08:32 – It occurred to me that a few of my readers may be unaware of the weasely ways that governments try to make things appear better than they are by using phrases like “primary budget surplus” and “current account deficit”, both of which should be red flags. So let me explain it in personal terms.
Let’s say that you expect your household income to be $50,000 in 2012. Your expected expenses for food, utilities, insurance, car expenses, and so on total $49,000. Congratulations. You’re running a “primary budget surplus” of $1,000. (If your expected expenses had instead been $51,000, you’d be running a “current account deficit” of $1,000.)
But wait. By definition, these figures do not incorporate debt service expenses. You have a mortgage upon which you’re paying interest and principal of $1,500/month, or $18,000 per year. If you take that figure into account–which of course you have to, being a person rather than a government–your expenses now total $49,000 + $18,000 = $67,000 for 2012, but your expected revenue remains $50,000. You’re $17,000 in the hole. There’s no alternative to paying your mortgage, so your only options are to cut spending elsewhere or borrow an additional $17,000 to balance your books. In real life, of course, people cut the other expenses and governments borrow the money.
But it gets worse. Your brother-in-law retires next year, and you’ve signed an unbreakable contract to pay him $5,000 per month and cover his medical insurance costs, which total another $1,500 per month. Starting next January, you’re on the hook for an additional $6,500/month in expenses, or $78,000/year. So, at this point, you expect your actual revenue for 2012 to be $50,000, and your actual expenses to be $145,000. You have to come up with an extra $95,000 in 2012 and, not being a government, you can’t just print the money. Nor can you borrow it, because no one will lend to you. Your personal financial world collapses, but at least you can say you were running a “primary budget surplus”.
It gets worse still. Your sister-in-law retires at the beginning of 2013, and you’ve also agreed to pay her retirement and medical expenses, for an additional $6,500/month. And your company has announced that sales are falling and it will cut all salaries 10% across the board starting in January. So, as of 2013, your expected revenue is $45,000/year and your expected expenses are $223,000. How long can this go on? Well, the obvious answer is “not for long”. And that’s what nations are now finding out: eventually, you have to pay the piper.
Oh, yeah. Did I mention that many of your 50 adult children, such as California and Illinois, are deeply in debt, with no chance ever of paying what they owe? Technically, you’re not responsible for their debts, but you don’t want to see them go to debtors’ prison for life, so you’ll probably end up having to pay off their debts as well.
21 Comments and discussion on "Thursday, 6 October 2011"
“Oh, yeah. Did I mention that many of your 50 adult children, such as California and Illinois, are deeply in debt, with no chance ever of paying what they owe? Technically, you’re not responsible for their debts…”
“…but you don’t want to see them go to debtors’ prison for life, so you’ll probably end up having to pay off their debts as well.”
Why not? I’ve thought for years that gross stupidity by elected officials should be punishable by jail time, or execution in the worst cases.
Youch. Economics scares me. I’m sticking to engineering, where things actually get solved.
I’ve thought for years that gross stupidity by elected officials should be punishable by jail time, or execution in the worst cases.
Why distinquish? Execute them all for gross stupidity.
“Why not? I’ve thought for years that gross stupidity by elected officials should be punishable by jail time, or execution in the worst cases.”
Nah, we just need a minor change in financial regulations. Any time the government runs a deficit, the first place it gets extra capital is from the politicians. Only after their total net worth has been confiscated is the government allowed to borrow money.
Government spending would drop like a rock…
Brad, that is genius.
Of course, with many governments (ours included), there’s a 4th option that families don’t have. Other than default, loans, or cuts, the US government could choose to simply print more money.
I agree with OFD!
Did they change the definitions when I wasn’t looking? The deficit at least used to included debt service expenses. So if taxes were equal to payouts, except that there was an additional $100 billion to pay the interest on the national debt, then the official deficit was $100 billion.
