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A ludicrous budget

Written By: - Date published: 1:01 pm, October 20th, 2011 - 90 comments
Categories: debt / deficit, economy, us politics - Tags:

I know a family in terrible financial trouble. Their budget is a mess. Here’s the summary:

  • their annual income is $21,700
  • their budgeted spending for the year is $38,200
  • their shortfall for the year will be $16,500
  • this will be added to their current debt of $142,710
  • trying to make savings they will only cut $385

This family is in serious trouble, right? Can anyone see how to get them out of it? No, me neither.

Ok, so, sorry, I lied. This isn’t a family budget at all. Add eight zeros and it’s the US budget.  As this very clever summary makes clear, America is in deep, deep trouble.  So is the global economy.  So are we all.

90 comments on “A ludicrous budget”

  1. Yes but until the USA realises it needs to start spending a little less on subsidising the production of cotton and corn to the tune of billions of dollars or maybe it doesn’t need such a large military spend it is not going to get itself back in balance. It has selectively paired back parts of the economy to the point there is nothing left there and then left massive areas of overspending uncut or actually successively increased them for decades.

    • Draco T Bastard 1.1

      Although that will help what it really needs to do is increase its income which it should do by raising taxes – especially taxes on the rich.

      • Rusty Shackleford 1.1.1

        Yea, because they definitely won’t use that extra “income” to raise military spending or subsidise the leechers.

        • Draco T Bastard 1.1.1.1

          Ah, more meaningless dribble from Rusted Shackle.

          The rich are the leechers and they’ve been heavily subsidised for quite some time. In fact, that subsidy is the reason why the US accounts are screwed.

          • Rusty Shackleford 1.1.1.1.1

            I don’t even disagree with you about certain rich people being leechers. So, you are for giving them more cash then?

            • bbfloyd 1.1.1.1.1.1

              rusty lad….. if you want to pick a meaningless fight, then i suggest kiwiblog is the place to find that kind of frothing and gnashing…. you are probably already infected with their virus now, so it should be fine to go sniffing around for validation…

              • Rusty Shackleford

                Oh, I forgot. thestandard.org.nz is the wellspring of enlightened intellectual debate in NZ. Not to mention all that is good and holy. I will keep that in mind next time I’m being told to “GTFO RWNJ. Go back to Somalia!!!!!!!” Or word to that effect.

              • McFlock

                Nah – even national party trolls draw the line at saying Somalia is better off with no government. 🙂

            • Draco T Bastard 1.1.1.1.1.2

              Not really worth it but I’ll give it a try:

              Giving who more cash?

              • Rusty Shackleford

                The politically connected I suppose. Solyndra for one.

                • Draco T Bastard

                  The politically connected I suppose.

                  Ah, you mean the rich. No. As I said, they need taxing more.

                  • Rusty Shackleford

                    Who are “the rich”?

                    • Draco T Bastard

                      Well, I tried but, yep, not worth it. He’s already trying to go round in circles.

                    • Colonial Viper

                      Anyone who can comfortably live off their capital without working a single hour in a week.

                    • Colonial Viper

                      @ DTB: lol

                      I think we’re pretty clear that nature is not going to put up with his kind, shortly.

                    • Rusty Shackleford

                      CV, I know that you are in favor of perpetual inflation and believe that warfare is good for the economy. It stands to reason that you would also be in favor of violently expropriating property from people. Luckily, the majority of NZers are somewhat squeamish about physically taking things from people at the point of a gun. Even if the mere threat of violence is considered OK.

                      DTB, I’m genuinely curious as to what you believe a rich person constitutes? Someone who worth twice as much as you?

                    • felix

                      Rusty at 3:52 “I don’t even disagree with you about certain rich people being leechers.”

                      Rusty at 4:55 “Who are “the rich”?”

                      How about you give us your definition of rich, Rusty, seeing as you were happy to use the word yourself only an hour ago.

                    • Rusty Shackleford

                      Fair enough. In the original posting I said “certain rich people”. As an example I would consider the directors of Solyndra to be included in that group. I wouldn’t include the directors of companies who compete with Solyndra but receive no govt funding.

