Any politician who compares the economy to one household deserves to be stretched on the rack.
^^^
This is a good one.
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Did Thatcher really originate this type of analogy? It's wrong for an infinite number of reasons. Take the common plea for "belt tightening." When households "tighten their belts" by spending less, the net effect is that their financial situation improves, because the same amount of income is coming in, whereas less money is going out. To use the analogy of American football, they are playing the same offense, but now they have a better defense.
But when governments "tighten their belts" by spending less, the net effect on their financial situation is unclear, because whereas less money is being spent, less money may also come in as a consequence. This is because the government's income (revenue) is endogenous to the same system that is effected by the government's spending. If there is a rise in unemployment, and a decline in consumer spending and investment, than revenue will fall. By the same token, government revenue is affected by all sorts of private sector events, such as banking crises, property values, the money supply, price fluctuations, and the like. The government, by spending money, can influence the direction of these movements. There is no clear household equivalent without engaging in some not-so-intuitive gymnastics.
