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“Because We Can’t Afford It:” Reining in Government at All Levels

[New Plan: SA requests that articles have an investing theme and, preferably, recommendations -- reasonable, since this is an investing site.  But some issues that affect investing don't fall neatly into that category.  Like, say, how the country is being run.  But doing justice to the subject requires more than just a comment.  It's those kinds of articles I'll post on my Instablog going forward.  Like this one...]

I didn’t think I was poor growing up because everyone around us lived in the same apartments and drove the same cars, etc.  That was what it was like growing up in the enlisted areas of military bases in the 1950s.  It caused me no offense when I asked my parents if we could go to Disneyland and they answered, “No, son.  We can’t afford it.”  This seemed then, as now, a perfectly logical rejoinder to me.  So I went outside and played sports and we had a barbecue at the neighbors’ house that Sunday.  Disneyland, no.  Sports and BBQs, yes.  I certainly didn’t feel deprived.

 

When I got older and we lived on the local economy, the disparity in wealth and toys was more visible.  Some of the rich kids drove 1964 GTOs, some of us drove ’57 Ford Fairlanes we paid $345 for.  The trade-off was, they got the shallow girls, we got to learn a lot more about mechanical stuff!  I didn’t resent them for having something I didn’t; I just resolved to do well in life so if I wanted a ’64 GTO I could buy one.

 

We seem to have forgotten the lessons our Depression-era parents or grandparents (OK, for most readers, great-grandparents) taught us: “We can’t afford it” is an OK thing to say.  There is no shame in it, particularly in a nation and culture in constant flux, where mobility is a constant and upward mobility a constant desire. 

 

I note this because I just saw the latest USA Today Gallup Poll that found nearly 5 of every 8 Americans “opposing” the question, “Would you favor or oppose a law in your state taking away some collective bargaining rights of most public unions?”  That wasn’t the shocker.  Even though collective bargaining in recent years has broken down over such “job” issues as which colors are most soothing for a worker’s break area and dictating what the proper temperature will be for school classrooms, Americans still have this notion that fair play means unions should hold the power to force concessions from “management.”

 

Of course, unions in the private sector need and, in most cases, have that sort of “equivalency” power.  They use it to ensure safe working conditions, health care coverage, and many other workplace essentials as well as, let’s face it, to grant seniority to those who have been paying union dues the longest and to get the most salary and benefits they can.  All of which makes sense for them and, ultimately, for the private sector.  After all, the natural check-and-balance that makes the Hegelian dialectic work in this environment is that the workers know better than to push too hard, lest the company fail and they all end up out on the streets because of their own greed.  So they get as much as they can within reason.

 

Regrettably, the same dynamics do not apply in the public sector.  “Management” – in this case the politicians whom the taxpayers elect – have had no incentive to push back against any public sector union demand.  All it would do is cost them votes and create saboteurs within the system.  How would it look to have “your” employees carrying signs for your opponent in the next campaign?  Besides, it’s all tax (“shareholder”) money, not “management’s”, so why not just give the public sector unions what they want and keep peace in the family?

 

But even if public sector unions were like private sector unions, and even if it were an honest negotiation between the two parties, the American public still seems incapable of saying, “We can’t afford it.  For, as the poll went on to show, even though our government entities are broke – in many cases hard-broke – 71% of those polled oppose increasing sales taxes, income taxes or any other taxes to be able to balance the budget.  53% oppose reducing pay or benefits for government workers.  And 48% oppose eliminating or even reducing any state government programs, funded or unfunded.  (With 47% in favor and 5% “Don’t Know.”)  PS – I can understand the decision not to take part in a poll; I regularly turn them away.  But once you’ve signed up for the thing, how can you “not know” whether you oppose or favor the concept of eliminating or not eliminating the annual “Pull a Weed Day” parade?

 

The point is, would 71% of Americans, in their personal lives, decide they can keep spending more than they make every year?  Would 53% say it’s OK for management to take an outsized piece of the corporate pie even as their own real purchasing power is declining?  Would 48% willingly give an extra 10 or 20 bucks to the door-to-door solicitor who pleads to keep the “Pull a Weed Day” parade going?  If we can’t afford such incongruities in our everyday lives, why then are we willing to accept them in our collective and community lives? 

 

As Mr. Dickens observed so wryly and so long ago,

“Annual income twenty pounds, annual expenditure nineteen six, result happiness.

Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery."

 

The annual income of our federal – and most states’ – budget is twenty pounds.  Their annual expenditure is as much as forty pounds.  Stop the madness!!  Repeat after me, “We can’t afford it.”

 

What to do at the individual level to correct this horrid non sequitur? Like you, I think tax rates are quite high enough, thank you, but I don’t mind paying more in taxes.  So my plan is to make the smartest investments I can in the best companies I can find and raise the amount of my annual profits so I make an even larger contribution, via my taxes, to the fiscal health of my state and my country.  If you and I do our part to increase the amount of money paid in taxes in this manner, we have every right to expect government to trim its spending, cut dumb programs that we can’t afford, and rein in the ridiculously high pensions and benefits some local, state or federal workers enjoy (usually heavily slanted in favor of those at the top and those who’ve stayed the longest, but I repeat myself.)

 

It could happen. It’s not likely, but it could happen!

 

Rather than discuss specific securities or sector recommendations, may I instead leave you with this “macro” investment suggestion: try to buy good value at low prices; that would be the investing corollary to the above -- “We can afford this because it represents good value.”  And say, “We can’t afford it” when it doesn’t represent good value.  It’s the same, whether in politics, economics, or investing.   
If we can’t afford it, we shouldn’t be doing it.  If you would like our take on what is affordable today in the investment world, you are welcome to review our previous articles for your own due diligence…