Let's begin with a multiple choice test. The United States of America is:
a) a for-profit corporation;
b) a family, like the typical American family in a 1960's sitcom;
c) a nation -- with a national economy and nation-sized problems.
If you answered "c," there's good news and bad news. The good news is that you answered the question correctly. The bad news is that you probably have no future as a pundit, where recycling bad metaphors is an essential job skill. (On second thought, that's probably good news too. You undoubtedly have better things to do with your time.)
Two metaphors keep reappearing in our national debate like comets on a too-tight orbit. One says that the government's finances are like a family budget, and the other says that the country needs to be run more "like a corporation." Both are routinely used as "nonpartisan" illustrations of the need to cut spending.
If I had a nickel for every time I've heard these misleading analogies, I'd have enough money to buy Alan Simpson a cow.
Dysfunctional Family Values
Conservative economist John Cogan puts it this way: " ... (I)magine that a mother sends her family to the store, tells her husband to buy beer, her teenage daughter to buy magazines, and her ten-year old son to buy candy. Imagine, moreover, that she sets no limits on how much each can spend. Each family member would then overspend ..."
Leaving aside our hypothetical family's more immediate needs (starting with a stint in rehab for Dad), the analogy doesn't work. Government spending doesn't take place in a "store." It takes place within a national economy, which is like a machine with many moving parts. Part of the government's job is to spend in a smart way that keeps the machine moving and functioning smoothly.
A comment from the Atlantic's Megan McArdle should be read in that context, too. McArdle writes: "We need politicians who think about these things the way a financially sound family thinks about their budget." Actually, we don't. We need politicians who think about a budget the way a financially sound nation thinks about a budget. If the government cuts spending in one area it affects the entire economy, and could wind up costing more than it saves.
If we spent $400 or $500 billion in the next two years on rebuilding our infrastructure, it wouldn't be "lost" money the way that the cost of a new 70-inch television would be "lost" to an American household. This money would be used to hire people and purchase raw materials. The people who were hired would no longer need financial assistance like unemployment, food stamps, or poverty assistance. And they would use their income to buy things, which would increase employment even more by creating jobs for people who provide the things they would buy... including televisions.
All of these newly-employed people would pay taxes, creating more government revenue. And as the economy grew it would develop its own momentum, eventually reaching a point where the extra spending wasn't needed and further cuts could be considered. The "family" analogy doesn't work at all.
Unfortunately, Democrats are sometimes all too eager to embrace their opponents' bad metaphors. From the president's State of the Union address: "Just like any family, we have to live within our means to make room for things we absolutely need." From White House Budget Director Jacob Lew: "(T)ackling our challenges in the long term ... starts with doing what families and businesses have been doing during this downturn: tightening our belts."
What a lousy analogy. This country doesn't have a deficit problem because Mom let it loose in some store and now Dad's getting drunk while Junior gorges himself on eskimo pies. It has a deficit problem because bankers broke the economy and we're living in the wreckage. It has a deficit problem because we've been giving the rich a free ride through tax cuts of unprecedented generosity. A couple of wars are playing their part, too.
People use the "family budget" analogy because we're supposed to respect the image of a thrifty, self-disciplined homestead. But consider this household: One son's a hedge fund manager who's taken most of the family income for himself and isn't even paying rent on his room. The other kids are struggling to pay the bills because the rich one's not pulling his weight. Hedge Fund Boy's living like a king, but money's so tight for everyone else that Mom and Dad have decided to feed Grandma less and turn her heater off for the winter. And Grandma built the house!
But when anybody suggests they're not treating Grandma right, they sneer and say "What do you want us to do? Buy her some food and put it on a credit card?"
The Business of America Is America
The latest entrant in the America-As-Corporation sweepstakes in Mary Meeker, an investment analyst and managing director with Silicon Valley investment group Kleiner Perkins Caufield & Byers. Meeker has weighed in with a 466-page PowerPoint presentation called "USA Inc.." "USA Inc." stumbles from the start because the metaphor, while already a cliché, is so off-base. Corporations have investors, unelected executives, and customers. Their responsibility is to turn a profit, and their activities must be directed toward that goal. The government is an expression of the national consensus, a work of community and ideals.
What's more, the American corporate model has just failed spectacularly... twice. The first failure was the Wall Street collapse, which forced America's biggest banks (including Ms. Meeker's former employer, Morgan Stanley) to be rescued by the taxpayer. The second was the BP oil spill, which proved that corporate risk management can't be trusted to protect the public. With this track record, is the American corporation really a model worth emulating?
From a business perspective, any consultant who shows up with 466 pages or slides has already failed. The consultant's job is to synthesize, analyze, and explain. A well-structured analysis of any scope can be presented with much less verbiage and raw data. There's far too much in these 466 pages to address it all, but here are a few samplers:
"USA Inc's financials are discouraging," says Meeker. Really? As L. Randall Wray points out, the US government has been in debt every single year since 1776. That's one of the ways a government operates. The question is, how much debt is appropriate?
Meeker combines health expenditures with Social Security under the "entitlement spending" heading, mimicking a right-wing messaging tactic that uses legitimate concerns about Medicare and Medicaid as a cover for cutting retirement benefits. And this question shows how deeply out of her depth she is when it comes to economics and social programs: "What level of entitlement spending can we afford without suppressing job creation?"
While right-wingers love to argue that government spending suppresses job creation, it's hard to make that argument when government spending is used to hire people (an option not raised in Meeker's report). As for so-called "entitlement" spending, studies show that this money is recirculated into the economy. That should lead to jobs and growth (as opposed to tax cuts for the wealthy or other benefits, which lead to savings or offshore investment and fail to produce employment).
Meeker's even more off-base on taxes. Her "corporation" has cut the "price" for the customers who have consumed more of its "product" -- national wealth - yet here's a typical tax-related question: "How crucial is the role played by lower relative tax rates -- especially for corporations -- in stimulating job and GDP growth ...?" "USA Inc." serves American corporations like a wholesale supplier, providing them with an educated workforce, a national defense, clean water to drink, and countless other services. USA Inc. needs revenue. Yet Meeker's only question seems to be, should we charge these big customers even less?
As Felix Salmon points out, Meeker ducks a lot of issues. And she asks a lot of questions like this one: "Imagine you're a shareholder in USA Inc. How would you feel about your investment?"
This embarrassing performance reflects poorly on those involved, including her advisors -- a group that includes John Cogan (he of the drunk dad with a fat son metaphor), Meg Whitman, and Peter Orzsag (Jacob Lew's predecessor at the White House.) Meeker made her name by pumping up the Internet bubble in the 1990's, and she came under heavy criticism for it. Now we're in a Bad Metaphor For Government Spending Bubble, and it looks like she'll be riding that one too.
Here's the bipartisan agreement I'd like to see: A moratorium on lazy analogies for the national budget. If we can't set aside our partisan differences long enough to agree on that, how will we ever agree on anything else?
Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project and the Strengthen Social Security campaign. Richard also blogs at A Night Light.
He can be reached at "email@example.com."
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