                      I’m not sure what my definition of just “rich” is. It probably can’t be set at an arbitrary monetary figure.

                    • Colonial Viper

                      It stands to reason that you would also be in favor of violently expropriating property from people.

                      Go check out some youtube videos of innocent homeowners caught up in the bankster foreclosure fraud schemes, who are forceably and wrongly evicted from their homes by law enforcement acting on behalf of the fraudulent financiers.

                      Sometimes resulting in death or injury.

                      So don’t whine to me about “expropriating property” the crony cartel capitalists do it to ordinary people every day and you say jack shit about it.

                    • Rusty Shackleford

                      You think I’m for that? And who bailed out the cartel?

                    • Colonial Viper

                      The governmental division of the crony cartel capitalists bailed out the banking division of the crony cartel capitalists.

                      Oh, I don’t know if you are “for that” its just you say jack shit about it, preferring to wail on ordinary people while protecting the wealthy.

                    • Who bailed out the cartel? Well, other rich people. Ever seen the wealth profile of your average Congress representative, let alone Senator?

                      Government isn’t the problem. It exists and will exist in every single human society – it is simply an institutionalised/cultural process of collective action. We’re a collective species and have always had institutions of ‘government’. The question is what type of government is best.

                      As for ‘expropriation’, the setting up of a market system with associated property rights involved one of the biggest – and bloodiest – expropriations of collectively supported traditional use rights ever. And it continues today. 

                      By comparison, modern taxation in liberal democratic and social democratic societies is chicken feed, especially given that everyone receives at least a part ‘refund’ on that ‘expropriated property’ (via services they don’t have to pay for at the point of consumption but choose to consume).

                      Also, those with ample income and wealth can hardly be said to ‘suffer’ as a result of taxation in the same sense as did (and do) those whose collective use rights were (and are) deliberately destroyed to establish and impose private property rights.

                    • Draco T Bastard

                      I’m genuinely curious as to what you believe a rich person constitutes?

                      Really? Honest?

                      The reason I ask is because many years ago I read about people who use words to show interest when they’re not actually interested. Words like genuinely.

                      But I’ll bite: Lets say that I consider the “rich” to be rent seekers. People who get some or all of their wealth from other peoples work, CEO’s, managers, shareholders etc. These are the people that this government and the one before it call stakeholders and are listened to more than other people and thus have political connections.

                      An example was a meeting that Dr Cullen held some years back about some business or other. Stakeholders were invited but, although the meeting was held in the town where the business would take place, the townspeople weren’t.

                    • McFlock

                      I love the way Rusty provided a “definition” of “rich” – give a single extreme example of a “rich” individual (beyond dispute), then say a definition according to his own invented criteria (“an arbitrary monetary figure”) is impossible, and so refuses to provide *any* definition.
                       
                      What a fucktard.

  2. Ben 2

    This analogy is deceptive in my view, because it promotes the idea that the only way to solve the problem is budget cuts.

    Households generally don’t have a way to increase their income by fiat, so the natural response is to say “live within your means”.

    Whereas governments have many more levers to pull on to balance a budget. They could increase taxation. They could even increase spending in a way that stimulates growth in the overall economy and increases tax take.

    And government budget cuts can worsen the picture by depressing the economy.

    I’m not saying the US aren’t in trouble, nor that they don’t need to cut some spending. But I think the whole household income meme is coming out of right-wing politicians and pundits in an attempt to move people in the direction of thinking that spending cuts are the only possible answer.

    Governments are not households.

    • insider 2.1

      They can also print money (legally); and banks till recently were willing to lend on the promise of future income streams and promises of payment in the way they wouldn’t to you and me

      Oh and it also ignores assets.

    • Lanthanide 2.2

      The primary purpose is to put the numbers into a figure that every day people can comprehend, to see how seriously fucked they really are.

      But yes, it does have the downside of implying that budget cuts are going to be the best way to solve it.

    • Draco T Bastard 2.3

      This analogy is deceptive in my view, because it promotes the idea that the only way to solve the problem is budget cuts.

