I've seen this image doing the rounds on Facebook, etc:

enter image description here

I'm dubious out these figures. Is this an over-simplification? Can you use those figures in the same calculation?

  • 15
    My first reaction (before actually checking any of the, undated, unreferenced figures) would be to note that credit cards are usually associated with incredibly high interest rates, and are thus generally a debt to be reduced as quickly as possible. National debt is borrowed at a much lower rate, and if it is used to purchase profitable assets, may be a financially prudent action - more like a home equity loan. So, the credit card analogy triggers an inappropriate emotional response.
    – Oddthinking
    Apr 4, 2012 at 15:01
  • 1
    @Oddthinking: IMHO, the key point is how much bigger is spending over income.
    – vartec
    Apr 4, 2012 at 15:20
  • 3
    @vartec but what happens when 30% of your debt is to yourself? Apr 4, 2012 at 16:25
  • 6
    It's dubious because the government isn't a household. Households can't print money. The idea of a government leveraging debt to buy things isn't new (vanityfair.com/politics/features/2011/11/debt-and-dumb-201111), and the arguments about whether or not we should isn't new either (ibid), but looking at these things in the way the post is doing is a gross oversimplification of the problem (if one actually exists or not).
    – mmr
    Apr 4, 2012 at 17:14
  • 3
    @mmr agreed... people will often say "this isn't a democracy" in work and family contexts. It would be nice if more people started saying "the government isn't a household" or "the government isn't a business" Apr 5, 2012 at 16:43

5 Answers 5


Is this an over-simplification?


However, it's not so much an over-simplification as just plain wrong.

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.
- Paul Krugman, Nobody Understands Debt


Whenever a demagogue wants to whip up hysteria about federal budget deficits, he or she invariably begins with an analogy to a household’s budget: “No household can continually spend more than its income, and neither can the federal government”. On the surface that, might appear sensible; dig deeper and it makes no sense at all. A sovereign government bears no obvious resemblance to a household.
- L. Randall Wray, The Federal Budget is NOT like a Household Budget: Here’s Why

Summary of points (from the source above)

  1. The US federal government is 221 years old, if we date its birth to the adoption of the Constitution.

    • I don’t know any head of household with such an apparently indefinitely long lifespan.
    • There is no “day of reckoning”, no final piper-paying date for the sovereign government.
    • Nor do I know any household with the power to levy taxes, to give a name to — and issue — the currency we use, and to demand that those taxes are paid in the currency it issues.
  2. With one brief exception, the federal government has been in debt every year since 1776.

    • In January 1835, for the first and only time in U.S. history, the public debt was retired, and a budget surplus was maintained for the next two years in order to accumulate “a fund to meet future deficits.”
    • In 1837 the economy collapsed into a deep depression that drove the budget into deficit, and the federal government has been in debt ever since.
    • Since 1776 there have been exactly seven periods of substantial budget surpluses and significant reduction of the debt. 1817-1821, 1823-1836, 1852-1857, 1867-1873, 1880-1893, 1920-1930, the Clinton years.
    • I do not know any household that has been able to run budget deficits for approximately 190 out of the past 230-odd years, and to accumulate debt virtually nonstop since 1837.
  3. The United States has also experienced six periods of depression.

    • The depressions began in 1819, 1837, 1857, 1873, 1893, and 1929 (see the dates listed above).
    • With the exception of the Clinton surpluses, every significant reduction of the outstanding debt has been followed by a depression, and every depression has been preceded by significant debt reduction.
    • The Clinton surplus was followed by the Bush recession, a speculative euphoria, and then the collapse in which we now find ourselves.
    • I don’t know of any case of a national depression caused by a household budget surplus.
  4. The federal government is the issuer of our currency.

    • Its IOUs are always accepted in payment.
    • Government actually spends by crediting bank deposits (and credits the reserves of those banks);
    • If you don’t want a bank deposit, government will give you cash; if you don’t want cash it will give you a treasury bond.
    • People will work, sell, panhandle, lie, cheat, steal, and even kill to obtain the government’s dollars.
    • I don’t know any household that is able to spend by crediting bank deposits and reserves, or by issuing currency.
  5. Some claim that if the government continues to run deficits, some day the dollar’s value will fall due to inflation; or its value will depreciate relative to foreign currencies.

    • But only a moron would refuse to accept dollars today on the belief that at some unknown date in the hypothetical and distant future their value might be less than today’s value.
    • My household’s spending in excess of income won’t reduce the purchasing power of the dollar by any measurable amount.
  6. If the speaker claims that government budget deficits are unsustainable, that government must eventually pay back all that debt, ask him or her why we have managed to avoid retiring debt since 1837.

