I've been doing some research on Supply Side Economics, and came across this passage, "So where did the supply-side ideas actually come from? From Laffer and Bartley, developed over a series of dinner conversations at Michael 1, a famous restaurant near Wall Street. It was here, scribbling on napkins, that Wanniski showed Bartley the magical effects of tax cuts."
So I decided I would put this method into action. I gathered a supply of dinner napkins and headed to a local restaurant, where they informed me they had dinner napkins and I was not allowed to bring mine in. Temporarily foiled I went in and enjoyed a nice dinner. After getting home from the restaurant I discovered something very interesting. I had less money than I had had before paying for my dinner. The money in my wallet had significantly decreased.
Well I was so intrigued by this discovery I determined to immediately put it to the test. So I got in my car and drove to a different restaurant to see if the principle would hold. After enjoying a very nice expensive dinner (involving truffles I think), I went out to my car and checked my wallet. Once again it was substantially emptier than it had been before dinner. Thus I postulated what I call "Empty Wallet Economics." The first postulate of Empty Wallet Economics is that "If you spend money, you will have less money."
I tested my theory in a variety of ways, buying expensive products, and books and CD's and so on, as well as eating out regularly, and I determined that my first postulate was entirely correct. I also developed a secondary postulate of my theory, which is "If you don't pay your electricity bill, you will be in the dark." More on this later.
But getting back to my key postulate, "If you spend money, you will have less money," I graphed it to get a general feel for how this principle would apply. I took as my base a wallet with $10.00 in it, and went out and bought various objects. I graphed the results below, in what I am sure will take it's place alongside the famous "Laffer Curve."
As you can see the more money I spent the less money I had, until I had spent the entire $10.00. This clearly has micro-economic applications; if you like paying rent, make sure not to spend too much money.
How does "Empty Wallet Economics" apply to national policy? Well it would suggest that if the United States Government has a limited amount of money to spend accomplishing it's tasks, then it needs to balance that money carefully. If the United States, for example, were to continue spending a lot of money domestically while engaging in an ongoing war against terrorism, while simultaneously giving away it's income in the form of tax breaks, well, it might not have enough money at the end of the day to accomplish its goals.
One way around this is to borrow money. We all know about credit cards and how they can extend the spending power of an empty wallet. Well the Government has similar mechanisms, but like credit cards they are problematic.
Another possibility is to cut social spending dramatically. Let's be blunt--President Bush and other conservatives would love to see this. They know, as we all do, that shutting down school lunch programs, or Head Start, or the Environmental Protection Agency (to name three programs that receive federal money) would be horribly unpopular. On the other hand lowering taxes is very popular. So instead of openly admitting their plans to shut down these programs, they have adopted a "fait accompli" strategy. They lower taxes and slowly starve those programs to death. Easy, efficient, and largely fool proof. What Democratic candidate for anything is going to talk openly about raising taxes?
Not very many.
Anyway later on today we will hear from Brandy--and possibly some other updates as well--stay tuned.
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