Yes, the fiscal (or true) deficit includes interest on debt. The weasel-wording is the “primary budget” part. In your example, the “primary budget” is balanced, but a fiscal deficit of $100 billion exists.
I agree with Robert on Apple and Jobs. Overpriced, proprietary gee-whiz toyz for the rich lefties, the Bobo’s in Paradise, written up a few years ago; wealthy wanna-be hippie types, who groove on how groovy they and their toyz are. And the young and hip and creative types, who similarly groove on the groovyness of it all, when they’re not busy banging bongos and chanting at the Nation’s financial centers, a la the late unlamented Abbie Hoffman back in the day with the Yippies trying to levitate the Pentagon. This like unto throwing snowballs at a Nazi King Tiger tank. Morons.
And Jobs? May he requiescat in pace, and so forth, but in life he was a miserable son of a bitch of a boss who screamed bloody murder at subordinates, like most libruls usually do, along with cheating them blind, and liked to park his fucking Lamborghini DIAGONALLY across two Handicap spaces in front of his building. What a dick.
You won’t be going to the funeral, but you approve of it? 😀
Re: Steve Jobs
The way CNN has been going on, it is out of sight, but not out of mind. Yet.
I still agree with OFD!
Check out what rms said about him.
OK, he was an innovator, a major corporate honcho, etc., etc. but I see in the MSM they are comparing him favorably to Edison, Einstein, Ford, et. al.? I want what these bozos are smoking!
Slim ought to consider vacating southern Kalifornia/Mexifornia asap and hang out OFD up here where we still have four seasons. Oh wait—five. How could I forget Mud Season, which lasted this year from March until….oh yeah…now….
But Davy, he is almost exactly like Edison. Another egomaniac who used the work of others as his own, and took all the credit. Can’t understand why you don’t think the comparison is apt?
I know about the Wizard of Menlo Park, etc., but his stuff revolutionized the world for over a century and still counting, while the insanely great innovator of Kalifornia came up with a handful of toyz for rich librul kidz which will themselves be superseded in just a few more years and pretty much forgotten.
Overpriced, super-proprietary, and developed under the tyrannical reign of a rich egomaniac librul himself. The endless media gushing does not impress me in the slightest.
Did someone stick a gun to people’s heads and make them buy this over priced proprietary stuff? I’ll bet IBM wish they’d had him in their marketing department in the Sixties.
RMS? The guy who’s gone nuts?
RMS isn’t nuts. He’s a Marxist. Well, okay, he’s nuts.
As to Jobs, that about sums it up. All marketing, no substance. Smart people have in fact bought into the Apple thing–Brian Bilbrey has one toe in the Apple water, and he’s as smart as they come–but in the end it has little to do with intelligence and much to do with perceived coolness. Personally, I think Linux is orders of magnitude cooler.
Thinking about it, I realize that many of friends and close acquaintances also use Apple products to at least some extent, and all of them are also extraordinarily bright. There’s Greg Lincoln for a start, although he and Brian are really OS-agnostic. I believe both of them use OS X, Windows, and Linux. Then there’s my long-time editor at O’Reilly, Brian Jepson, whom I believe also falls in the agnostic camp. Jerry Pournelle, of course, although he’s really a switch-hitter between OS X and Windows. Many of my scientist friends use OS X exclusively, or at least when they’re not forced to use Windows by corporate/university policy or because some science software they must use is Windows-only.
Come to think of it, I don’t know many people who use Linux or OS X exclusively. I’m OS-agnostic by inclination, but I simply refuse to use products from either Microsoft or Apple, both of whose policies and actions I abhor.
Again I am with Bob on the o.s. thang. I am agnostic, and generally believe in live and let live and whatever tool someone needs that works the best. That said, I have not bought any Microsoft products in years and never anything from Apple. And although my work laptop is unfortunately XP, I spend most of my work time and nearly all other time on Linux machines, orders of magnitude cooler and now ubiquitous.
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