Government-Household analogy explained

The Government-Household analogy refers to rhetoric in political economic discourse that compares the finances of a federal government to those of a household. The analogy has frequently been made in debates about government debt, with critics of government debt arguing that greater government debt is equivalent to a household taking on more debt.^{[1] [2]}

The analogy has been characterized by economists as misleading and false, as the functions and constraints of governments and households are vastly dissimilar.^{[3] [4] [5] [6]} Differences include that governments can print money,^{[7] [8] [9]} interest rates on government borrowing may be cheaper than individual borrowing, governments can increase their budgets through taxation, governments have indefinite planning horizons,^[10] national debt may be held primarily domestically (the equivalent of household members owing each other), governments typically have greater collateral for borrowing,^[11] and contractions in government spending can cause or prolong economic crises and increase the debt of the government. For governments, the main risks of overspending may revolve around inflation rather than the size of the debt per se.

According to economist and Nobel laureate William Vickrey,

Notes and References

1. Barnes. Lucy. Hicks. Timothy. 2021. Are Policy Analogies Persuasive? The Household Budget Analogy and Public Support for Austerity. British Journal of Political Science. 52 . 3 . 1296–1314. en. 10.1017/S0007123421000119. 236257379. 0007-1234. free.
2. Todorova. Zdravka. 2007. Deficits and Institutional Theorizing about Households and the State. Journal of Economic Issues. 41. 2. 575–582. 10.1080/00213624.2007.11507047. 25511211. 12865008. 0021-3624.
3. Vickrey. W.. 1998. Fifteen fatal fallacies of financial fundamentalism: A disquisition on demand-side economics. Proceedings of the National Academy of Sciences. en. 95. 3. 1340–1347. 10.1073/pnas.95.3.1340. 0027-8424. 18763. 9448333. 1998PNAS...95.1340V. free.
4. News: Editor. Philip Aldrick, Economics. BBC 'misled viewers' on scale of national debt. The Times. en. 2021-07-19. 0140-0460.
5. Web site: Krugman. Paul. 2015. The austerity delusion. 2021-07-19. The Guardian. en.
6. News: Wren-Lewis. Simon. 2015-02-19. The Austerity Con. en. 37. London Review of Books. 4. 2021-07-19. 0260-9592.
7. News: 2013. How The Federal Budget Is Just Like Your Family Budget (Or Not). 2021-07-19. NPR.org. en.
8. Web site: 2013-03-26. Why the federal budget can't be managed like a household budget. 2021-07-19. The Guardian. en.
9. Web site: Smith. Warwick. Why the federal budget is not like a household budget. 2021-07-19. The Conversation. en.
10. Web site: Does the National Debt Matter? St. Louis Fed. 2021-07-19. www.stlouisfed.org.
11. Gordon. Roger H.. Varian. Hal R.. 1988. Intergenerational risk sharing. Journal of Public Economics. en. 37. 2. 185–202. 10.1016/0047-2727(88)90070-9. 2027.42/27078. 52202708. free.