WASHINGTON (MarketWatch) – House Republicans have a new budget plan that promises to balance the federal budget within 10 years.

Balancing the budget seems like such a prudent and responsible thing to do, but it’s not. Balancing the budget is a foolish goal, because it would make our economy weaker and it would reduce our standard of living. Read “Ryan plan trims spending by $4.6 trillion.”

The fiscal scolds who have taken over our public discourse are fond of comparing our national government’s budget to the family budget. For example, House Speaker John Boehner said a few days ago that “every family must balance its budget, Washington should, too.” President Barack Obama relies on the same flawed logic: “Small businesses and families are tightening their belts. Their government should, too.”

Ryan outlines budget proposal

But does every family need to balance its budget? No, most families don’t. If every family balanced its budget — never spending more than it earns in a year — then few families would own homes or cars, and few could afford to send their children to college. Imagine if you had to save up to buy a home, or a car, or to go to college.

According to the latest survey of consumer finances, in 2010 75% of families had some debt; 47% had a mortgage, 30% owned money on a car, and 19% had education loans. Most likely, nearly 100% have had some debt at some point in their lives.

We know that many families took on too much debt during the housing bubble. We know that high levels of debt in the wrong hands can be catastrophic not only for individuals, families and communities but the nation as a whole. And we know that the federal government can’t continue to borrow 10% of gross domestic product every year.

But is there any reason to believe that the correct level of debt is zero?

Families don’t balance their budgets. Companies don’t balance their budgets. And even state and local governments don’t balance their budgets (they are able to borrow for capital expenses, even if they are required to keep the operational budget balanced).

And the federal government shouldn’t balance its budget. At least, balancing shouldn’t be a major goal of policy makers.

Debt — responsible debt — is the best way to invest in the future.

Moralizing the debt

Promising to balance the federal budget is like putting on a hair shirt. It makes you feel close to God, but it’s needlessly painful in every other way. Instead of thinking about debt as an economic or financial problem, we’re thinking about debt as a moral question. And when we think of debt in moralistic terms, we begin to think a zero-tolerance policy is ideal.

Private savings are up almost as much as government deficits are. MarketWatch

That’s a dangerous idea.

Why do we fear a federal deficit? Because eventually we’ll have to pay off the debt. Because when the federal government borrows we think it takes away the savings that companies or individuals need. Because we are afraid that the government’s creditors will get cold feet and demand higher interest rates.

Do we really need to pay off the debt? Unlike an individual or a family unit, the government is immortal and never need pay off its debts. In 1958, Bank of England Gov. Cameron Cobbold explained to the BBC that the U.K. government had not repaid its debts to fight World War II. Nor had it paid for World War I.

The interviewer then asked Cobbold: “Have we paid for the Battle of Waterloo?”

“I don’t think you can exactly say that,” was the response.

As long as the government’s debt doesn’t grow faster than nominal gross domestic product, it’s sustainable. The debt need never be paid off; it can be rolled over indefinitely.

But isn’t it necessary to balance the budget if we want to reduce the debt-to-GDP ratio?

No. The U.S. reduced its debt-to-GDP ratio from 117% in 1945 down to 34% in 1974, yet the budget was balanced in only eight of those 29 years. All that’s needed is for the economy to grow faster than the debt.

Would a balanced budget increase national savings and make the economy stronger? Not necessarily.

Since 1955, every time the budget has been balanced, a recession has followed. MarketWatch

Since 1955, the budget has been balanced on four separate occasions: from 1956 to 1957, in 1960, in 1969 and from 1997 to 2001. On every occasion, the economy went into recession after the budget was balanced.

I’m not claiming that the balanced budget caused a recession, but it certainly didn’t prevent it. It could be that a balanced budget is likely only in the late stages of a business cycle, when income growth is peaking.

My liability, your asset

It’s often forgotten that federal debt is a liability to the government, but an asset to the creditor. U.S. households, pension funds, insurance companies and others own trillions of dollars of Treasurys, representing the safest storehouse for their wealth.

After the collapse of the housing bubble, the private sector — households, companies and banks — wanted to save more, and spend less. Net private saving doubled from $513 billion in 2007 to $1.19 trillion in 2012. The private-sector had a great demand for safe assets. Government deficits provided those safe assets.

Because the private sector was saving and not spending, the economy contracted and government revenues fell. Government deficits increased, almost in a mirror image of the increase in private savings, from $233 billion in 2007 to $1.22 trillion in 2012.

Instead of mindlessly aiming to balance the budget as a end unto itself, a better goal would be to set our national priorities and needs, and match those against our national resources, just as a family or business would do. We should pay for operating expenses with this year’s tax revenue (except in emergencies), and we should invest in our physical and human capital by borrowing the money.

And if we run a small and sustainable deficit every year, that’s just fine.