October 12, 2023

Politicians who criticize the budget deficit and government spending are quite fond of saying that the government could learn something from the average household. They argue that countries, like households, should live within their means. The policy implication becomes obvious: governments should attempt to limit their deficit spending and degree of indebtedness. Exploring the parallels between countries/governments and households yields other insights not commonly cited by the proponents of the previously mentioned parallel. It leads us to an equivalence of the industrial policies and the protectionist policies being advocated by the leading presidential candidates. Thus, in spite of the differences in packaging, the two policies are the same. Worse yet, the analysis presented here suggests that while the policies will alter the economy incentive structure, it will not be for the better. A strong argument can be made that these policies make the economy worse off. We argue this because the private sector had the option of opting for such a mix prior to the industrial policy/import restriction and it chose not to do so. It must be because the government induced outcome makes the economy as a whole worse off. Voters beware. At the margin both are the same, the question is what accompanies their economic program. We deserve better than the economic agenda proposed by the two leading candidates.

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