I ran across an article while reading Time Magazine last evening. Thinking it would be something to share with you on this blog.

There is lots of discussion about the government budget and how, just like our households, it needs to be balanced. The argument follows the premise that if in our private lives we don’t have the money, then it serves no useful purpose to borrow it and run up debt. And that argument is largely true for us individually but is not true for us collectively.

The argument breaks down if you have an understanding of the difference between macro economics and micro economics. Unfortunately, few people do have an understanding. It reminds me of those days when Bill Clinton was president and having his “moral” issues. I read someone’s comment to the effect that if you couldn’t trust this person to babysit your children, how could he be trusted to run the country. My thought was while I trusted those who might babysit my children, why would I trust them to run the country. It takes a totally different skill set so it’s simply comparing apples to oranges.

Same with the argument about balancing the budget. I ran into it again when several years ago I was president of a local organization that consisted of about 750 stakeholders. I argued in favor of renegotiating the mortgage and borrowing more money to pay for improvements. I was roundly criticized and told we should apply revenue to pay off the mortgage early and have no mortgage. I argued that it was cash flow that was critical, not the size of the mortgage. That’s because if we had a healthy membership paying monthly dues, then our revenue would support the debt obligations, and we would all benefit from the presumably intelligent allocation of the mortgage proceeds. Logic finally prevailed.

It was the same macro economic reasoning vs micro economic reasoning that applies to the nations debt. The country will be around long after you and I are gone. Yes, there is a need for intelligent and effective management. But to force a balanced budget is to fly in the face of macro economic reasoning. Historically, revenues from taxes have been in the range of 18 – 20 percent of gross national product annually. Right now its somewhat less as a result of the recession that started in 2008. But to stop spending, thinking it will result in a balance, without also providing more revenue, will likely cause further erosion of the cash flow necessary to get back to the balance we are looking for.

Yes, trim where possible, but also do everything possible to increase revenue. Sometimes that means more taxes, not necessarily on the rich, but by working to eliminate some of the loopholes that exist across the board. Again, its not just the tax rates that are important, but whether there are ways to get around them. As a financial planner I can tell you there are many, many ways to minimize taxes and instead, put the money to work.

Anyway, if you are interested in reading the one page article that appeared in the latest issue of Time, you can get to it by registering on their web site, or send me an email, and I’ll send it to you.