A fable

Suppose you think your teen-age son is drinking too many sodas and eating too much junk food. One thing you could do is take away his allowance. That might work, but you want to teach your kid how to live within his budget. So here’s what you do: you go to the city counsel meeting and you get your city to impose a 20% tax on these items. Good work!

Your kid will not be able to afford so much junk food, and, all other things being equal, your kid will have a better chance of not growing up obese. This illustrates a simple principle: placing a tax on an economic activity tends to decrease the amount of that particular activity.

Now let’s look at a different situation. Your kid is still scarfing up too much junk food, but now his indulgent grandmother gives him a Christmas present of a discount card for use at any convenience store. Bad news: the same economic forces that dictated his or her junk food consumption decreasing in the first scenario, now says that Frito-consumption is on the rise. What to do?

You could go talk to the kid’s grandmother and say, hey, take away that discount card. Nanna takes away the discount card but since she can’t stand the thought of Junior going hungry, she replaces it with a credit card. You say that’s a reasonable compromise, because at least Junior will learn some fiscal discipline. After all, there’s a credit limit on the credit card, no?

As you may have guessed, Junior may have poor nutritional habits, but he has a keen appreciation of how to get whatever he wants from Grandma. And so, he works his magic on her. When he maxes out his card, he prevails upon her to have his credit limit raised. This goes on a number of times. In fact, it goes on so often that there's no way that
Junior is ever going to be able to pay back the debt he has run up. (The Bank doesn’t mind because Grandma co-signed.)

What do you think is happening to Junior’s consumption of Twinkies? Of course, it is going through the roof.

Now get out your decoder ring. This little allegory is about Bush tax cuts.

The junk food is all government programs. It’s not that I think that all government programs are bad, but simply that as a conservative, Dubya espouses a disdain for government programs which he would like to starve to death with tax cuts, and then drown in a bathtub.

The tax cuts already enacted have created the largest deficits in history, and the Republican congress has once again raised the debt ceiling. When it becomes obvious that the consumer of government programs is not going to be the one paying off the budget deficits, government is like a kid at a candy store --with Granny's credit-card.

What is that going to do for the growth of government? About the same thing it did for Junior’s Twinkie intake.

One more thing: who do you think is the real co-signer on the credit card? It’s Junior. Not the Junior in our allegory, but rather the future generations of Americans who will inherit the monstrous national debt.

To pay it off, they will have to raise taxes on themselves, and reduce government spending. I wonder what economic activity they will discourage with taxes, and what government programs will be cut.

Or will future generations try to go into the credit market to finance government? Who is going to want to lend, because Grandma ain’t co-signing anymore. Maybe our children will remember that friendly loan shark we went to. You know, the one with a two billion mouths of its own to feed.

“…and tell ’em Big Mitch sent ya!”