      That was the point. You may not have noticed but the rhetoric in the US (and here as well) from the political-right is to cut government spending to bring them back into balance while also cutting the income.

    • bbfloyd 2.4

      ben.. you would have to make an assumption to get that meaning from this document… understandable since it is, by design, a very much simplified picture….. what it does is show reality in a form that allows the majority to grasp, and provide,(hopefully) a starting point for any debate, or consideration of the best approach to resolving these issues…

      what it doesn’t do, is promote, or advocate any particular response to this situation….that is our job…

      i tend to agree with the rest of your comment…which i assume means that you would favor e better targeting regime as to how our priorities are ranked when it comes to how governments spend it’s budget…. therein lies the minefield….

  3. DS 3

    Governments are not households; pretending that they are leads to massive problems. A household cutting expenditure to live within its means? Fine. A Government cutting spending when the economy is in the toilet? Insane.

    • Draco T Bastard 3.1

      A household cutting expenditure to live within its means? Fine.

      Unless the cost of living far exceeds the households income in which case cutting expenditure isn’t possible.

      • Colonial Viper 3.1.1

        That’s when the household turns to the black and barter economy. Because it won’t be the only one in that situation; far from it.

    • Rusty Shackleford 3.2

      Actually, the times the govt has cut spending during a recession, the recession has often proved to be short. Expanding spending tends to lengthen depressions. See the US 1933-45 and the US 2008-?

      • Colonial Viper 3.2.1

        Stupid pointless and irrelevant examples which assume that one dumb factor like “Government spending” has the most influence over the economy.

        It doesn’t. The policy of central bankers and the primary dealers do.

        • Rusty Shackleford 3.2.1.1

          I wouldn’t say govt spending is irrelevant, but I would have to concur that perhaps the actions of the central bank has more bearing on the health of the economy. At least for the average man.

          I was simply pointing out to DS that the Keynesian paradigm (as espoused by the planners in chief) is bunk.

          • Colonial Viper 3.2.1.1.1

            End the Fed mate, its the only way ahead. Money to be issued only by the US Treasury, free of debt and interest.

            That should also be the case with the NZ Reserve Bank.

            • Rusty Shackleford 3.2.1.1.1.1

              End the Fed but let people decide what they will use as currency. if that is treasury scrip, then so be it. It’s far more likely a sound currency will emerge free of legal tender laws.

              • Colonial Viper

                NB gold standards are easily manipulated…especially by those who hold the gold.

                • Rusty Shackleford

                  Treasury scrip isn’t? If gold is inflated/loses its value, then people will move to something that holds its value.

      • mik e 3.2.2

        Rusty Shackles When you look at individual states in the US you get a different picture. highly taxed states have growth low taxed states are in recession the biggest problem with the US in the 1930s and the 1990s has been its trade deficit the US and lack of manufacturing as it has all been exported not enough jobs not enough pay.They have borrowed and hoped just like NATIONAL until the US devalues its currency low enough to reduce imports and create import substitutes its not going to recover.Printing money has helped a little but they are going to have to print a lot more to bring down the value to stop the 3/4 of a trillion dollar trade deficit.BBC WORLD podcast have an article on the US economy about the individual states economies

  4. alex 4

    Stop spending billions (or is it trillions now?) on the military, then we will see who has a balanced budget.

    • felix 4.1

      Exactly.

      • Rusty Shackleford 4.2.1

        Whilst I agree that the US would profit from curtailing its foreign adventures, that alone would not balance the budget.

        • Colonial Viper 4.2.1.1

          Don’t dismiss it so lightly.

          It would be the lynch pin of any proposal, saving up to $400B per year in expenditure (once off budget sheet war spending was taken into account and cancelled).

          Making millionaire earners contribute to Social Security would be another major step.

          As would increasing tax levels back to GW Bush/Clinton levels.

          The last, would be to get all corporate money out of campaign financing, and to ban third party political advertisements for 1 week before any election.

          • Rusty Shackleford 4.2.1.1.1

            I didn’t dismiss anything. i agree wholeheartedly that the US should scale back its overseas military operations.

