You Say You’re Proud to Be a Liberal, but You Don’t Act Like It! 

You believe in equality. You believe in helping those that can’t help themselves. You believe in universal health coverage, free university education, a $20 minimum wage, and mandatory employee benefits like cost-of-living increases, paid maternity/paternity leave, and…

You believe that in America, the world’s wealthiest country, there should be no homelessness or poverty or “food insecurity.”

And that we should be leading the world in getting to net zero carbon emissions.

So, it’s understandable that you are angry at those two Democrats for decimating Biden’s $3.8 trillion deal.

But here’s the thing. You know, deep down, that you know next to nothing about macroeconomics, monetary policy, or the machinations of the Federal Reserve. You have memorized a few phrases like “fiscal stimulus” and “trickle-down economics,” and you use them whenever you get into a discussion about the budget, but you don’t really get what they mean.

Don’t feel bad.

Listen, I know you.

I know how hard you work to earn the money you make. I know you got a good education, and since then you’ve continued learning and refining your professional skills to advance your prospects and increase your income. You’ve done that because you don’t expect your boss to give you more simply because you want more or because you’ve been on the payroll for so long. You’re making more now because you are smarter and more efficient and more productive than you were when you began. You contribute more to your job. You deserve more because you’ve earned it.

When you are managing your personal expenses, you begin with 2 key considerations:

* How much money you have (your net worth)

* How much you earn (your income)

To pay for your family’s lifestyle, you follow a very fundamental rule: You don’t spend more than you make. And to pay for future expenses, such as your kids’ education and your retirement, you save money every month, which means you must spend less than you make.

To accomplish that goal, you are frugal in your spending. When it comes to buying a car, you shop smartly. You buy a good car, a reliable car that gets good gas mileage. It may be less than your dream car, but it’s what you can reasonably afford.

You do the same when it comes to every other purchasing decision – from buying a home to taking vacations to buying gifts for family and friends.

And the reason you make these decisions is because you recognize that to support yourself and your family for the rest of your life, you must increase your net worth, however gradually, until you have enough money socked away in your retirement account so that you can pay all your expenses through the interest that account provides.

Above all, you never, ever want to end up with a negative net worth because you know that you could lose everything you’ve worked for and destroy the financial stability of your family.

That’s why, if a friend or acquaintance gets into financial trouble, you will lend or even give him money. But you won’t give him all your money. And that’s because you know that your first obligation – and this is a moral obligation – is to take care of your family.

In other words, when it comes to your personal finances, there is a limit to how generous you are willing to be.

Magical Thinking 

Economics is not like physics. The rules are very different than the Newtonian laws that govern the physical world.

The common-sense logic you apply to your daily decisions about spending and saving and investing and giving are subject to the same economic principles that apply to government spending.

But for some reason, when you talk about government spending, you don’t apply those principles to your argument.

There is a form of fiction called Magical Realism. If you know Gabriel García Márquez, you know what I’m talking about. A story that is otherwise realistic is made exciting and almost wonderful by elements in it that are unreal – arid landscapes bursting into fire, long-dead relatives coming back to life.

The equivalent in economics is based on a fundamental illusion: that the economic behavior of governments is subject to different rules than what we know to be true in our own lives. This leads to the following magical thinking:

* Governments are like big businesses that make and spend money for the public good.

* The USA is a very rich country that can afford to take good care of all its denizens, eliminate carbon emissions, and fix social problems with social spending.

* The rich are very rich, but they don’t pay their fair share of taxes because they take advantage of loopholes. To get America right, we just need to make those rich people pay more taxes.

As I will explain in some detail in an upcoming blog post, none of those things are true. In fact, they are far from true. They are delusional.

To be brief…

* Governments are nothing like businesses. They are fundamentally different in a way that makes them always and forever subject to corruption and malfeasance.

* The USA is not a rich country. It is an extremely broke country that is surviving by borrowing money it can’t pay back from countries and financial institutions that don’t care if it goes broke.

* By any reasonable standard, the rich are paying more than their fair share of taxes. And even if they paid more, it would do nothing to fix the skyrocketing federal debt.

So, let me ask you a few questions:

* Why do you think it’s not okay for you to spend more than you make, but it’s okay for a government to do so?

* Why do you believe in personal budgets, but not in federal budgets?

* Why do you understand that there must be a limit to your personal largesse, but think there should be no limit to government spending?