Government has to start living within its means, just like families do. We have to cut the spending we can’t afford so we can put the economy on sounder footing, and give our businesses the confidence they need to grow and create jobs.
Here’s the gist: “The federal budget is just like a family budget, and we in government must tight our belts and live within our means just like families do.”... [I]t’s almost always used as an argument for cutting everything to the bone right away, and... it’s wrong.
First of all, it’s bass-akwards: when families are tightening their belts, the federal government is the one institution that can actually help the economy—and these belt-tightening families—by loosening its belt and running a deficit. That deficit should be temporary and should come down when the private economy climbs up off the mat....
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... discount those who want to use it as a hammer to insist on instant cuts.
Paul Krugman here lays out why the government can get out of debt, by (temporarily) creating more debt. Ryan Avent is playfully called a shrill hippie, as he sensibly argues for more stimulus and calls Obama's comment above "profoundly uneconomic." The sad thing is that congressional missteps will lead to us all being less well-off than we could have been.