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.

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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

Burnley123 · 41-45, M

@Zaxel ...and that lack of understanding serves an ideological purpose. It leads a lot of people who do not buy into the right-wing economic world view to tacitly accept a deliberate political choice as something which is inevitable.

Zaxel · 26-30, M

@Burnley123 i think you'll have to clarify that for me, i feel its not as clear as id like it to be

Burnley123 · 41-45, M

@Zaxel The political right and the ruling class want to maximize profits and use ideology to justify it. Some believe in free-market trickle-down ideology (or they did until recently) but a lot of people don't. However, if you tell people that a national economy is a household and we have to cut the deficit, then they accept the BS like cutting pensions and social services as necessary.

So the household analogy serves an ideological purpose. It gets people who don't support free-market economics to go along with people who do.

Sorry, does that make sense now?

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