Tuesday, February 26, 2013

The Government Isn't a Household

I was recently told that the balancing the U.S. budget is like balancing a family budget. If you're spending too much, cutting out a lot of little things can make a big difference. In the conversation, cutting back on the EPA was a theme.

The EPA budget in 2011 was about $8.5 billion. The Federal government spent $3,630 billion that year and brought in $2,314 billion. This is a deficit of $1,316 billion. So if we to eliminate--not merely scale back but completely remove--the EPA, we are shaving off a little more than 0.6% of the deficit.

Let's put that in perspective. Suppose your household make $50,000 a year (after taxes) but you spend about $78,435 a year (this keeps our household income and expenses in proportion to the Federal government: here our deficit is $28,435). Our EPA equivalent is an expense of $170.61. You're spending more than $28,000 a year than you earn and some people are arguing you can solve your problem by three fewer video games.

Yes, yes, I know. The argument is that if we do enough of these little cuts (and keep in mind, I'm eliminating the EPA, not just cutting it back), it adds up into a significant effect. Forget the fact that there aren't enough little cuts to use until you run into the politically tough stuff (Medicare, Social Security, defense). The household analogy is fundamentally flawed beyond that.

Imagine you attempted the same strategy but you needed everyone's approval before you made changes. You can't cut your cellphone budget unless your talkative daughter approves. The video game budget adjustments need approval from your kids. Hell, even your dog has to approve adjustments to how many new toys he gets.

Now spending your time and effort taking away a few video games seems really dumb. In fact, it might be better to spend more on video games just so the kids won't complain when you dip into their college fund (which is a really big expense and can solve the problem by itself).

Like a household budget, our budget needs to be balanced. But there's where the analogy stops because to change the Federal budget, you have to get approval from folks who are about as forward thinking as teenagers and as thoughtful as a family dog.