Government apples and private apples

I’ve always thought state policy is more interesting than federal policy. It takes so much to move big things in Washington. It is so much easier to get a waiver, to test and correct at the state level. And then all those 000000s make me think there is less to what they are doing in DC. And in the zeroes, you can include all the lobbyists.

But let me wander a bit into the thicket of the “stimulus package,” which we once knew as the “bailout” before Obama became president. Question: We hear everyone bemoan the lack of savings by Americans. We need to save more, they say, because we are living beyond our ability to sustain the spending rate we have gotten used to.

I have a two problems with that argument. (1) Our savings rate went down historically because of two things. One, we spent more proportionally to our incomes. Yep, I got it. But, two, we “spent” more because more and more people bought their own homes. But that means that the savings rate comparisons to other countries are not apples to apples. Buying a home is a kind of savings account — at least the paid down principal is. And certainly the banks and mortgage companies benefit handsomely (perhaps “benefited” is more appropriate given the state of the real estate market). So now that we are not buying homes, guess what is happening? We are saving more. Duh. In Japan the savings rate is higher not just because they are thrifty (which they are), but also because it costs buckets of apples to buy a home.

(2) Why is it better for the government to borrow and crowd out private investment than it is for private individuals to borrow and crowd out further private investment? I am serious. The Washington Times reports today that the Congressional Budget Office is finally raising this question:

President Obama’s economic recovery package will actually hurt the economy more in the long run than if he were to do nothing, the nonpartisan Congressional Budget Office said Wednesday.

CBO, the official scorekeepers for legislation, said the House and Senate bills will help in the short term but result in so much government debt that within a few years they would crowd out private investment, actually leading to a lower Gross Domestic Product over the next 10 years than if the government had done nothing.

If you don’t believe me simply compare the level of borrowing per capita on the part of the federal, state and local government to the borrowing of private individuals per capita. I know infrastructure is important and bears out a long-term return, but the rest? Sorry, no thank you. I don’t like them government apples and will stick to private apples.