    • Is 173 years long enough to establish a “sustainable” pattern?

Bad idea: Vote them out* and demand a balanced budget.

I can think of nothing more fundamentally foolish, more unequivocally self-destructive to our economic well being today than attempting to balance the US federal budget. It is totally unnecessary and every dollar we cut from government spending is a dollar taken from someone’s income. That we should be so enthusiastically pursuing such a policy when there are almost 14 million unemployed workers is mind boggling. How is further lowering the effective demand for goods and services supposed to help? It cannot, of course, and will only serve to make things worse – much, much worse. - John T. Harvey, How to Destroy the US Economy? Balance the Budget

*Ok, voting them out might not be such a bad idea.

The Bottom Line...

  1. The federal budget is NOT like a household budget.
  2. Facebook is most likely NOT a good source for information on economics.
  3. Politicians can lie through their teeth. Parliamentary privilege grants protection against civil or criminal liability for actions done or statements made related to one's duties as a legislator.

Ps. Another bad idea.

Remove banking regulations by passing the Gramm–Leach–Bliley Act of 1999 and allow the creation of giant financial supermarkets that could own investment banks, commercial banks and insurance firms, something banned since the Great Depression (see Glass-Steagall Act of 1933).

Basically, allow investment banking firms to gamble with their depositors' money and drive the economy into crapper by 2007. Not smart.

  • "With the exception of the Clinton surpluses, every significant reduction of the outstanding debt has been followed by a depression, and every depression has been preceded by significant debt reduction." -- Interesting! Citation? Apr 9, 2012 at 23:12
  • 1
    @Larry It's in the Wray article, second from the top.
    – Rusty
    Apr 9, 2012 at 23:29

The numbers aren't quite the same for the year I could find data, but the overall story is correct. According to the GAO's Financial Statements of the United States Government for the Years Ended September 30, 2010, and 2009, the figures would be:

Income:              2.2T
Net Cost:            4.3T
Net Operating Cost: (2.1T)
Net Position:      (13.5T)

Is it an oversimplification to compare the Federal budget to a family budget? Definitely. Federal obligations are much more complicated than that of a family, Federal borrowing costs much less than credit cards, Federal income growth (and volatility) is very different than typical wages, etc.

  • It's particularly bad because things that are nearly binary for a single household have a lot of different values for a nation - a household can't be 10% unemployed, for instance.
    – Tacroy
    Apr 4, 2012 at 16:06
  • 4
    @tracroy sure a household can. If there are 2 adults and 8 children working to bring home money, and 1 looses a job; you have a 10% unemployment rate :)
    – user6204
    Apr 4, 2012 at 17:15
  • and yes, I know that is ridiculous
    – user6204
    Apr 4, 2012 at 17:16
  • 1
    In my opinion, the single most distorting factor is the interest rate. The way that debt compounds relative to investment and inflation is critically important to finances. Compare the obligations of, say, $100K at 4% (on a mortgage, say) with the same amount on a 30% APR CC: the one is reasonable, the other terrifying. Apr 4, 2012 at 17:43
  • 1
    @Joe it's not as ridiculous if you're the Duggars :) The thing is, on a household level, a lot of this spending is equivalent to taking out a loan in order to pay for gas (or bus fare) so you can get to job interviews. The fact that you have income makes people think you're fully employed, which isn't necessarily true for a nation.
    – Tacroy
    Apr 4, 2012 at 18:25

The overall comparison for income, expenses, and deficit are correct:

2011 Income:   $2,400 Billion
2011 Expense:  $3,700 Billion
2011 New Debt: $1,300 Billion
Total Debt:   $16,000 Billion

To say the $16,000 billion in debt is like credit card is not an accurate comparison.

Of the $16,000 billion in debt, approximately $10,200 billion is held by the public and $5,800 billion is held by other government agencies.

The $5,800 billion that is held by other government agencies is debt that was purchased mainly by the social security trust fund. For most of its existence the social security trust fund ran a surplus (that ended in March of 2011 when the first boomers started to retire. Since then the fund has been sending out more payments then it has been taking in). This surplus allowed the fund to pile up an excess of $2.5 trillion. The fund was required to purchase government bonds with the excess. This allowed the US government to spend the money in the trust fund. This is similar to borrowing from you retirement account in order to spend the money now. All that sits in the trust fund now is $2.5 trillion in US government bonds.