            • mik e 4.2.1.1.1.1

              Rust the US can’t afford to loose face.The tax cuts for the millionaires and billionaires would be enough to get rid of the deficit if their capital gains tax was equalized with company tax @ 35% as well!

          • Lanthanide 4.2.1.1.2

            Cutting $400B reduces the “New debt on CC” from $16,500 to $12,500. Not sufficient.

            Also consider that a lot of that will be going onto wages (either directly, or indirectly via companies that supply hardware to the military and pay their employees wages). So by cutting $400B of military spending you might also be reducing the tax take by something like 40-50B or maybe even more.

            • Rusty Shackleford 4.2.1.1.2.1

              Cutting military expenditure in 1946 didn’t hurt the tax take or employment.

              • McFlock

                Not surprising, given the ongoing demand in Europe for export products like food and building supplies. the undamaged infrastructure in the US, cheap energy, and the technology advance of mass-production being kicked up an order of magnitude.
                 

                • Rusty Shackleford

                  That demand, plus more exists, today. Demand is basically infinite by definition.

                  • Colonial Viper

                    Demand is basically infinite by definition.

                    Not nature’s definition. And in the final inning, that is the only definition which counts.

                    PS in a capitalist system, when the majority of people have fuck all capital, there will be fuck all demand. (For anything other than private jets and Bugattis).

                  • McFlock

                    But Europe itself was having a little bit of difficulty producing things like food and roads, what with a lot of stuff being blown up, a whole bunch of workers being killed or maimed, and all of that stuff. 

                     
                    So there was a whole chunk of demand that before the war, and a while after it, Europe could meet domestically. But between the end of WW2 and when the cold war kicked in, all of that demand was pretty much in the hands of North America, NZ and Aus.

                    • Rusty Shackleford

                      McFlock, replace Europe with Africa and you have the same argument.

                      CV, “in a capitalist system, when the majority of people have fuck all capital, there will be fuck all demand.”
                      Why try to “stimulate” demand then?

                    • McFlock

                      “McFlock, replace Europe with Africa and you have the same argument. ”

                      Oh, because Africa has a well-established middle class with specialist skills which are paid for by generally democratic (although even the eastern bloc would buy grain from the yanks) governments that are borrowing in the short term to rebuild infrastructure and housing in a relatively stable environment?

                      Not quite.

                    • Draco T Bastard

                      …replace Europe with Africa and you have the same argument.

                      And once Africa (and everywhere else) has it’s production equipment up and running and can supply it’s own needs as well as looking for export markets? Where’s the demand gong to come from then?

                      At that point we only have two choices:
                      1.) A Crisis of Capitalism or
                      2.) Exponential increase in population

                      Neither of is sustainable but it does explain why governments have been pushing population growth for the last couple of centuries. The profit driven free-market needs a continually expanding market and there’s really only one way to get that. It’s also the reason why the capitalists don’t like environmental controls – it stops them catering to that ever growing population by taking more and more from the environment.

                      Capitalism – The worlds curse.

                  • mik e

                    Rusty The US have run huge deficits to grow the economy through most of their history so your under standing of Economics is very limited During the war years they were lending and funding most of the western world and after the war the same with the Marshall plan

          • joe90 4.2.1.1.3

            De-fund the war machine, nah, never.
            Military spending in 2009 accounted for 54% of US federal income and the 2012 funding proposed for the base defense budget is the highest since World War Two. And they’re prepared to cut social spending to fund the war machine.

            .

  5. Georgy 5

    What about every citizen taking responsibility and contributing revenue to the government with say, a tax increase? Even a small tax increase could make a significance difference. Cuts to government services will not solve the problem, just as it won’t in NZ.

    • Rusty Shackleford 5.1

      This is why guys like Buffet and Stephen King should just put up or shut up. If they want to pay more taxes they can. Just add whatever they feel is appropriate to their tax bill every year.

      • Colonial Viper 5.1.1

        Nah mate you got it wrong. A tax is a tax. Its not voluntary and its not discretionary. Its got to be across the board in the billionaire class otherwise it puts those with a conscience at a disadvantage.

