Saturday, October 08, 2011

NO WAY TO MANAGE A BUDGET

I recently received this from a friend and found it very illustrative:

Numbers and political information can be so confusing........I think this simple analogy will be helpful to gain an understanding whether we should be concerned or not...

U.S. Tax revenue: $2,170,000,000,000

Federal budget: $3,820,000,000,000

New debt: $ 1,650,000,000,000

National debt: $14,271,000,000,000

Recent budget cut: $ 38,500,000,000

Let's remove 8 zeros and pretend it's a household budget:

Annual family income: $21,700

Money the family spent: $38,200

Annual New debt on the credit card: $16,500

Outstanding balance on the credit card: $142,710

Total budget cuts: $385

Understand those "deep" cuts now?  Also - who in the world borrows to cover 40% of one's expenditures?  Good grief.

4 comments:

Moonshadow said...

You cannot compare our national debt and budget to household debt and budget. They are apples and oranges. It was explained to me but I'm not an economist and would screw up explaining it to anyone else. Try this.... http://www.newdeal20.org/2010/02/10/the-federal-budget-is-not-like-a-household-budget-heres-why-8230/

Dr S said...

Moonshadow - I would bicker a bit and say that you can compare them, but would agree that you cannot equate them. The main point for me is the triviality of the cuts proposed when placed in the context of the big picture. Being a believer in balanced budgets, I also thus disagree with Nobel-winning economists like Krugman; probably why they have the prize and I don't :-)

Knows It All said...

When politicians talk about "cuts," they are really referring to the rate of spending. For example, if we originally planned to increase government (or family) spending by 10% next year, then later decided to reduce that increase to 5%, we are still increasing spending. However, the policians would call that 5% a "cut." The issue gets demagogued beyond belief. Say there is a planned spending increase of 50% in the school lunch program, then a Republican proposes only a 25% increase. The Dems and MSM would be talking about how the R's want to starve children. How? By a 25% "cut" in the funding for the program. As result, many people decide they ain't going to vote for those cold-hearted Republicans. And that, dear friends, is an example of how an uniformed electorate puts a Jew-hating communist in charge of the country.

Knows It All But Doesn't Edit said...

That should read "uninformed" not uniformed electorate.