Is household spending a useful analogy for a national economy?

'We spent too much so we have to tighten our belts now,' is the call and this persuades a lot of people because it resonates with lived experience. If I spend more than my income and get into debt, then it makes sense that I cut back on my spending to get out of debt. The only problem with this analogy is that an individual person or household is not a national economy. Despite being widely believed as 'common sense,' this analogy is in fact a load of old bollox. Pardon my French.

In a national economy, my spending is your income and my income is your spending. If everyone cuts at once (which they do in troubled times) then the whole country goes into recession. Businesses have no customers and lay off staff who then have less money to spend etc. This is why Governments need to buck the trend in troubled times and borrow more in the short term in order to stimulate growth.

So counter-intuitively, a recession is a time when a government should spend more not less. Full employment should be the priority so that everyone is productive and you are not paying as many benefits. A bit of inflation is no disastrous thing, compared with the alternative.

Top | Newest First | Oldest First

Zaxel · 26-30, M

yeah all of that is true, government should be sending more money into the economy to stimulate it, doing calls for a cutback isnt going to push things forward, its simplistic thinking. inflation is going to be necessary to stimulate economy, thats why its there in the first place. people dont understand basic economics

View 3 more replies »

Zaxel · 26-30, M

@Burnley123 yeah thats true. also i think its strange because the thinking is all so short-term too. having an enriched middle and lower class should theoretically lead to long-term profits for everyone. it'll trickle up when everyone is doing well and spending freely, the overall GDP of an economy and its growth rate should increase.

it makes me wonder if its more about some form of class warfare to keep people from increasing their general wealth over people who already have a power hold over the world.

Burnley123 · 41-45, M

@Zaxel Yeah that is pretty much my thinking. In the west, we had 3% annual growth for a long time but that has perminantly disappeared now. So its gonna squeeze profits and or wages because there is a little less pie to go round and what gets squeezed is a political choice.

Also, capitalists do think short term and that is why climate change is something they are not fighting.

Zaxel · 26-30, M

@Burnley123 i guess its because from the pov of a large asset holder, the expected value of their assets only has so much time to grow before theyre able to make use of it, so its necessarily short-term from that perspective (once you reach a certain level of wealth, the potential increase in that wealth is highly correlated with the overall economy).
china is gonna rule the world, which is a problem because they dont believe in freedom, thats whats truly concerning

SW-User

As a wise man once said..

If you owe the bank £10,000 and can't pay it back you have a problem. If you owe the bank £1 trillion the bank has a problem.

Northwest · M

If I am not mistaken, this is not counter intuitive. Our previous recessions, required deficit spending, on the part of the government, to get things moving again.

FDR's new deal
Post 9/11 deficit spending
Post 2009 deficit spending (resulting in the longest bull market)

These are obviously US based examples, but I believe they are still valid, if universally applied.

Burnley123 · 41-45, M

@Northwest It is not counter-intuitive when you post those examples and frame it like that. In this country, the household analogy is deeply embedded and the media almost never challenge it.

Northwest · M

@Burnley123 Deficit spending, usually does not bother me, if properly applied. The issue with our government (and yours I presume), is that conservative governments only want to use that tool, to shore up conservative programs only, but faint at the thought of applying it to game changers, usually progressive agendas.

okaybut · 56-60, M

Yes, but without saving in the good times, a lot of governments are now screwed. Interest payments could become a top line item after this crisis. And interest payments are payment of funds to something that does nothing to support the current society.

TheOneyouwerewarnedabout · 41-45, MVIP

yes. if you spend more then you make. youre going backwards..

Burnley123 · 41-45, M

@TheOneyouwerewarnedabout Read the post dumbass.

TheOneyouwerewarnedabout · 41-45, MVIP

@Burnley123 i answered your stupid fucking primary school Q without the dribble fuck face.. eat a bag of dicks..

Burnley123 · 41-45, M

@TheOneyouwerewarnedabout It would have taken two minutes to read three paragraphs and respond to an argument.

You spend loads of time searching the internet for 'edgy' memes but zero time actually thinking for yourself.

Stay classy bro.

daisymay · 51-55, T

No. It never has been and never will be. It is only useful for Republicans when Democrats are holding the pursestrings and never mentioned at all when Republicans do.

Burnley123 · 41-45, M

@daisymay Same in this country.

Add a comment...