Personal Debt and National Debt

Folk are always making comparisons between personal finances, business finances and government finances or microeconomics to macroeconomics. They are different but they do have similarities, some of which I want to deal with in this column.

One of the areas compared is debt. Personal debt bad therefore national debt is bad; ergo debt is bad. But it is not.

Most of us go into debt to get employment. Some, a lot of debt; but we incur that debt with the promise that our income and job satisfaction should be greater if we are better educated. Probably the best education bargains today are in the technical schools, but that does not necessarily it is the best investment in personal happiness. Some folk just want good paying jobs to pay for family expenses and pleasure. Others equality want happy job experiences for a more complete life; I’m with the later. But the point is that we incur debt to get to a desired goal.

Businesses are the same. Unless you have a family that can set you up in business and the wealthy do, most of us have to come up with a business plan to take to a lending institution showing the probably that we will turn a profit in x number of years.

John Trace, CPA in Accounting for Dummies, 4^th Edition rightly points out that business and government budgeting are more different than alike. Government has to develop a budget with scarce resources and lots of demands. They also have a number of legal limitations as to how they can budget, and everybody fights for their piece of the governmental budget pie. Businesses don’t even have to have a budget like a lot of families. They just spend and buy according to what they want or need. Plus they are always trying to increase their income to get larger budgets, while the voters always seem to clamor for smaller government budgets while demanding more services. In business if the price of a thingamajig that you need goes up, you just pass the cost along to your customer which is easier than raising taxes.

In business you may take on additional debt in order to grow your company and when that works you hire more workers and the investment buck multiplies. We are at that point in government. We have been saddled with huge debt that is the result of bad economic theory and application and war for years now. To boost the economy we need to stimulate it, increase government spending which in due turn increases jobs and more incomes. It worked with the New Deal and it could work now. The problem is a bunch of folk who holler for austerity and budget balancing when just exacerbates the problem rather than solving it.

When we get the economy rolling again then we need to get very serious about reducing debt but we don’t want to get the cart before the horse which is what happened in many European countries that are not in worse shape than ever.