When it comes to finance, a family is not a company is not a country. But you wouldn’t know it to listen to our politicians.
Some politicians think that governments should be like companies. After all, companies have a bottom line, are accountable to investors, and have to be efficient or they’ll be punished in the marketplace. But governments do things that companies don’t–like national defense, or police and fire services. Also, companies can declare bankruptcy and go into liquidation. Countries can’t do that
Others think that national finance should be more like personal finance, where we sit at a kitchen table and work things out. But families have to plan for their eventual demise. Retirement planning is all about saving today for a time when you can’t be as productive later on. Countries can’t do this. For one thing, they don’t retire when they get older. For another, they don’t have to plan for their own death.
What I think these leaders are getting at is trying to deal with pension and health care expenses. But broad social insurance isn’t a savings issue for countries, it’s a productivity issue. The society has to have an economy that can provide the goods and services promised. Imagine for a moment that a lethal virus wiped out 90% of our health care system. How would be provide Medicare services? Having $50 trillion in our Medicare Trust Fund wouldn’t provide the health care senior citizens need.
What governments need to do is make sure the economy grows enough to provide the benefits needed. That requires judgment and compromise. Unclear, misapplied metaphors don’t help.
Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!
Follow me on Twitter @GlobalMarketUpd