EYE ON THE PIE: Cut kids’ allowances to save the economy-WEB ONLY

I am having coffee with Herman Hardhed, chief tax analyst for the Independent caucus of the Indiana General Assembly. I want his take on the departure of that august body without passing a budget for the coming biennium.

“Herman,” I say, “the highest annual rate of inflation since the end of World War II was 14.4 percent in 1947.”

“What,” he says, “does that have to do with our beloved Legislature?”

“Wait,” I say. “Let me develop my thought. Back then, there must have been much attention to this fact. I was only 8 or 9, but it was around then that I asked my grandmother for an increase in my allowance. She had been giving me a quarter each week and when I asked for more, she wanted to know why. I told her because of inflation. Whereupon, my weekly gift was raised to 27 cents.”

“What would that be in today’s dollars?” he asks.

“Something like going from $2 to $2.15,” I say. “But that’s not the point. It seems to me that if President Obama and the Indiana General Assembly wanted to get money circulating through the economy as fast as possible, they would give cash cards for $1,000 to each child in the nation.”

“That’s preposterous,” Herman says. “Children would just spend the money on whatever foolishness they wanted. We’d have the country going into debt to buy toys and candy. It’s irresponsible fiscal policy!”

“Perhaps,” I parry, “but who is to say what is responsible spending? At least with my program we give money today to the very people who will have to pay it back in the future. Some of them might learn how getting what you want now is paid for later.

“Asinine,” Herman declares. “Spending decisions should be made by those with the maturity and experience to understand their implications.”

“Ah,” I say, “like the members of Congress or of the General Assembly?”

“Well, certainly by adults and not children,” Herman huffs.

“Then,” I ask, “which group should make the spending decisions? Consumers or elected officials? And if the latter, those at the local level or those in the state or national capital?”

“Naturally, consumers will make the best decisions for themselves,” he replies, “but they may not be the best choices for the whole community.”

“And what do you conclude from your analysis of this issue?” I ask.

Herman ponders. He rubs his chin and lowers his brow although none of this assures me he is thinking. Then he retorts, “What is our purpose here?”

“To get the economy moving,” I say, “while getting the most benefit for our dollars.”

He goes into his pensive routine again. Finally, he says, “Government has to spend the money and it must be directed from the federal level. Otherwise, lower levels of government (states, counties, what-have-you) will do what they think best for their communities, which might not be best in the broader context.”

“Isn’t the same true for consumers?” I ask. “Doesn’t each household do what it sees as best for itself and not what is best for the community?”

“Yes,” Herman whispers, “but don’t say that out loud.”

“Then, the answer to our economic recovery,” I say, “is to reduce the allowances of children because their spending, while fast, is less responsible than that of adults. At the same time, let’s have the federal government finance preschool and reading programs, playgrounds and health services for the benefit of today’s children.”

Herman’s eyes widen and he says, “So when children ask, whine, plead or demand, we should just say NO. That’s not public policy; it’s public mayhem!”

“Public mayhem, not public policy,” I say. “That’s the Indiana Legislature.” •

Marcus taught economics for more than 30 years at Indiana University and is the former director of IU’s Business Research Center. His column appears weekly. He can be reached at mmarcus@IBJ.com.

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