The argument is frequently made for this type of debt: "we owe it to ourselves". This always makes me chuckle. The US government owes the social security trust fund $2.5 trillion. I'm not the US government so don't count me in the "we" part of "we owe it to ourselves". I'm also fairly certain I will never see a dime of social security so don't count me in the "ourselves" portion either.

enter image description here

The remaining $10,200 billion that is held by the public is mainly short term debt. Around 83% of the public debt is held in bonds that mature in less than 10 years. This means the US government is more exposed to interest rate moves since it is continually rolling over short term debt and issuing new debt at the prevailing interest rates. This makes this debt closer to a very large adjustable rate mortgage.

enter image description here

  • A much better analogy. When you cant pay the mortgage its time to stop building additions to the house.
    – Chad
    Apr 6, 2012 at 18:25

It seems that another reason this is a bad analogy is that, "America owes foreigners about $4.5 trillion in debt. But America owes America $9.8 trillion."


The breakdown:

Hong Kong: $121.9 billion (0.9 percent)

Caribbean banking centers: $148.3 (1 percent)

Taiwan: $153.4 billion (1.1 percent)

Brazil: $211.4 billion (1.5 percent)

Oil exporting countries: $229.8 billion (1.6 percent)

Mutual funds: $300.5 billion (2 percent)

Commercial banks: $301.8 billion (2.1 percent)

State, local and federal retirement funds: $320.9 billion (2.2 percent)

Money market mutual funds: $337.7 billion (2.4 percent)

United Kingdom: $346.5 billion (2.4 percent)

Private pension funds: $504.7 billion (3.5 percent)

State and local governments: $506.1 billion (3.5 percent)

Japan: $912.4 billion (6.4 percent)

U.S. households: $959.4 billion (6.6 percent)

China: $1.16 trillion (8 percent)

The U.S. Treasury: $1.63 trillion (11.3 percent)

Social Security trust fund: $2.67 trillion (19 percent)

  • The US Federal government owes 9.8 to other entities including its citizens. So your claim is a huge over simplification. The analogy here would be the family owes the money to the kids, and the family business because it has been borrowing from them to live.
    – Chad
    Apr 4, 2012 at 19:32

Since the claim is being put in simple terms, I'll attempt to provide an answer in simple terms.

A household has a fixed monthly income. No matter how much you cut back on your expenditure, you get paid the same wage every month. If you spend a lot more than you earn there is little prospect of you being able to pay it back, because your wages won't rise fast enough and eventually you will either die or declare bankruptcy.

A government has a variable income. The amount of tax it gets varies depending on how well the economy is doing. If unemployment is high then fewer people are paying income tax and they have less money to spend so there is less consumption tax too. If businesses go bust or cut back their activities then business tax revenues fall. This is called recession. Conversely, when times are good tax revenue goes up as well.

When an individual is spending more than they earn, they can either cut back or try to earn more. Since the latter is difficult, especially in a recession, they usually choose the former.

Many governments favour growing the economy out of recession. This can take many forms, from printing money to investing or cutting taxes. They all aim to stimulate business activity. There are alternative schools of though, but they tend to lead to problem's like Japan's lost decade (which is more like 20 years) or the current problems in the UK and other EU countries like Spain and Greece. While there may eventually be a correction, many people suffer poverty in the mean time.

Essentially, what the image is suggesting is the second option. Stop stimulating the economy and instead cut back on government economic activity. Given that a deficit of economic activity is the definition of a recession, it is hopefully obvious why that is a bad idea, and why the spending outlined is not insane and you should not demand a balanced budget.

Other answers have pointed out how government debt is not treated the same way as household debt, so I will not cover that aspect.

  • 1
    Links to wikipedia that merely explain some terms are not evidence or valid references. Please modify your answer so it is not the result of your own personal opinion on the matter.
    – Sklivvz
    Oct 8, 2015 at 16:06
  • You want me to copy the Wikipedia references into my answers? Seems a bit redundant. The conclusions are based on the articles, which are summaries of the references.
    – user18902
    Oct 8, 2015 at 19:31
  • This site is for examining the evidence behind claims, not for giving opinions on them. What evidence are you bringing to the table?
    – Sklivvz
    Oct 8, 2015 at 21:11
  • It's not opinion, it's an explanation in simpler terms of the sources referenced by Wikipedia. I'll copy/paste them if you like.
    – user18902
    Oct 9, 2015 at 8:11
  • While this is a good description of the general context of government debt and related issues, and Wikipedia clarifies, the question is about whether the advice makes sense. You are answering this in your paragraph 6. You need to provide evidence that the linked image is equivalent to austerity.
    – Sklivvz
    Oct 9, 2015 at 8:21

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .