  During that time, like the 90s in the US, individually and as a household, we run a surplus.

The current unemployment in this country is mostly non-structural.  How do I know?  Because the unemployment rate rose super-fast.  The people laid off were laid off when aggregate consumption fell very quickly, not slowly, over time.  If the country's current unemployment issues were structural (like they were in the 70s when jobs were migrating first to the south and then overseas), we'd see a small rise in unemployment from year to year rather than a precipitous drop in employment coincident with a precipitous drop in consumption.

There's plenty of available productive capacity in this country.  There are plenty of folks lining up to loan this country money just like there are people lining up to loan me money for a mortgage, a car, personal consumption, etc.

Just like taking out college loans, the United States should be borrowing money and spending it to enhance infrastructure.  The US should be putting the productive capacity to work building roads and bridges and buildings, teaching students, making our communities safer and more beautiful.  We should be investing in basic research and the arts.  We should be putting a man on the moon (and but for the Apollo program, Silicon Valley and Apple and Oracle and Sun and Facebook and hundreds of other wealth creation machines would not exist.)

Successful business people invest when the time is right for investment and reap profits when its time to reap profits.  Right now is a perfect time for the government to buy low so later on it can reap profits from workers and business and assets.  The cost of borrowing is near zero.  The cost of labor is way low.  And just like the WPA in the 30s that built the Hoover dam, Golden Gate Bridge, hundreds of airports, the sidewalks of the street where I grew up, thousands of schools and other things that make this country what it is, it's time for Washington to invest in the people and infrastructure of this country.  There hasn't been a better time to invest since the Great Depression and investment has always led to great returns in this country and there's no reason to expect that investment in the people and infrastructure of the nation will have any different results this time around.