Home > Economics, Institutions > Governments are not Households

Governments are not Households

There is a lot of rhetoric in the media, particularly in conservative outlets, that equates the government’s balance sheet with that of a household. I believe such a comparison is useless: it is much more accurate to compare the government’s balance sheet to that of a corporation.

Corporations and governments are ongoing concerns. Households are not ongoing concerns; families may be, but younger generations eventually strike out on their own and form new households. This assumption that businesses and government go on forever is an important concept to understand because of its implications for revenue streams, and the debt that can effectively be saddled by a particular entity.

Debt itself is issued against the expectation that it will be paid off with the future revenues of the debtor. In the case of a household, this revenue stream is the income of its members. It’s members’ income can only be projected out for a certain number of periods, after which there is the expectation of retirement, and then death. These revenue streams are definitively finite in duration. Governments and businesses, on the other hand, are not subject to mankind’s short lifespan. The projected revenue streams extend forward much farther into the future. While there is certainly a degree of uncertainty about whether a certain corporation’s goods will still have a market, or whether a country’s government will continue to hold enough popular support to survive into the future (and steward the economy in such a way as to preserve a large enough tax base), it is possible for corporations and governments to adapt to changes in their operating environments, and certainly easier for them to do so than it is for a household’s main earner to change careers near the end of that person’s life.

A household cannot easily become saddled with a debt that it is incapable of paying off in a single generation, because creditors will not lend someone more money than he can reasonably be expected to pay back in his life time. By the time the main income earner dies, the house is generally paid off. While it is certainly true that corporations go bankrupt and governments get overthrown and replaced, the concept of an institutional balance sheet as something beholden to the same constraints of mortality as a human being is foolish. Human lifespans are significantly immutable, but there is no biological aging process that predetermines the lifespan of a state.

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Categories: Economics, Institutions
  1. Preston Madison
    September 12, 2011 at 6:06 am

    Not a comment per se, just some corrections by a pedant. A bit of advice, too: slow down and proofread. No need to let people have less regard for what you write because of careless typos. You can thank me later.

    strike out on there own –> strike out on their own

    It’s members’s income –> Its members’ income

    a certain corporation’s good –> Just a suggestion this time, to avoid confusion: a certain corporation’s goods.

    near the end of their life –> I’m not a big fan of plural their. A lot of grammar Nazis are with me.

    will not lend a man –> Can’t you avoid the sexism here? After all, that’s the reason for using plural their.

    the conceptualization –> Give us all a break and use “concept.” Or, maybe, “conceiving an institutional balance sheet.”

    life spans . . . lifespan –> Two words or smushed together? Suggest being consistent.

    • September 12, 2011 at 11:47 am

      Thank you for your comment, the most constructive one I’ve ever received. Your points are duly noted; editing or proofreading has never been my strength, despite being the editor of my school’s newspaper in high school and then an English tutor in college. Part of my dilemma is days like yesterday, when I wrote about 20,000 words all together (here and elsewhere), I don’t feel like editing, just writing. I click publish and usually reread my posts several days later, fixing their/there and other things… but you’ve made me realize I probably miss as much as I catch, and now that I am getting more than 2 page views a day, perhaps it would behoove me to proofread before I publish or just write more carefully (which is difficult with my manic mind).

      Regardless of my defensive attempts at justification, I appreciate your feedback and the service you’ve given me, and I hope you come back here again soon, as either a reader or commenter.

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