Public understanding of fiscal policy is hazy, inaccurate, and dominated by fallacious analogies between a national government and a household. What’s more, voters believe that deficits are primarily driven by wasteful government spending. So when a recession strikes the deficit spikes, and people complain.This is completely true. Ironically, the very name 'economics' means the study of a household. And sadly, it is easy to think about a recession in an extended household. Suppose that the Swiss Family Robinson household is self-sufficient and that the members have completely specialized in doing what each does best. One fishes, another makes tools and shelter, and a third only gathers plants. Suppose there is a supply shock in fishing because of El Nino. That means the fisherman has less to trade with the other two. If they spend less (meaning they produce less), then total output decreases and there is a major recession. If they spend more, then output could stay the same, but with a different composition (more fruits and equipment for fishing). That will cause inflation in fish and deflation in the other two sectors, but the overall price level will stay fairly constant and they will end up with more capital for being more productive in the long run.
Suppose it is a recession that is caused by a financial crisis. The vegetable guy loaned food to the fisherman to allow him to buy more equipment from the tools guy. During this period, the vegetable guy and the tool guy worked extra hard. But the equipment didn't make the fisherman more productive and now the fisherman cannot earn more fish to pay the vegetable guy back. Instead, he will have to buy less equipment than usual from the tool guy in order to pay back the veggie guy. Meanwhile, the tool guy has less food unless he can convince the veggie guy to buy more tools than usual. This causes a recession because the tool guy will have less fish and the fisherman will have less fish and the veggie guy will have more food than usual.
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