It’s the Credit Score Stupid
There are precious few things partisan politicians agree on. One demonstrable exception is their love of the kitchen-table-economics analogy, how average Americans of all stripes struggle to make ends meet. The analogy is always the same, families making the difficult choices and finding common-sense solutions to manage their finances. The analogy always ends with the same rhetorical question. Why can’t the government do what average families do?
This made me ponder, could this beloved bi-partisan analogy be useful to analyze our on-going debt-ceiling debate?
First, we’ll need to agree on a key underpinning. The family kitchen table is a metaphor, not reality. The fact is about 36% of Americans say they are struggling to make ends meet according to the Census Bureau’s most recent Household Pulse survey in February 2023. Consumers attested it has been somewhat to very difficult for them to pay (even) their usual bills in the last seven days. Turns out, in reality, families are just like our government. Both struggle and sometimes fail to make hard economic choices and for precisely the same reasons, hard choices are just that.
Debt has become as American as apple pie evidenced by the exponential increase in all sectors of debt, government, corporate, and private. No surprise given the historically low interest rates of the last 15 years. Simply put, cheap money made borrowing rational, at least in the short term.
While there are debatable macro-economic implications of all this debt, for government debt, the one thing we still haven’t learned is there is something worse than tax and spend. It’s borrow and spend and the latter has been approach of conservatives since early 80s — Reaganomincs.
The evidence is unambiguous. The supply-side, lower tax approach always spurs short-term economic growth, a good thing, but also increases long term government debt. The lesson is simple, like families, the government needs enough income (taxes) to pay its debts and supply-side approaches have never, ever, delivered on the promised increase in government revenues, only a larger sea of debt.
In just four years, President Trump and his tax cuts ran up nearly 8 trillion dollars of debt. That’s a quarter of America’s entire 31 trillion dollar national debt. Yet in those same four years, Republicans approved every debt-ceiling vote without a peep.
Worse, the Reaganomincs rhetoric by now should have made it so obvious to every family kitchen table. Trickle down? What does a family budget look like funded by a trickle?
Politics and economic philosophy aside, there is one obvious thing a family or our government should never do, at least if they have a choice. They should never choose to blow up their credit score by not paying their bills. That’s money already appropriated, spent and the due dates are set.
Families know and politicians should know that default will only cripple any future ability to borrow money and increase the cost of the debt burden due to higher interest rates. Lowering our credit score is clearly bad and yes, debt is also bad, but with a good credit score, debt is manageable. Default, on the other hand, will only increase the cost of carrying our debt. It could also trigger a national or global recession.
The only rational way forward is clear. We need to negotiate a budget — how much government takes in and how much it spends. A budget that mirrors the family budget, a clear delineation of what we need vs what we want. This is the only path to any rational resolution. Blowing up our credit score will only increase our debt and cause unecessary pain and suffering.
Our metaphorical American families make the hard choices. They successfully do so through budgeting. Republicans, what is your budget proposal? Without one, all you are proposing is a threat to blow up our family’s credit score. WTF?