        You are talking about donating to the government. Thats something completely different and irrelevant.

        • Rusty Shackleford 5.1.1.1

          Gregory was talking about personal responsibility. Not legislation. If Buffett and King think they should be paying more they are free to do so.

          • Draco T Bastard 5.1.1.1.1

            They think that their entire class should be paying more and are under no illusions that the only way that’s going to happen is if tax rates for the rich are increased in law.

            • Rusty Shackleford 5.1.1.1.1.1

              The problem with that is. A. Those increases in taxes on the “rich” rarely yield as much revenue as expected. and B. They tend to fall on people who aren’t super rich. The super rich know how to get around taxes. That is part of the reason they are so rich.

              • Colonial Viper

                So now you speak the truth.

                The super rich deliberately avoid their financial responsibilities to fund society, and in doing so enrich themselves even further.

                No wonder you like batting for them.

                • Rusty Shackleford

                  Would you have felt happy, as a successful person, contributing to the “society” that gave millions of dollars to criminals in ’08 and since?

                  • Colonial Viper

                    You’re backing and arguing for very wealthy people you have admitted are thieving from wider society to enrich themselves even further.

                    Think about that.

                  • McFlock

                    What – you mean the society that was structured in such a way that you could actually be wealthy and “successful” in the first place?
                     

                    PS: love the paradigmatic phrasing, very illuminating. I’m sure there are quite a few rich people who are failures as people, as well as many who are successful as people, as well as being rich.

                    • Rusty Shackleford

                      I make a distinction between people with lot’s of money. Most got that way by offering value to society. Free of govt expropriating wealth and giving it to the politically connected, this is the only way to gain wealth. I would like to encourage the former and destroy the latter.

                    • felix

                      “Most got that way by offering value to society”

                      You mean by inheriting it? How does that offer value to society?

                    • “Most got that way by offering value to society”

                      Hi Rusty, I think you got that wrong by mixing up a mechanism that provides things that individuals want to buy with the, quite distinct, term “value to society”. If that latter phrase has any meaning it is talking about a macrophenomenon (‘society’) that must have an ‘interest’ that is distinct from the separate interests of the individual components (i.e., individual persons) that compose it.

                      Otherwise, ‘providing what [some] individuals want’ and ‘value to society’ are simply being asserted to be synonymous with no means of confirming that they are synonyms. 

                    • McFlock

                      In addition to pg and f, can I just point out that you ignored the point that the only reason they have money at all is by virtue of the society they live in?
                       
                      In fact, you treated the post-script as the only part of the message – and the existential crisis that results from this seems to be far above your head.

                • Draco T Bastard

                  Most got that way by offering value to society.

                  Wrong, the only way to get rich is to appropriate the wealth created by others. Favoured means is through owning a business and/or through interest on financial capital.

                  • burt

                    I don’t agree but at least you position is not as self destructive as felix’s.

                    Plenty of NZ business owners work their asses off and create value. Finance companies, I’ll partially agree with you on that one. Helped by govt’s bailing them out so people with spare cash don’t suffer…

                    I think you have are confusing generic government with generic business. I think you will find govt has the upper hand (and uses it far more regularly) when it comes to appropriating the wealth created by others. Exactly as we see with the corporate and finance company bailouts.

                    But have you worked it out yet that the communist state you seem to so long for provides exactly the right conditions to provide poor felix’s sad world view where people only get rich by inheriting it.

                    • Draco T Bastard

                      Plenty of NZ business owners work their asses off and create value.

                      Yep, they do but they also skim wealth from the work of their employees. The get to do this because they see the books, the employees don’t and they get to say what goes and the employees don’t. In other words, an unaccountable dictatorship.

