The Federal Budget Is Not a Household Budget

Yes, overspending is bad for you and Uncle Sam alike, but the comparison breaks down in several key ways.

The National Debt Clock whizzes past $10 trillion, Oct. 8, 2008. The debt clock is currently at over $16.6 trillion, as of March 5, 2013.

The federal budget is remarkably complicated and detailed. To bring it down to earth, both President Barack Obama and Republican lawmakers alike, have compared it to a household budget. Countless news articles have demystified it in the same way: explaining spending cuts by talking about eliminating gym memberships, for example, or putting deficits in terms of credit card balances.

It makes sense, of course, to bring budget discussions of such large magnitude down to size—whose eyes don't glaze over at the astronomically large numbers in any budget breakdown? In addition, the basics of arithmetic of course apply to both homes and the government alike: high spending plus low income equals debt.

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But thinking about the federal budget in strictly household terms limits how much one can understand about what is at stake in all of the upcoming budget talks. Here are three ways that the comparison falls apart.

The Federal Budget Is Huge

It's a very duh sentiment, but also an important one. One of the key differences is a simple matter of size and scope, says one expert: "The federal budget has macroeconomic impacts," explains Stan Collender, a federal budget expert and national director of financial communications at Qorvis Communications.

In part that's because government spending is so huge—even a relatively small increase in federal spending has far greater ripples than a large household purchase, like a car. But he also points out that sometimes, spending beyond its means is absolutely required of the government.

"Economic policy is a basic responsibility of the federal government, which means, on the fiscal side, sometimes running surpluses and [sometimes] running deficits," says Collender.

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Spending more when the private sector is flagging—say, by paying out emergency unemployment benefits—or to boost an industry via subsidies can be considered a necessary function of the government. Meanwhile, if American households do choose to go into debt for profitable investments like student loans or mortgages (and many are far more indebted than the government, it should be pointed out), it is neither absolutely required nor (on an individual basis) propping up a depressed economy.

Of course, the government can only run deficits for so long. If the debt gets too large, it could crowd out private investment, in addition to preventing the government from quickly responding to future economic crises.

Your Household Doesn't Have a Aaa Rating.

OK, so the U.S. no longer has a perfect rating from all three major ratings agencies (thank the 2011 debt ceiling debacle and S&P for that). But even amid economic and budgetary woes, U.S. debt is still considered one of the securest investments out there.

The point is that U.S. debt doesn't operate in quite the same way that an average person's debt does. The nation's ability to borrow runs out when markets make borrowing prohibitively difficult. And even with ever-growing debt (and one downgrade), markets are still more than fine not only with giving the U.S. plenty more ability to borrow, but to do it at remarkably low rates. No American household has that kind of leeway. After all, they can miss credit card payments once in a while without tanking the economy. The United States, says one expert, simply won't do that.

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"The U.S. government has never missed a payment. I don't believe there's any chance we're going to miss payments," says L. Randall Wray, professor of economics at the University of Missouri-Kansas City.

Your Household Also Doesn't Have a Central Bank.

Let's say that in a U.S. household, the family members simply cannot agree on how to spend money and refuse to come up with a budget, even when their times are tough. There is no Ben Bernanke waiting in the wings to pump stimulus into the "household economy" and make borrowing easier. In fact, it's hard to even conceptualize what that would look like...not to mention whether every household has enough spare room to house a central banker.