Turn on any of the television or radio gab shows and it won’t be long before you hear someone proclaim that government must live within its means just as families do and businesses must.
Barack Obama gave this analogy the presidential seal of approval in a radio address in early July. In August, Ernie Boch, Jr., the Boston-based auto dealership magnate, added his two cents to Warren Buffett’s call to hike taxes on the rich: he would pay more taxes only if the government balanced its budget just as his and every other business must do.
But the truth is neither families nor businesses balance their books in the sense of forgoing borrowing. And even if they did, to insist that government do the same would extinguish whatever remains of economic growth and job creation, not ignite them.
Family and Business Red Ink
Few families balance their budgets the way the guardians of financial rectitude are now demanding of government. Nearly all families spend more than they earn and borrow to do so. When a family takes out a car loan, a student loan, or a mortgage on a house, it’s spending money it doesn’t have.
Is borrowing the road to ruin? Not if the debt is affordable. That depends not just on the size of the debt relative to the income available to service that debt, but also on how the family spends the borrowed money. For instance, assuming the size of the debt is manageable, borrowing to pay for education is justified if the education improves the family’s earning potential and so helps provide the income necessary to service the debt.
The same holds true of businesses. They borrow to invest and operate, especially in the United States where corporations finance the bulk of their investments by borrowing rather than by issuing stock.
While exact numbers are not available about the privately held Boch auto dealerships, rest assured that Boch’s company borrows to put the cars on his lot that he sells to the public or to build yet another dealership. That borrowing allows Boch’s and other businesses to spend more than they are taking in—Business 101.
Families and businesses in the United States do quite a bit of borrowing and quite a bit more borrowing than they had in the past. Today families rely on credit to meet their needs—for everything from food to fuel, from education to entertainment, and especially housing.
con't
Government “Living Within Its Means”? | Dollars & Sense
Barack Obama gave this analogy the presidential seal of approval in a radio address in early July. In August, Ernie Boch, Jr., the Boston-based auto dealership magnate, added his two cents to Warren Buffett’s call to hike taxes on the rich: he would pay more taxes only if the government balanced its budget just as his and every other business must do.
But the truth is neither families nor businesses balance their books in the sense of forgoing borrowing. And even if they did, to insist that government do the same would extinguish whatever remains of economic growth and job creation, not ignite them.
Family and Business Red Ink
Few families balance their budgets the way the guardians of financial rectitude are now demanding of government. Nearly all families spend more than they earn and borrow to do so. When a family takes out a car loan, a student loan, or a mortgage on a house, it’s spending money it doesn’t have.
Is borrowing the road to ruin? Not if the debt is affordable. That depends not just on the size of the debt relative to the income available to service that debt, but also on how the family spends the borrowed money. For instance, assuming the size of the debt is manageable, borrowing to pay for education is justified if the education improves the family’s earning potential and so helps provide the income necessary to service the debt.
The same holds true of businesses. They borrow to invest and operate, especially in the United States where corporations finance the bulk of their investments by borrowing rather than by issuing stock.
While exact numbers are not available about the privately held Boch auto dealerships, rest assured that Boch’s company borrows to put the cars on his lot that he sells to the public or to build yet another dealership. That borrowing allows Boch’s and other businesses to spend more than they are taking in—Business 101.
Families and businesses in the United States do quite a bit of borrowing and quite a bit more borrowing than they had in the past. Today families rely on credit to meet their needs—for everything from food to fuel, from education to entertainment, and especially housing.
con't
Government “Living Within Its Means”? | Dollars & Sense