Irresponsible Billy Jones is once again spending more than his allowance. He is running up huge bills on the credit card his parents gave him. His parents cut his allowance nine and then again seven years ago and now Billy’s sister Suzy is debating some family friends whether a scheduled automatic increase in Billy’s allowance should be allowed to take effect January 1.
Self-anointed Wise Family Friends David, Fareed, and even Alan all argue that Billy’s parents should increase his allowance as planned. “Billy’s credit card debt is too big and it’s only going to get bigger,” they argue. “The responsible move is to increase Billy’s allowance as planned, and for Billy to use that higher allowance to reduce his monthly credit card borrowing. Eventually he needs to cut back on his spending as well, but this is a responsible first step.”
Eight-year old Suzy shakes her head because she’s heard this many times before. “Give Billy more money and he should use it to pay down his credit card,” she says. “But just look at what he’s done since January of last year. He has massively increased his spending to levels this family has never seen before. Sometimes he demands (and gets) more moneyfrom Mom and Dad to pay for his new spending. He has the gall to call that responsible since he’s not running up more credit card debt. He forgets that every dollar he takes from Mom and Dad is a dollar they cannot spend on the rest of the family’s needs.”
“For example, look at the new lifetime subscription he got to this new online game called ‘Universal Health Care.’ Sure he cut back on his monthly purchases of comic books to cover some of the costs, but he also demanded and received a big permanent allowance increase. Now that family money is committed to pay for his new subscription, and if he’s ever going to pay down his credit card balances, he’s going to have to cut other spending or, far more likely, demand an even bigger allowance increase from Mom and Dad. Once again, the rest of the family will lose out as we sacrifice resources to finance Billy’s unrestrained spending.”
Suzy continues, “Then there was the lemonade stand. ‘I’m going to borrow $787 on my credit card to build a super duper lemonade stand,’ Billy told Mom and Dad. ‘It will be such a success that not only will I make more money, but the whole family will benefit.’ We all know how that turned out, although Billy still claims it was exactly as successful as he had predicted, and that nobody had anticipated a cold summer would suppress demand for lemonade. Where is global warming when you need it?”
“Sometimes Billy spends and puts it on his credit card. When he does this he says it’s an emergency, even though everybody saw it coming months in advance. Or he calls it stimulus that will benefit the rest of the family, although I’m not sure his lemonade stand really needed a built-in stereo system.”
“Other times Billy spends and takes more allowance money from the rest of the family. When he does this he argues he is being responsible because he’s not running up more credit card debt. He calls it ‘paygo,’ which is a dumb name but I see what he’s trying to do. I am glad he’s not borrowing to pay for this new spending, but the dollars he takes from the rest of the family have real consequences for Mom, Dad, and me. We are worse off when Billy gets a bigger allowance.
Suzy continues, “Even scarier than Billy’s recent spending binges are the long-term spending commitments he has made. Billy has promised his many friends he would drive them wherever they want when he turns 16 next year, but we all know he won’t have enough money to pay for gas. He also told a bunch of girls that, once he gets his car, he will take them on dates to really expensive restaurants, and we know he doesn’t have that in his budget. Billy’s friends are getting excited about all these promises he’s been making for several years, which are coming due soon.”
“Billy should talk to his friends and tell them he’s going to have to scale back on those promises. He can drive his friends who won’t have a car, but those with cars of their own will have to drive themselves most of the time. And I’m all for Billy dating, but he needs to look for less expensive places to go. This family needs to rethink whether it can afford a lifetime subscription to Universal Health Care when we can’t pay for other needs. And Billy’s unrestrained spending binges have to stop. Billy needs to scale his spending way back. When he does so the explosion of credit card debt will stop, and the rest of the family will stop getting their needs shortchanged.
“Billy has historically taken about 18% of this family’s income for his spending, and he has typically run another 2% on his credit card each year. Now his annual spending has jumped from 20% of our family’s income to about 25%. Once we get out of this recession his allowance will automatically climb to an unprecdented share of family income, and Billy wants more. I’d like to start a small business designing apps for the iPhone, but I don’t think I can afford the startup costs if Mom and Dad give Billy even more money next year.”
“You’re only eight so you’re not Wise like us,” say the Wise Family Friends. “We must do something about Billy’s credit card debt.
Suzy responds, “Billy’s credit card bills scare me, too, but they’re the symptom, not the disease. The underlying problem is not Billy’s borrowing, it’s his out-of-control spending. You so-called Wise People miss three points. One is that you forget that increasing Billy’s allowance imposes costs on the rest of the family. Two is that Billy shows every sign that he will spend any allowance increase you give him, if not immediately, then soon thereafter. Third and most importantly, as long as his spending continues to grow at an unsustainable rate, you’re asking the rest of the family to make permanent sacrifices that at best will result in only temporary reductions in his credit card debt.”
The Wise Family Friends jump back in. “We all agree that Billy needs to cut his spending. We also agree that he will have to scale back the future promises he has made to his friends. Suzy, you may have to agree that Billy gets a bigger future allowance which means you and your parents will have less for your own needs. Living in a family is about making compromises. We will soon sit down and have a firm conversation with Billy about his spending. We will then see what we can get him to agree to as a combination of slower future spending growth and a bigger allowance.”
Flabbergasted, Suzy says, “And yet you want me to agree that Billy deserves a bigger allowance January 1st, before he has agreed to do anything about either his current spending binge or his unsustainable future spending promises? You say he needs the bigger allowance to pay off his credit card debt. You say he needs the bigger allowance in part to address those unfunded future promises.”
