US teenager’s budgeting analogy is misleading and helps divert attention from the real issues

Copyright 2003 The Financial Times Limited (London, England)
Thursday, September 11, 2003; Financial Times; USA Edition; Letters to the Editor

Sir, Jagadeesh Gokhale and Kent Smetters (“Americar’s budget bookkeeping scandal,“ September 9) present a highly misleading analogy to highlight US budget accounting.

In their analogy, they present US with an 18-year old who earns $2,000 a month, spends $1,800 on necessities, and has $200 left over. But this 18-year-old is also building up $500 a month in credit card debt for a net deficit of $300 a month. And they have him/her planning to do this every month into the future.

What their analogy does not do is reflect reality. In the future, our 18-year-old average worker can expect to earn more money per month and will very likely marry someone who also earns a pay cheque.

Eventually, the 18-year-old and his/her family will earn enough to pay for necessities, cover their credit card debt (even if it grows somewhat) and perhaps save a little.

While Mr. Gokhale and Mr. Smetters are correct that the US budget accounting does not reflect future pension and healthcare liabilities accumulating in the current pay-as-you-go system (their so-called government "credit card" debt), they ignore the fact that the US economy (total earnings in the analogy) also will be larger in the future.

By focsing on the non-existent crisis of faulty US bookkeeping (with entitlement reform as the solution), they draw attention away from a true crisis: the US health care system (public but especially private), which is in dire need of reform.

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The Financial Times