Yes, a first for us here at "Make me a Commentator!!!" We are presenting an actual Economic theory.

 

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(ed. Note.  The photo above is the napkin from this second dinner.), 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.

 

Later that same Decade

 

Well I wrote that above on March 10, 2004, probably right here at this desk.  Now it’s a year later, and I find I still agree with everything I said. 

 

The one part I didn’t go into as much as I should have was why it’s problematic for the Government to pull out it’s plastic and charge it.  Here’s why.  There is in America today a limited amount of credit, in much the same way that there is a limited amount of gasoline or sugar.  Like Gasoline it might difficult to track exactly how much Credit exists in the United States, but it is finite.  It’s also simple economics to suggest that the more rare something is the more valuable it becomes. 

 

So what happens if the United States Government, through the deficit scoops up more than it’s fair share of the available credit.  Well that leaves less credit available for the rest of us, and hence the value of credit goes up.  It’s more difficult to obtain credit and what credit you can find comes with more strings attached.

 

Like it or not, Credit often drives the economy.  If you want to buy a house or build a car or start a small business, it is likely that you will need credit to make it.  And if the people who make houses or who make cars or who would work in small businesses, well, without credit there’s less work for them to do and so less of them are employed. 

 

And that’s why it’s problematic for the Government to go heavily in debt.