The need to invest

Not all government spending is the same, although the current budget treats it as such. There's a huge difference between spending money to pay salaries for government workers, for example, and spending money to build a highway or to expand the port of Charleston, S.C., so it can handle the bigger ships coming through an expanded Panama Canal.

One is spending -- however good and noble the cause -- that covers a temporary cost. Once the money is spent, the government has to turn around and spend more tomorrow. The other is an investment that will likely pay dividends if not to the government then to the economy as a whole. Nobody argues that when General Electric (GE, news) or Exxon Mobil (XOM, news) invest in a new factory or a new refinery, they shouldn't do so if they have to borrow the money. As long as the return on the investment is higher than some hurdle rate, then borrowing the money makes sense.

How the budget needs to change

I'd say the changes that our budget needs, at the least, are a division into investment and general expenditures; a countercyclical scoring system that defines "balanced" in the context of the economic cycle; and a unified budget that gets rid of the deceptive practice of pretending that some expenditures of taxpayer money don't count because they're off-budget. I'd call these pie in the sky, except that a few other countries around the world have created budgets like these.

Chile, for example, has dealt with the harsh realities of being one of the most cyclical economies in the world -- that's what happens when your economy is dependent on copper -- by creating a government trust fund, financed by a tax on copper that rises and falls with global copper prices, that is available during years of economic bust. Independent panels of independent economists rule on when the economy has entered such a bust, and their decision authorizes the government to dip into the economic-stabilization fund.

Norway, faced with the reality of a huge surge in revenue from North Sea oil and the realization that this resource wouldn't last forever, created a sovereign wealth fund designed to take some of the cash flow from that resource and invest it for the future, either in projects that would produce income in coming years or in investments designed to create new jobs or improve the competitiveness of existing Norwegian industries. This prepares the country for the day when the oil runs out.

It's hard for me to see why Chile and Norway can create budgets like this and the United States can't. (A few more weeks of watching Congress in action, though, and I might be willing to entertain the notion that Chileans and Norwegians are just smarter than we are. We did elect this circus, after all.)

How real families budget

Americans make these kinds of decision in their own budgeting. We borrow to put a kid through college, because that kind of deficit spending makes economic sense. I don't buy season tickets to the Yankees, as much as I like baseball, because I've got a new business that needs all my capital -- and then some. My upstairs neighbors have worked hard to maintain a great credit record and used that recently to refinance their mortgage, cutting their monthly interest payments by more than a third.

When I hear the politicians try to score points by creating some simple-minded cliché of the American family sitting at their kitchen table and deciding to "live within their means" -- by not sending Johnny to college and by not helping Janie finance her business, I assume -- I feel really angry. American families do better than that. They make distinctions between good spending and bad. They understand what it is to invest -- even if it sometimes means taking on debt. And they put money aside for a rainy day -- even if sometimes the rain turns into an unexpected flood that overwhelms those preparations.

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The federal government should do at least as well. It should start by changing how it keeps track of the way it spends our money. Do that and then we can talk about what spending needs to be cut and how to balance a budget in a way that actually means something.

At the time of publication, Jim Jubak did not own or control shares of any company mentioned in this column in his personal portfolio. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this column. Find a full list of the stocks in the fund as of the end of March here.

Jim Jubak's column has run on MSN Money since 1997. He is the author of the book "The Jubak Picks," based on his market-beating Jubak's Picks portfolio; the writer of the Jubak's Picks blog; and the senior markets editor at MoneyShow.com. Get a free 60-day trial subscription to JAM, his premium investment letter, by using this code: MSN60 when you register at the Jubak Asset Management website.

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