Sunday, August 14, 2011

Like An American Household

Throughout the various debates about the debt ceiling and the national deficit, Republicans and Democrats alike have framed the national economy in terms of an average American household. President Obama has stated several times that the federal government should learn to "live within its means" like this fictitious family.

The first thing wrong with this example is that many families do not live within their means! In June, consumer borrowing totaled $15.5 billion. That's a lot of borrowing. With unemployment still high and lots of families running out of money, borrowing becomes the only way to keep a roof over their heads and food on the table.

But the second thing wrong with this analogy is that the average American family does not spend upwards of 50% of their budget on things that would be comparable to the defense budget. Who in their right mind would shell out half of their monthly income on a guard dog or an alarm system? That would be absolutely bonkers!

1 comment:

  1. Average American household in which location exactly? I imagine there's a bit of variety in that average as you move around the country!

    This is just another example of a leader looking at a mental model as if it were real. It's not real though, and that basic error is going to be very costly for all of us.

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