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Politicians don't always tell the truth when they talk about money. We were shocked when we found out too. This discussion will explain what's really going on when they cross their fingers and step up to the microphone.





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The contents of this page are copyright © 1995 — 2017 Alchemy Mindworks. Some portions are copyright © 1995 — 2017 Steven William Rimmer. The copyright holders specifically prohibit reproduction, transmission, duplication or storage of this page or any portion thereof in any electronic or physical medium, under any circumstances. Reproducing all or part of this page against our express wishes may result in severe civil and criminal penalties. The lawyers made us say that.

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Warning: The contents of this page may prove offensive to social democrats, liberals, socialists, the kinder, the gentler, the gullible, the innocent, government workers who feel that neo-platonic catfish crisis management consists of a worthwhile use of public funds, ministers of cultural identity, national cohesiveness and poodle sculpture, members of the pony express riders union local 216, who have been locked out since August 14, 1877, unwed fifteen-year old moms with three or more children, sticker-shock councellors and the recipents of government grants for underwater ballet. At least, I certainly hope so.

When politicians talk about economics, they usually do so in terms calculated to disguise the fact that they know less about the subject than you do. Debts and deficits are used almost as talismans, to ward off the evils of fiscal responsibility. They're also used so frequently as to have long since become commonplace and accepted.

This certainly should not be the case — responsible governments wouldn't allow either of these conditions to exist. The governed shouldn't hear these terms so often as to cease to be worried about them.

This article will explain economics and government management thereof in terms that even a politician could understand.

It's important to keep in mind, as you read this, that basic economics are about as complicated as introductory Microsoft Windows. If you have a sufficient grasp of the complexities of your web browser to have allowed you to get to this page, you'll have no problems with any of the ideas in it. People who actually get paid to understand these matters — or who get paid to craft convincing press releases about them — like to speak of "economic models," "paradigms" and "chaos theory" in discussing them. This implies that if you don't understand such concepts, you won't understand economics.

The cynical among us might well suggest that this is intentional.

THE ROAD TO FRUITOPIA
When I'm not in my right mind, my left mind gets really crowded.

In speaking about the economy of an actual country, the discussion will invariably get into all sorts of unpleasant, fiddly details — the whole situation would have been better if the last election hadn't taken place on a Friday, much of the nation's monetary problems are being caused by the finance minister's unfortunate choice of female companions, the country is in a state of flux ever since the collapse of the snuff-box market, and so on. To this end, let us begin by looking at the economy of Fruitopia, a small island nation with no Internet connectivity, no FAX machines and no existence in any real sense of the word.

As with all nations worth speaking of, Fruitopia has a currency, a government, and a major domestic export. In this case, we'll allow that the latter is probably some sort of fruit. This being the new millennium, it also has a national debt and a national deficit. Understanding how these came about will help you understand why other national economies, such as the one you're a part of, are generally so messed up.

In the 1950's, Fruitopia was pretty much a pure capitalist society. People worked, got paid, spent their money and ate a lot of fruit. This is the simplest and most readily understood of economic "models," usually illustrated as a wheel. Here's how it works:

  1. I work in a factory making television sets. I take my paycheck and buy a refrigerator to keep all that fruit from getting squishy and purple.
  2. This creates a demand for refrigerators, so John Smith (not his real name) has a job at the refrigerator factory down the road. He takes his paycheck and buys a stereo.
  3. This creates a demand for stereos. Lancelot Pigswallow (sadly, his real name) has a job at the stereo factory. He takes his paycheck and buys a television.
  4. This creates a demand for televisions, so I have a job.

This is an unbelievably simplified model — economists who get paid a lot of money for telling you so will usually suggest that it's far too simple to reflect reality. To some extent this is true, but largely because the people who pay said economists don't much like the reality it reflects.

