If we ran our family budgets the way the federal government runs the national budget, we would end up bankrupt. That's the argument from critics in the United States and Europe, rightly horrified by mountains of debt of a size our brains can scarcely comprehend.
The problem with that line of thinking is that the national economy and our home budgets are two completely different operations.
In fact, if we ran the federal budget today the way one runs a responsible family budget, we might just send the economy into a catastrophic tailspin. That's particularly true at this moment, when the United States and the global economy have barely managed to climb out of the abyss.
We certainly should worry about the size of the deficit and about how much money the United States — American taxpayers — owes its creditors. For just this year, the deficit will exceed $1.5 trillion. If you add the deficits accumulated over the years, all the money the federal government has borrowed, pays interest on and must repay, that number totals a breathtaking $13 trillion.
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This seemingly insurmountable debt and its geopolitical and economic consequences unquestionably are reason for profound worry. We must take action to slash the annual deficits and start bringing down the debt. That's not just the view of patriotically attired tea partiers or fiscally conservative Republicans. Everyone agrees that a reckoning awaits us. The bitter disagreement centers on when we should begin the arduous job of cutting spending, raising taxes or both.
On one corner of the debate stand European governments and conservative Americans arguing that the time to start slashing is now. The just-completed (at a cost of $1 billion) G-20 summit in Toronto vaguely signed on to this view.
On the other corner stand Nobel Prize-winning economist and New York Times columnist Paul Krugman and his ideological soul mates, who warn that cutting now will trigger a full-fledged economic depression. Krugman argues this is the time for the government to spend even more, as some in the administration propose, in order to bolster a flagging economic recovery and a stubbornly high unemployment rate.
After economists studied the Great Depression, they concluded that the government took all the wrong measures in the 1930s, making a desperate situation worse. Those lessons helped after the 2008 financial meltdown, when bailouts and stimulus packages prevented an even greater disaster.
But now the economy has stabilized enough, and the Greek debt crisis has scared policymakers enough that people — thinking about what they would do if their family budget creaked under heavy debt — want to see the government roll up its sleeves and start cutting.
When you hear the arguments from those who say we need to cut now, and those who say cutting now will invite catastrophe, they both sound convinced of the rightness of their views. The fact, however, is that both sides offer their best educated guess about how the economy will respond.
My sense is that the government has spent enough on major stimulus programs. It's time to let the private sector get back to work. But we should not start reducing the deficit until we are certain that the economy can survive without a muscular helping hand from the government.