NEW YORK--During his State of the Union address, President Barack Obama said: "We have to confront the fact that our government spends more than it takes in," he said. "That is not sustainable. Every day, families sacrifice to live within their means. They deserve a government that does the same."
Republicans have used this "families balance their budgets, so should government" line for years. Now Democrats are doing it, too. We Americans value thrift and personal responsibility. We believe we should live within our means. But Americans are up to their ears in debt.
Four out of five individuals have at least one credit card. The average family has an outstanding balance of $10,700. It spends 21 percent of its monthly income to pay interest on that balance. The average American family has assets: It owns a house worth $160,000. But it owes $95,000 to the bank.
The claim that American families live within their means is a joke.
To be fair, it's not entirely their fault. The typical American family only earns $43,000. It's hard to buy much of anything, much less the house that embodies the American Dream, with that. So they/we borrow.
As grim as a life of indebted servitude may seem, imagine what the American economy would look like if families really did live within their means, spending no more than they earned. No debt. No credit.
At least 88 percent of buyers take out a loan to buy a car. What would happen if these buyers had to save actual cash before they could hit the showroom? They wouldn't buy a car. Air would get cleaner, but the economic collapse that began in 2008, which has put one out of five Americans out of work, would accelerate dramatically.
Two-thirds of the U.S. economy directly relies on consumer spending. People can only purchase goods and services using one of three sources: income, savings or credit. As we've seen, the average American family doesn't have savings. Its income has been falling since 1968. That leaves credit. If consumer credit vanished, the corporato-capitalist system currently prevailing in the United States would deteriorate from its current, merely unsustainable form into total chaos. Without credit cards and other loans, citizens would seethe, trapped between the mutually irreconcilable forces of falling wages and the aggressive advertising and marketing of products they would never be able to afford.
The typical American family cannot live within its means because it cannot earn enough to sustain its lifestyle. Were it to downgrade its living standards to a level it could afford, there wouldn't be enough consumer spending to drive the economy. This would force further personal austerity. Eventually, we'd all be living outside.
You know what's funny? Unlike the American family, the U.S. government can spend less than it earns. It can increase revenues by raising taxes. Unlike families, it spends trillions of dollars on stuff--wars--that it doesn't need and actually makes things worse.
It could even use its power to force employers to pay workers what they deserve. If the government did that, families might not need credit. They could (finally) live within their means.