When economic times are good, households should spend and invest more, while government should spend and invest less. When they’re bad, households need to cut back, and the government needs to step in.

There are several things wrong with his complaints about comparing households to governments. When we look at a longer time scale we see the government continues to spend more in good and bad times. Historically the last time the government cut back in good times was after World War II. Over the last 100 years government spending chases revenues because it is a politically easy thing to do because it maintains a sense of status quo between tax revenues and expenses. When we have a recession this status quo is disrupted. There are several options available to us. The Keynesian strategy is to strike a bargain with the devil and step up special, short term spending to stimulate the economy. The hope is that it will result in sustainable, long term growth which can pay for the debt. It is hard to find times in history that this strategy actually worked but history has shown that it is politically suicide to do nothing. The good news is that our economy has been blessed with continuous growth and prosperity regardless of our economic strategy.

For most people there is nothing special or unique about special, short term spending plans whether it is used by the government or an individual. There is no “free lunch” for government spending. The household analogy to stimulus spending in a recession is an unemployed person using their credit card or a personal loan from a relative to pay for job search expenses. In some cases this strategy results in a job that the person can use to not only maintain their style of living but also to repay the loan. This strategy probably works best with people whose career opportunities are expanding. For people later in their career or in declining businesses this strategy probably does not work. These people will have to adjust to a life with lower income, lower expenses, and possible loan defaults. If we follow the household analogy to its logical conclusion we are confronted with the same core questions for both governments and households, “Have we peaked and what can we do about it?” Most people understand these questions and their consequences. In this case the household analogy is a particularly appropriate tool for explaining the difficulties and consequences of spending decisions.

The government is not a household, and shouldn’t be run like one – Ezra Klein – The Washington Post