Why a government's budget is different than' a household's

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• published: 31 Jul 2013
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Why is a government's budget different than a household's? Once at least in our lifetime we have made a comment about our government's budget, either negative or positive. And in most of the cases in order for our comment to make sense we used an example of our household's budget just to make it even clearer. But is this an accurate comparison? Is the government's budget same as our own? The answer is no! Firstly and most important probably, the government doesn't really produce anything, it is the mediator, the administrator of funds and taxes. Well except of the cases where there is public monopoly on natural resources such as electricity. For that matter its goal in a perfect world the real profit of a government is to secure the wellbeing of its citizens that have so many unique differences amongst them. So the real profit of the business cycle of a government is measured in welfare. To understand it even more imagine that you have two kids one with a degenerative disease and another with the capability to be a doctor that could eventually over time cure the disease. What would you do having in mind that your funds are limited? Would you respect the sick child's right to live and deprive the other's potential to excel or would you leave the first die and make a better world for the future? Secondly, the government can create funds that aren't real money as people perceive it. How is that possible? By issuing government bonds of course. These are just pieces of paper with real value as stated by the government. You can't really buy bread or milk with those papers but you can borrow money from the banks, since this accounting money is held by the central bank of each country and private banks. And although this sounds like another loan, it's not! When you repay your loan to the bank for the house you bought you pay normally with money you have earned working. This is not the case with the government. A government repays its debt with more debt in general, thus the issuance of more bonds to replace the old ones. This is depicted on the government's budget, so next time you hear about big amount of money just consider how much of that accounting money and how much are taxes, hence cash. Thirdly, part of the government's budget is the inflationary spending. Mainly goods get their value through their usage. Many governments spend part of their budget to weapons and military expenditures. Since the country doesn't go to war every year the money spent doesn't yield any return thus it inflates the economy. It's like paying for insurance in case aliens from planet X attack and when you stop they will truly attack. Last, but probable of the greatest importance, when governments draw the budget they think of elections. For that reason numbers should look nice and certain groups of people have to be satisfied. The capital in some cases or the interests of the opposition in others. Don't forget when you make your own budget at home you can't fool anyone other than yourself. When governments do the same they can fool everyone. C'est la vie