Today on CNBC, a "business analyst," Dick Bove, said the US credit rating would be junk if it were evaluated as a business. The point is, government is not a business and it is a huge mistake to apply business financial thinking to government finances. Governments collect taxes the amount of which is strongly dependent on economic activity. Businesses do not. When the government spends less it receives less revenue. When a government spend more it's revenue increases as that spending goes into salaries of the lower and middle classes where it generates growth. When business spends less, at least in the short term, it's revenue does not decrease so it's balance sheet will improve. Conversely when business spends more, often it's revenue does not increase, particularly in the short term and it's balance sheet looks worse. If that spending is for expansion to meet expanded demand then in the longer term revenue will increase.
I think that the mistake of applying business and "kitchen table" economic thinking one's position on government policy is pervasive today. We see it in Congress, particularly now, and surprisingly among those who should know better, like this Mr. Dick Bove. For Mr. Bove to make such a statement is harmful as some people will actually think he is right.