“Let’s look at the best case scenario. Suppose Billy takes that bigger allowance and uses it to not run up quite so much new credit card debt each month. The amounts he spends now are paltry compared to those future driving and dating promises. Billy turns 16 next year. What’s to prevent him from running his credit card debt right back up again on gasoline and expensive dates? By my calculations, if Billy gets a permanent allowance increase on January 1 and if he uses it to reduce his monthly credit card bills, in less than two years those new spending promises will drive his credit card debt right back to where it is now. The rest of the family will have fewer resources forever, Billy’s credit card debt will once again be too high, and his spending will still be growing faster than this family can support. You’ll probably come back to me at that point and explain that once again Billy need a bigger allowance. Who decided you were Wise anyway?”
“Trust us, you irresponsible little girl,” say the Wise Family Friends. “Take more money from the rest of the family and give it to Billy now. Unlike every prior allowance increase over the past 18 months, we hope he will save this one. And then in the future maybe we’ll get the whole family to sit down and debate how much more Billy’s allowance should increase, and how much we can convince him to scale back his promises to his friends.”
“That’s what scares me,” replies Suzy.
(photo credit:Â Greed by Muffet)
Laugh
This post only proofs that you have no clue how modern monetary arrangements with a free-floating non-convertible FIAT currency operate. A link to enlighten yourself 
Stephan http://www.moslereconomics.com
Counter Insurgency, Deficit Terrorist Unit
The problem with this argument Keith is it ignores the political reality that Republicans have no real interest in deficit reduction. "Billy" could cut all his spending except food (Social Security), health (Medicare) and shelter (defense) and we will still have a budget deficit problem. No Republican will seriously suggest large scale cuts in any of the above programs, even spending on items like oil subsidies, and farm handouts can't be touched. Until there are responsible politicians willing to talk in more than a one-dimensional fashion, there will be no progress on the deficit. And letting the Bush law take effect with his tax increase at the end of this year is one way to help stop the gross increase in the deficit. (
and yes – the tax increase is the result of a Bush law, if he and Cheney had the numbers they would have made those cuts permanent, but the law they passed reduced taxes for 10 years and increased them in 2011 back to Clinton levels.)
Stephan, that's an incredibly non-informative comment. Your blog is similarly non-informative and (based on the first 5 posts listed) purely pejorative – you might consider some training (self-administered or otherwise) in writing so that someone will actually read it and absorb what you're saying.
wj_chicago – I think your finger's on the real problem.
Mr. Hennessey, I see what you are saying with your post, but nobody (read: significant bloc of legislators) is pushing for real, meaningful cuts as WJC said above. Not that I am aware of, at least. You are absolutely correct about new spending and how the amount of spending is the problem, not the "allowance". To push my interpretation of WJC's comment through your analogy, The Family (I keep thinking mafia) wanted to cut Billy's allowance, telling him that it's only for a few years, and then it would go back up to its former level. If you're serious about cutting Billy's spending, why would you promise to give the extra allowance back later on?
Oh, wait, that's because the Warren Buffett Tax Relief Program was a way to *spend* money, not "save it for the family"! This analogy is great for forgetting that the W administration inherited a huge (on paper) surplus that never really materialized due to "doc fix" bills every year negating the hard-fought Medicare doctor pay cuts. Similarly, Medicare part D was passed with evidently nary a thought or care on how it would be paid for.
So we have it on both sides then – the Republicans want to spend your money on guns and tax cuts for their favorite donors, and the Democrats want to spend your money on the people at the bottom – both have audiences and careers and no desire to be rid of either. Why would they cut spending?
Until there is a group of legislators who are willing to get up there and perform sweeping, across the board budget cuts with strong focus on our Defense spending and spending on Intelligence activities, but not neglecting to cut even the smallest program so that nobody escapes unscathed and can so be labeled the "winner", until that happens we are doomed to this course no matter how the elections go in November. I do lay more blame at the feet of Republicans for this time, because when Republicans were driving during Clinton's 2nd term, Democrats were willing to get on board with quite a bit of contentious legislation. Conversely, there is nothing but stonewalling and filibusters from this Republican bloc while the Democrats are driving. They're not helping, and they're failing their constituents and our country.
Letting the Bush tax cuts expire for the wealthiest americans runs the government for about 6 days per year. Letting all the tax cuts expire runs the government for about 35 days. So obviously the majority of the tax cuts went to those less wealthy individuals. The tax burden would fall disprotiantely on those making between 100k and 249k. If our government can't cut 30 days worth of waste and fraud and political favors then shut the monster down for 1 month each year. Tell the retired population to begin to suck it in and tell the bloated healthcare and education monstrosities that if they raise prices one penny for the next 5 years they'll lose all federal discretionary funding.
Here's my rant on the subject: By their own admission letting the tax cuts expire for the wealthiest Americans or 2% of the population, generates over 10 years only about $700 billion of deficit reduction. On a per year basis that's enough revenue to run the bloated belching swamp thing for about 6 days. 6 whole days, say that over and over 6 days to begin to stick it to those who already pay the majority of the taxes. These are small business people, owners of small plants, farms, inventors, the guy next door who is a millionaire and you don't know it. These people also include those who run the bloated behemoth of corporate America whose main accomplishment for the past decade is sucking the last life out of the economy by moving even profitable factories overseas. At least there is a vestige of capitalism left in their black hearts so we'll let them pass but only if they start behaving like they're Americans not some corporate denizen of the world.
6 whole days to begin to destroy the economy, 6 days to claim victory when the deficit will still be at 4% of GDP, 6 whole days worth of whitewash and political cover of we're being responsible. 6 days. say it so they'll hear you. You can't have your stinkin' 6 days of fuel to run your beast that is sucking us dry. You can't have it, we won't let you. You're gone in November and in 2012 the rest of the rotted lot of you is gone too.
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