So, to briefly recap where we’ve been, I’ve argued that the Austerity Agenda is so convincing as an argument, despite austerity’s repeated failure, because it appears to accord so well with people’s personal experience. That is, individual experiences with personal debt, which involve cutting back expenses, are metaphorically transferred onto people’s thinking about government budgets and debt as well. This occurs despite the fact that there are major differences between personal and government budgeting, primarily that governments can issue sovereign debt and they do not die, so they can borrow now, invest, and pay later when that investment has grown the economy and made the debt a smaller percentage of it. Really, all that government does when it takes on debt is to shift some of the society’s financial resources around, transferring some from the private sector into the public sphere, but the society itself doesn’t “go into debt.” The individual wallet metaphor misleads people into the conclusion that budgets deficits are always a problem, and always one that must be solved by cutting expenses, just like responsible individuals do. But the reality is just too different from the metaphor to permit clear thinking about economics.
So the question naturally arises: If the personal wallet metaphor for government budgeting is so off the mark, what new metaphor could we use? Metaphoric conceptual change can occur in many different ways, with two of the most common being the replacement of one metaphor by another, and the alteration of an existing metaphor to refine it. As one of the most prominent contemporary metaphor scholars, George Lakoff, observed, once metaphors enter a culture they rarely, if ever, simply drop out; instead they are either transformed or displaced by the introduction of a new metaphor. As we look for a new metaphor for government budgeting, I think we should choose one that does a couple different things: 1) It should be convincing, not too far afield or unbelievable, something that people can readily relate to from their personal lives. New metaphors that are too far “out there” don’t stick. It also shouldn’t be too complicated. 2) Unlike the individual wallet metaphor, the new metaphor should depict something that we all contribute to, something we all draw from, and something that illustrates individuals as members of an entity larger than themselves, just as all these things apply to government. Ideally it should show the social interconnections between the multiple people cooperating to improve their quality of life, since that is what an economy is for, and it should show how financial resources can be shifted around for various investment and consumption purposes, as with a government budget. As always, it’s important to keep in mind that this is also just a metaphor, and not an attempt to literally describe government budgeting.
If one must use an example of personal finance to understand public finance, then let me suggest an alternative: a better metaphor than the budget of an isolated individual would be the budget of a family in which each spouse has his or her own income and takes care of many of their own individual expenses, but they also have a common family bank account to which they both contribute for common expenses. So shared expenses like food, rent, electricity, diapers, doctor bills, school expenses, the internet, transportation, savings, and other necessary bills are paid from the common account, but each partner pays from an individual account for expenses related to their personal interests — tennis coaching for one, a gym membership for the others, restaurant outings and other entertainment with individual friends, and so on. I have known actual families that use a similar way of budgeting, and I think it’s probably fairly common. The analogy here is that the common household account is like the government budget, while the spouses’ personal accounts are like the individual budgets of private citizens.
Now, imagine that the family has enjoyed some good economic times and the common fund is in good shape, so there is plenty of money for individual indulgences and even luxuries. Then a recession sets in and one or both partners have to take pay cuts or are laid off. If the family common fund starts to come up short in any given month, that’s like a government deficit. The austerity doctrine for national economies says that, in such situations, governments should cut back spending on things like unemployment insurance, public health care, public pensions, infrastructure, and education, which when translated to this metaphor means that the family should cut back on their common expenses like rent, doctor’s bills, or schooling. But of course, that’s not what any rational family would do; they would instead first cut back on luxuries like tennis lessons, happy hours, dinners out, and other optional expenses. It would be entirely irresponsible for a family to continue spending on luxuries when it couldn’t afford necessities, but that is just what austeritarians say to do: rather than raise taxes for the rich who can easily afford it without loss of quality of life, they prescribe cutting benefits for the poor and middle class who can’t.
Taking the responsible, rational route would mean cutting subsidies or raising taxes for the 1%. Probably the best way to do this would be a progressive luxury consumption tax of some kind; my preferred version would be a steeply progressive tax on annual consumption above $70,000 to $100,000 or so, where each dollar spent (rather than each dollar earned) is taxed at increasingly higher rates, but where savings, investment, or charity are not taxed; you might even rationally have 100%, 200%, or higher tax rates on consumption over a million dollars or more in a given year, thus doubling or tripling the cost of living lavishly. This would not discourage work, would shift the spending of the wealthy from conspicuous consumption into investment and charitable donation, would have wonderful egalitarian effects on society, and would help the environment. It would also be hard to object to, politically and in terms of actual fairness — the rich can’t complain about being taxed on yachts and mansions the same way they can complain about having their “earned” income taxed.
Now, there may be a point where the common family budget has to be cut, but first you cut the fat of unnecessary luxuries. Likewise with government: if debt arises in society’s common budget, especially during economic hard times, the rational thing to do is not to cut back on society’s necessities as the Austerity Agenda tells us, but to cut back on society’s unnecessary luxuries first. Indeed, during tough times a family would be wise to increase the common family budget for things like education, home repairs, and savings, in order to be in strong financial shape to weather the downturn and find new opportunities for financial security. The spouses might, for example, take some night classes to be more competitive in the labor market, or make repairs on the house to maintain its value. Just as the family increases its shared budget in hard times, so the government should increase its investments in education, infrastructure, and people during recessions.
This alternative metaphor for government finance is only one suggestion. I’m sure that there are others and I would love to hear about them. I have no doubt that other people could come up with even better ones. I believe that this “family budget” metaphor is at least superior to the individual finance metaphor because it highlights a key way that government spending is not like a personal wallet: it is a portion of the economic production from all of us that we dedicate to shared purposes. Just as a family would be foolish to cut back its shared budget for basics but keep spending on superfluities, making government smaller only takes away from necessary expenses in order to support optional luxuries, something that this new metaphor makes clear.