Why the Government's Budget Isn't Like Your Budget

It is popular to analogize the household budget the governments budget to your household budget. Now, I'm a big fan of analogies. They can explain complicated notions in simple terms that are, technically, inaccurate, but get "close enough" to how things work.

But the analogy has to work, the correspondences have to make sense. The "government budget as household budget" meme isn't like that. Rather, it is very dumb.

How is the government's budget not like your budget?

Well, how is the government not like you?

1) You will die. Governments live for an indefinite length. This means that while you might have trouble borrowing money to be paid back over 100 years, little Austria can sell 100-year bonds - and the market thinks it'll lend to Austria at 1.2% interest. You try borrowing money for 100 years, and let me know if anyone is foolish enough to lend to you.

This long life with low borrowing costs has other benefits. If the economy (and thus government tax revenue) grows at 2% a year, and the debt costs 1.2% a year, then as long as the borrowing isn't too big, the government can borrow money forever and keep paying it back. This might not be a prudent plan, but its an option that's open to governments that isn't open to

2) You cannot rob people. Fools like to say"taxation is theft". Why this is foolish is for another time, but it does cut to the heart of the matter. If you decide one day you want to make an extra $10,000 you can't just go to a bank and demand to be given that money. Governments can do that. Maybe you think they shouldn't but they can. Your promise to pay someone back is a promise that you'll earn the money to pay them back. The government's promise to pay someone back is a promise that they'll tax the money to pay them back.

3) When you print money, its counterfeiting. When the government prints money, its monetary sovereignty. The US government borrows US dollars. It also controls completely the supply of US dollars. The risk to lenders is not (barring an insane sovereign default) that the US won't pay you back, but that it will print too much money when it does so.

4) Your borrowing costs are higher. By which I mean, right now the US can borrow money for a month for about 2% APY, about a tenth of the costs for the average consumer credit card. This dramatically changes the picture in terms of what is and isn't "responsible" spending and borrowing. If  you could borrow money for that cheap, what would you do?