March 26, 2014
As originally published in the New Hampshire Union Leader
The great economic principle of our time comes not from an economist or a banker but from the great Mr. Micawber, a somewhat comic character created by Charles Dickens. Wilkins Micawber had figured out the central organizing fact of modern life when he suggested to young David Copperfield, “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the God of day goes down upon the weary scene, and – and in short you are for ever floored.”
The importance of spending just sixpence less than you earn is of course just as true for the individual as it is for lawmakers. Sadly, neither individuals nor lawmakers have any intention of listening to Mr. Micawber. I don’t think they object to Mr. Micawber’s use of an archaic, non-decimal monetary system nor do they have objection to the fundamental wisdom within.
Instead, the modern citizen and the modern lawmaker object for the same reason – it’s inconvenient. It is far easier for each of us, enabled by the modern temptation of easy credit, to spend more than we know we should. Certainly many of us will quite rationally buy a house or a car on time. It becomes simple to extend that rationalization of capital expenses to a giant television, a vacation, or even a shirt and a pair of socks. We shouldn’t buy the socks on time but we can’t help ourselves.
Government is the same way. It’s like a small child on a grand scale but without any of the counterbalances and disciplines even the least responsible child is subject to. On the contrary, the incentive structure in modern political life rewards the politician for dismissing Mr. Micawber as an amusing but irrelevant artifact of another time. Instead we reward them for acting like small children.
The classic example of bad behavior is debt. There is nothing inherently wrong with government debt. Governments like the rest of us might sometimes buy a thing or two over time. At the state level, we have an entire separate budget for such things. We pay for some office building, large highway projects like bridges, and other capital expenditures over a 20 year debt cycle. We make payments from the regular budget to pay for the loans in the capital budget.
But even our generally restrained locals can’t resist adding on. In economic downturns we pile on. Remember when we took out a loan to pay for debt payments? Or we borrowed the money to pay for things we used to pay out of the operating budget? This was simply an attempt to avoid Mr. Micawber’s truth.
He risked debtor’s prison if he overspent. We just add debt to be paid off at a future date. I suppose that we avoid his predicted result of misery by sending that misery forward to our children and grandchildren. In bad economic times, debt even in New Hampshire ratchets up. But it is in fact a ratchet. It never comes back down. Flat debt for ten years is followed by a four year explosion of 43% which is then followed by a flat period. We don’t slowly bring debt back down, we create a new normal.
The nightmare in Washington DC is often described and perhaps too depressing to mention here. I think we best not even mention Mr. Micawber to them lest they try to tax him or name a bridge after him.
But we should blame ourselves not the poor feeble minded politicians. They merely behave following our example and our incentives. We reward them by getting excited when they do something big and bold – a new bridge or a new program. Politicians talk during elections about all of our money they spent because it makes us happy. No one wants to talk about the borrowing that produced the funny money nor does anyone ask a question about the debt we’re passing to our grandchildren (our kids are tapped out at this point).
Would you even listen if a politician told you about realigning priorities so we can do maintenance on the assets we currently have? Do you care about the Micawberian analysis? No, you want a nice shiny new bridge, you don’t want to pay for upkeep on the old one. Paving is boring, rainy day funds don’t earn votes. We can’t pay to keep up the things we already have but let’s build new ones anyway.
Wilkins Micawber first emerged in print in 1849. He is long gone and long forgotten. That’s a shame.