The Government Budget vs Household Budget Analogy Competition!

Apologies to those expecting insight from me. Trying something a bit different.

There has been a tendency for politicians to speak about government finances as being analogous to household finances. 

And there has been an equally persistent tendency for economists and marke-folk to giggle at them for so doing. 

That this state of affairs has persisted for such a long time speaks to the profound failure of economists and market folk to effectively communicate in plain English why the analogy (at least in the case of monetary sovereigns) is a bad one.

I was hoping to use the comments section of this blog to elicit attempts at explaining why it is a bad analogy, with minimal use of technical jargon, abstract terms, etc.

Anyone up for giving this a shot? I reckon 50 words max, but the shorter the better.


12 thoughts on “The Government Budget vs Household Budget Analogy Competition!

  1. I would rather accept for the sake of argument that government finances could be managed like a household’s and then say something like the following:

    “Householders will often look for second jobs, buy a suit for interviews, borrow to start a business, or spend on education for their children. Governments should get people into jobs and invest too. Are there really no good investments in transport, energy, social care, etc, even with a growing population?”


  2. Because a government’s income depends a lot on that government’s own spending, which is never going to be true for any single household. A household could spend less without any impact on its income, a government can’t.


  3. A government’s responsibility is to make the economy function properly. Money is a means to achieve this primary responsibility. Since a government can print money it can never go broke. Messing up the economy because of not enough money is like a household starving when the apple tree in the garden is full of apples because of an agreement with the tree not to pick the apples.


  4. In 48 words:
    Central Governments usually are monopoly ISSUER of their national currencies. All others, including state and local governments, businesses and households, are USERS of that currency. The USERS cannot get their hands on this currency until and unless the Central Government either SPENDS or LENDS their currency into existence.

    Note: This applies to central government that have currency which is free-floating and non-convertible, i.e. not pegged to gold or some other currency.


  5. You can use a household analogy if you do it right.

    A household comprises a husband (private sector) and wife (government) who rely on each other’s services to maximise their household production. If needs the wife borrows from the husband by issuing ‘House IOUs’. Sometimes the reverse happens. Whichever way it goes the IOU market should used to maximise household output. Clearly the household as a whole cannot default on it’s own internal IOUs.


  6. Governments are responsible for issuing money as a common good for the utility of the people. That is called sovereignty. Borrowing money is called servitude. Modern governments have surrendered their sovereignty to private banking corporations, who use the privilege to extract wealth. That is called treason. Its like selling your children into slavery.


  7. When I run out of money, I cannot tell my bank to just print more money for my account. Countries can. Also, when a household spends money, you get goods or services. In an economy, everyone’s expense is someone else’s income.


  8. This government doesn’t even follow the analogy through properly though. Osborne’s plan implies a household sector that never takes a mortgage and saves to buy a house with cash.


  9. Rightwing politicans aim at shrinking governments. They argue that running a country is the same as running a household. In doing so they conveniently overlook key divergences between the behaviour of an individual household and that of a country’s economy as a whole. (For example, while one household can increase savings by cutting expenditure, not all can at the same time without reducing the economy as a whole.) Rectifying this type of malfunction requires government intervention and typically an increase in the size of the government.


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