Government-Household analogy
The Government-Household analogy refers to rhetoric in political economic discourse that compares the finances of a federal government to those of a household. The analogy has frequently been made in debates about government debt, with critics of government debt arguing that greater government debt is equivalent to a household taking on more debt.[1][2]
The analogy has been characterized by economists as misleading and false, as the functions and constraints of governments and households are vastly dissimilar.[3][4][5][6] Differences include that governments can print money,[7][8][9] interest rates on government borrowing may be cheaper than individual borrowing,[7][8] governments can increase their budgets through taxation,[7][8] governments have indefinite planning horizons,[10] national debt may be held primarily domestically (the equivalent of household members owing each other),[10] governments typically have greater collateral for borrowing,[11] and contractions in government spending can cause or prolong economic crises and increase the debt of the government.[6] For governments, the main risks of overspending may revolve around inflation rather than the size of the debt per se.[9][10]
According to economist and Nobel laureate
References
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- ^ Krugman, Paul (2015). "The austerity delusion". The Guardian. Retrieved 2021-07-19.
- ^ ISSN 0260-9592. Retrieved 2021-07-19.
- ^ a b c "How The Federal Budget Is Just Like Your Family Budget (Or Not)". NPR.org. 2013. Retrieved 2021-07-19.
- ^ a b c "Why the federal budget can't be managed like a household budget". The Guardian. 2013-03-26. Retrieved 2021-07-19.
- ^ a b Smith, Warwick. "Why the federal budget is not like a household budget". The Conversation. Retrieved 2021-07-19.
- ^ a b c "Does the National Debt Matter?| St. Louis Fed". www.stlouisfed.org. Retrieved 2021-07-19.
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