It's easy to understand a household budget process. A household has incomes and spending. A household probably has a life cycle in which there are emergent children who need to get an education before they are productive and earning an income of their own. A household changes over time and is full of surprises. Members of a household may or may not have a career direction, be motivated, or know how to contribute to the benefit of the household as an entity on it's own.
Households and Businesses
Yet, a household is a complex collection of people and has a natural, financial, technical, social, and economic basis. Many things can disrupt the normal patterns of the household so that instead of thriving as it should, members break away or the main income earners are able to contribute less and less. Some changes are part of the life cycle of the household from which are formed new households when members of one household join with members of another. The effects of all these changes contribute to what we know as an economy.
Economies are massive collections of households trying to make ends meet. For simplification economists add together all the accounts of households to get numbers that describe how well the overall economy is doing.
Sustainability of an economy of households requires that the activities from which members of the households gain income are sustainable. There has also to be a balance between the economics of the households and the economics of businesses that employ members of households.
Like households, businesses have life cycles and these life cycles are driven by the competitive fitness of the technologies used by the businesses. To remain fit, businesses employ people who come from households and have acquired skills. The match between skills of members of households and the skills present in businesses needs to be maintained over the longer term. Thus it is that members of households have to maintain existing skills and acquire new ones, while businesses that wish to survive rapid changes in competitive technologies used by businesses must shed employees who have not maintained their skills and who lack the skills that are needed to meet competitive challenges.
Businesses need to strengthen the range of skills of their employees if they and the employees they employ are to survive.
The difficulty in any economy is to maintain the momentum and direction of the skill base of businesses and households so that there is a match between what is needed in businesses to remain competitive and what is available from households because members of households have selected career options that match business needs.
A general mismatch between households and businesses can occur and widen over time because households are not developing the range and volumes of skills that business needs, or because the businesses are not investing sufficiently to employ the new skills garnered by households to be used in business. Maintaining a match between the household skill base and the business skill base is fraught with difficulties and may explain why some economies fare poorly relative to others.
The main difficulty arises because both households and businesses have life cycles. Generally, the life cycles of businesses are shorter than that of household members, especially during periods of rapid improvements in technologies and increasing competition internationally. Within a life time a household member can expect to acquire new skill sets to be current with changing technologies and to keep the life cycle of a business sufficiently long as to remain employed.
Money, Budgets, Life Cycles of People and Products
Money is the basis of acquiring technologies and materials that keep households and businesses alive. Money is accounted for within budgets of households and businesses. The government is a business and has a budget. Banks are a business and have a budget.
The accounting that goes into a budget addresses the past, the present and the future flows of all that maintains the households and the businesses.
There needs to be a match between all the money flows and obligations of households and businesses. If a household has too many obligations for it's money flows then it becomes dragged into poverty and declines. Similarly, a business needs to manage it's obligations or it will go bankrupt and decline.
The life cycles within households and businesses alike define the nature, scale, and character of obligations that can be entertained. To be successful a household, a business, and an economy needs to manage it's obligations taking into account the life cycles of household members and business products. It is true to say that business products have shorter and shorter life cycles as an economy evolves, thus greater attention is needed in the career selection of households and in the product selections by business to match the availability of skills coming from households with the needs of businesses to keep products alive within product cycles.
To say that economies are complex is an understatement. To say that economics as a field of study is complex is an understatement. Nothing is more complex than an economy other than a world economy. The balance that is needed in a world economy is such that we see premature death as a result of it's failures. What we witness worldwide is a mismatch between the needs of households and business. This mismatch results in premature death because households and businesses are living organisms with life cycles.
Real Case Example - The Business of Producing Cars in Michigan
Detroit Goes From Gloom to Economic Bright Spot - NYTimes.com
http://www.nytimes.com/2010/08/14/business/14auto.html?_r=1&th&emc=th
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