This quote from Dave Ramsey has been floating around:

"If the US Government was a family, they would be making $58,000 a year, they spend $75,000 a year, & are $327,000 in credit card debt. They are currently proposing BIG spending cuts to reduce their spending to $72,000 a year. These are the actual proportions of the federal budget & debt, reduced to a level that we can understand."

(I can’t find where Dave Ramsey actually said that, so if someone could send me the source, I’d appreciate it.)

Regardless of who said it, there are a number of big problems with it.

  1. No credibility. There are no sources given for any of the proportions stated — this ought always to be a big red flag that the quote is more of a juicy sound byte than an intellectually honest look at the situation. Also, the link to the source where Dave Ramsey originally said this is never given.

  2. The proportions are wrong. Without any sources, it’s impossible to tell where the $58k/$75k/$327k proportions were derived from, but they are certainly a good deal off the Congressional Budget Office’s reported figures for revenue and outlays.

  3. It’s wrong to classify all U.S. debt as credit card debt. “Credit card debt” is probably meant as a derisive reference to entitlement/welfare programs or other “non-essential” spending, but not all federal borrowing is of this kind. A significant portion of U.S. debt (roughly 25%) is for capital investment in things like defense and infrastructure - more like a home mortgage than credit card debt.

  4. It draws attention to spending and ignores earnings. This metaphorical family has the freedom to request a raise as well as reducing spending in order to reduce its debt. Its annual income has more than tripled since it began to incur this debt. In addition, the family’s salary is technically higher than what is stated, but it volunteered return some of its salary to its employer (extending Bush tax cuts). In any case, it is normal for a family to incur significant debt early on in life (student loans, mortgage, e.g.), and then reduce the impact of the debt mainly by growing its earnings over time.

  5. It says nothing about how the family got where it is today. Is the family financially better or worse off than it was two or ten years ago? Did it used to earn more money or is it just spending more now? Or both?

Here’s a more accurate and informative version of the analogy:

  2000 2008 2011
Family Annual Income $54,000 $64,000 $58,000*
Annual Spending $50,000 $81,000 $96,000
Total mortgage & credit card debt $89,000 $166,000 $245,000

* Family’s “salary” in 2011 is actually $68,000 but they gave $10,000 back to their employers (Equivalent of CBO’s estimate in 2011 of extending Bush tax cuts).

Figures are adjusted for inflation and normalized based on the proportions to $2.228 trillion = $58,000. Sources: Wolfram Alpha — Debt (publicly held), Receipts, and Spending, and the CBO Budget and Economic Outlook: Fiscal Years 2011-2021 (PDF)

No it doesn’t sound as catchy on the radio, but that’s the way real life is sometimes: a little more complicated than you’d like to think.

Jesse Meyerson and Matt Breunig just published their own take on wresting coherency out of sloppy comparisons of government debt with individual debt. For example, Let’s talk about assets as well as liabilities:

The U.S. federal government is the largest asset holder in the world. It owns 900,000 buildings and structures as well as 41 million acres of land, much of it rich in minerals. Its asset portfolio includes 4 million miles of public roads, 12,000 miles of commercial inland water channels and 650 dams. Estimating the full value of these assets is difficult, but Thomas Piketty and Gabriel Zucman put the figure at $17 trillion in 2010. When comparing assets and debt liabilities, it’s necessary to count only real debts. About 30 percent of the official federal debt is held by the government, with about half of that held by the Federal Reserve, which remits interest paid on its holdings right to the treasury. These intragovernmental debts help facilitate monetary policy and create accounting placeholders for programs like Social Security, but they are otherwise meaningless. When you exclude this debt that the federal government owes itself, the value of public assets in the U.S. exceeded public debt by nearly $3 trillion in 2010. In fact, since the founding of the country, the U.S. government has never had a negative net worth.a

Meyerson adds, “it’s worth noting that the government doesn’t even include its greatest asset on its books — future tax revenue.”

  1. Co-author Breunig later amended to note that in 1870 the government had negative net worth equaling 9% of national income. 

Joel (Author) ·