  6. mik e 6

    RS you speak with forked tongue you pretend to know something about economic history but you don’t put all the facts on the table.In the US the states that are still growing and have in the past are those with the highest taxes, the low tax flat tax states are in recession. Laissez fair has never worked and never will its as bad as communism.FDR got the Us out of recession Michael Joseph Savage got NZ out of depression and although Hitler was a tyrant he got Germany out of depression. He used the same economic methods .Lifting wages , Devaluing the currency, taxing the rich.The depression was caused by low wages, high currency, income disparity.WW2 put and end to elitism right up till the seventies now elitism has taken hold because those who have don’t give a shit about those who don’t have the war saw people from all walks of life fighting along side each other so after the war the elite were more disposed to being participant in society

    • burt 6.1

      mike e

      Hitler was a ‘National Socialist German Workers Party’ leader, so yes the economic methods were exactly what we would expect from his party. I’m not uncomfortable considering the effects of his economic policies at that time but I think socialist workers parties today should declare upfront what lengths they will go to to stifle dissent.

      • Draco T Bastard 6.1.1

        Just because that’s the name that someone in the organisation gave it doesn’t mean that’s what it is. Fascism is not socialist in any way, shape or form. As Mussolini put it:

        Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power.

      • mik e 6.1.2

        Burt funny how henry ford plus other US industrialists a swell as all the germane industrialists backed Hitler . you should stick to sesame street where they tell lots of fairy stories!

  7. burt 7

    rOb

    Good post, as I started to read it I though… here comes a plug for WFF and how more public spending on welfare is just what NZ needs… you got me. It was the family earning $21k that made me assume benefits had not been included in income.

    However imagine what a different response on this thread if you had posted;

    I know a company in terrible financial trouble. Their budget is a mess. Here’s the summary:

    their annual income is $2,170,000
    their budgeted spending for the year is $3,820,000
    their shortfall for the year will be $1,650,000
    this will be added to their current debt of $14,271,000
    trying to make savings they will only cut $38,500

    Add 6 zeros…

    • r0b 7.1

      Ta Burt. But – why do you think the response would be different if presented as a company budget? Won’t see any reply until late tonight, I’m off…

      • burt 7.1.1

        The concept of receivership isn’t something that springs to mind in the context of a family or a nation. See that’s a solution that would get a company out of a scenario like that. That’s where I was going.

    • Ari 7.2

      WFF isn’t welfare, it’s a wage subsidy, and it wouldn’t be necessary if we could actually have some decent legal incentives for bad employers not to skim money by cutting wages and underpaying employees.

      We don’t really have a functional welfare system at all in New Zealand, what with benefits being deliberately set at starvation levels.

  8. Jenny 8

    This family is in serious trouble, right? Can anyone see how to get them out of it? No, me neither.

    ANTHONY R0BINS

    “No, me neither”????

    Anthony, how about this?

  9. Ari 9

    There’s several holes in this analogy.

    The first is that unlike a family budget, a government can raise tax revenue whenever they like- granted, they have to decide whether raising it will hurt the economy as a whole, but a household can’t just choose to have a higher income and have it pop into their bank account the next year. Half of the deficit could be solved by basically asking the obscenely rich and corporations to pay their current nominal tax rate. You could make up the rest by withdrawing all soldiers not required to guard embassies from Iraq and Afghanistan, and then you could develop a tremendous surplus if you started cutting unnecessary military spending on R&D, mercenaries, and other private contracting.

    The USA doesn’t even have to give up its ridiculous and harmful agricultural subsidies to solve its budget issues. To even try and fit this into the metaphor of a household budget, you’d have to be paying some ridiculous pocket money to the kids.

  10. Afewknowthetruth 10

    The problem with The Standard is that, having identified a problem or predicament, those who write for TS then support the very system that creates all the problems (predicaments) – political parties, industrialism, debt based monetary systems, economic growth etc.

    My recent experiences with Andrew Little confirm what I believed before I had met him and was temporarily deceived: all mainstream political parties are the problem.

    • burt 10.1

      I agree. Self serving popularists. Sometimes giving the people what they want is exactly the wrong thing to do.

  11. mik e 11

    Burt i suppose fascism would be your alternative

    • burt 11.1

      mike e

      I don’t think we need to have hard core communism, fascism, capitalism or any other extreme ideology running unchecked in govt. That is kind of the idea of having a govt and an opposition.

      I don’t understand how if I’m anti socialism (the hard core ideology and the ‘glorious state’ implementation) that I must therefore support fascism. What’s with that?

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