22 July 2011

Metaphors are Like a Bad Idea and Stuff (or, why the Government is not like a household)

Metaphors are more like poems than mathematical equations. Love is like a heat wave is easy to rhyme, but it collapses under scrutiny.

Governments are like a household and have to live within their means is a metaphor and while it makes something complicated seem simple, it, too, collapses under scrutiny. (When do we reach the retirement phase of our government is like a household and all stop working? And why can't we be like other families and just sit down to a pleasant dinner some day without all this arguing?)

There are lots of dangers with this metaphor as a substitute for thought. The most obvious is that if a government behaves like a household, it just makes things worse.

Any household with good sense will spend lots when it is making good money and will act more frugal when times are tight. If mom gets laid off, we buy our clothes at Goodwill instead of the mall. If mom gets promoted, we travel to the Caribbean instead of Phoenix. This makes perfect sense.

Governments are different. Remember Joseph's first job out of prison, working for the Pharaoh in a role akin to Prime Minister? He got that job by interpreting the Pharaoh's dream and warning him that Egypt would have 7 years of prosperity and then 7 years of famine. His advice was to save a portion of the corn every one of the good years and then dispense it out in the bad. Joseph basically told the Pharaoh to act completely backwards from what a household should. When times were good, save and be frugal, Joseph said. When times were bad, raid the storehouse and spend more liberally. This works.

Now the opposite of Joseph's advice would be what we've seen in the advice of talk show hosts in the last 10 years or so. When employment rates were low and the economy was growing, they cheered government tax cuts and the onset of wars that increased spending. Like a household, it made sense to them that government would act flush when the economy was relatively flush. But this was not such a great thing. For one thing, the government stimulating an already growing economy helped to create one of the biggest housing bubble in history. Now, when times are bad, the radio talk show hosts are saying that the government should tighten its belt. Most states have already done that and eliminated government jobs, adding to job market woes. We might yet escape a double-dip recession, but it will - best case - be one of the slowest and weakest recoveries on record. By contrast, China and South Korea engaged in far bigger stimulus (as a percentage of GDP) and came off of a far more fiscally conservative period before the global recession and already those economies are growing at a multiple of ours. A recession is no time to be worrying about a deficit.

So, when government is run like a household and ignores Joseph's advice, boom times become bubbles and bad times become busts. (Every depression in the US followed a time of paying down federal debt. Read more in this great article by Jim Luke.) When the private sector is again thriving, it would (contrary to intuition) be a good time to raise taxes and cut government spending, reducing the deficit. For now, though, the deficit is an abstract problem that can be deferred for a year or two. Sure, we're spending down the storehouse of corn now but you do that in bad years.

The government is no more like a household than love is like a heat wave. But still, it is your turn to do the dishes.

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