We often hear politicians say that the federal government should manage their budget the way American families have to manage theirs. These are usually the same politicians who are deficit hawks and who are up in arms over the national debt.
To turn it around, what would happen if families had to manage their budget the way these politicians want the government to manage its money?
Many politicians, especially Republicans, are concerned because the National Debt in 2010 was at 92.3% of GDP. There was recently a Fiscal Summit with Republicans, Democrats, and other fiscal experts. The proposals ranged from a National Debt as a percentage of GDP of 30% to 80% with the moderates advocating 60%.
A family's income would be equivalent to its GDP. The median family income in 2009 was $50,200 and the median value of owner occupied housing (2005-2009) was $185,400 according to the Census Bureau. A Mother Jones article says the median income for the lower 90% is only $31,244, but we will be "generous" and go with the Census Bureau information. (While the value of housing has decreased since then, so has the average income, so for simplicity's sake, I am sticking with these numbers.)
If the average family bought an average house and paid 10% down, their mortgage loan would be for $166,860. This would make their debt 333% of their GDP. If our average family had a modest student loan and a loan on a modest car, their debt as a percentage of GDP would be even higher.
If we take the moderate proposal of a goal of the debt being only 60% of GDP, the average family should have a debt of only $30,120. Note that this is not payments on their debt; it is their total debt.
What would happen to the American economy if the average family could only have a total debt of $30,120 including their home mortgage, cars, education, and all other purchases?
Now, perhaps Republicans do want Americans to cut their debt to 60% of their GDP, in which case no one could own their own home except the very wealthy who would own all the homes. Perhaps they do want Americans to be uneducated and only have a beater for a car. Who knows. But I don't think they would really be happy in an America where families have to balance their budget the way they want the federal government to balance the national budget.
However, if the government did use its resources the way families actually do, we would have one hell of a stimulus. We could invest in infrastructure (the family home), transportation (the family car), education (student loans), and still have money for necessities (food, healthcare, insurance, electricity, retirement, etc.) Well, healthcare might still be a problem. Of course, I know families are having a hard time doing all that right now, but if the government spent the way responsible families do, we would all be in better shape.
Am I missing something?
2:09 PM PT: I am definitely not the best write on DailyKos. It seems to me that some people think I am agreeing with the Republican meme that the government should balance their budget like families do. My point was simply to look at how that would work and it seems to me that it would be quite different than they think. More debt per income (or net worth which might have been a better fit for GDP) and more investment in the future.