Balanced-Budget Blues (TIME Article)

[dtotire]

Balanced-Budget Blues

By Rana Foroohar
Monday, Aug. 08, 2011


Folksy politics is always difficult to counter successfully, in part because it has such strong emotional appeal. Consider the hoopla over raising the U.S. federal debt ceiling and the Republican efforts to pass a balanced-budget amendment to force the U.S. to make whatever spending cuts are required to get into the black and stay there, year after year.

The conservatives pushing this "cut, cap and balance" plan have a very powerful and easy-to-digest sales pitch: since no individual household can continually spend more than its income, why should the federal government be able to? It's a compelling question, especially if you look at the federal government's budget the same way you would look at your family's. At that point, you would realize that this year, you are spending about $41,500 more than the $55,000 you will make. (That's the ratio by which the federal government is in the red.) Time to gather everybody around the dinner table for a very serious talk. (See the 25 best financial blogs.)

But the macroeconomy doesn't work like the microeconomy, and there's a good reason why. It's called the paradox of thrift, which was first elucidated by British economist John Maynard Keynes. The idea is simple: while you and I as individuals can improve our financial position by saving, society as a whole often cannot — especially during times of recession and sluggish economic growth, like now. That's because when we all decide to start saving, nobody shows up at the shops to spend. Consumption, which accounts for about 60% of all economic activity in the U.S., goes down, and consequently so do incomes and employment. It's news to no one that this is exactly what has been happening. Amazingly, after two years of economic "recovery," unemployment isn't falling but rising.

Read more: http://www.time.com/time/magazine/article/0,9171,2084563,00.html#ixzz1T9d8w8DE

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[FreakinDJ]

1. By that amendment we would not have been able to "Bailout Wall St Banks"

Currently "leading Indicators" are projecting we are headed into another Recession, or "Double Dip" if you will