The problem with this model, at least in some quarters, is that it's a bit brutal. As long as you work and spend your money, the wheel keeps turning and everyone has lots of fruit. However, if you can't work, or if you lose your job and are unable to find another one, you'll starve. Real fire-breathing capitalists will no doubt suggest that this is hardly a problem — it's a damn good incentive to keep working.

Returning to Fruitopia, the later years of the 1950's saw a dramatic rise in the global consumption of fruit, largely due to the peculiar taste of middle-aged women at the time, who liked to wear those really tacky hats with lots of fruit glued to them. Fruitopia's economy expanded like a cop in a donut shop. Everyone lived well. People started wrapping their fruit in dollar bills.

In the sixties, a new breed of politicians emerged in Fruitopia, the FND, or Fruitopia New Democrats. Rather than going head to head with the RFP — the Republican Fruit Party — the new democrats promised the people of Fruitopia "entitlement" programs. In effect, they said "let us up the taxes by a few pennies and the government will undertake to provide everyone with some basic necessities of living." For an almost unnoticeable increase in taxes, the Fruitopians got:

  • Welfare, to keep them from starving when they found themselves out of work.
  • Socialized medicine, so no one would have to get sick and die unnecessarily for lack of money.
  • State-sponsored day care, so women with families could also enjoy careers.
  • Social security, so aging Fruitopians could enjoy their declining years without having to stick adhesive labels to Anjou pears for $1.50 a day and live on cat food.

Some days it's just not worth gnawing through the restraints.

"Take two... they're small." — Fruitopian New Democratic Party

The Fruitopia New Democrats creamed their opponents in the election, as well you might expect. They were offering the electorate all sorts of neat things, almost for free, when their opponents were promising to do nothing at all, and to keep doing it, on the presumption that that's about what governments ought to do. Given the choice between something and nothing, almost everyone in Fruitopia decided that something was better.

In the next election, the Republican Fruit Party rethought their platform, altered their strategy and modified their position. They decided that two could play at that game, and they promised, in addition to the existing entitlement programs, that Fruitopians might enjoy:

  • Public television, with wholesome, educational programming and no commercials.
  • Farm subsidies for the UgliFruit growers, who weren't having a very good year.
  • Government funded post-secondary education, such that every child could grow up with a college education and a D-class driver's license to enable him or her to deliver pizzas if necessary.
  • Subsidies for single parent families, just because it sounds so thoughtful and kind.

The Fruitopians returned to traditional values, and elected the republicans. Given the choice between something and something more, they decided that something more sounded like a better deal.

Several more elections took place, with each of the two parties seeking to outdo each other in largesse. By the mid-seventies, most Fruitopians were having a hard time knowing whether to spend their five-day weekends at home in their government-funded swimming pools or up in the mountains in their state-supported cottages. The taxes had increased about 1200 percent since the early sixties, but the economy was still booming and no one really cared.

The ruling Fruitopia New Democrats were making plans to cement their position in office by arranging for free door-to-door beer delivery three times a week.

...AND THEN, DISASTER STRUCK!

Actually, all that struck was reality. After over a decade of bad taste, women finally stopped wearing those tacky hats with fruit glued to them, and the economy of Fruitopia began to slow down. This presented Fruitopians — or more immediately, the Fruitopian government — with a problem. With less demand for fruit, people worked fewer hours and made less money. There was, as such, less tax revenue. All the entitlement programs remained, however, and had to be paid for.

Sex is heriditary. If your parents didn't have it, you probably won't either.

I do important government work!

In 1976, recalled today by a few surviving Fruitopian politicians as the year of the long knives, the government took in roughly 10 billion dollars in tax revenue. However, it cost 12 billion dollars to run the country, pay all the government officials, their staff, their chauffeurs and their mistresses, and fund all the entitlement programs. There was, in short, a two-billion dollar "shortfall in revenues," as one government spin-doctor described it.

In fact, there was a two-billion dollar deficit.

The government was faced with three possible solutions to this problem. It could:

  1. Raise taxes to cover the shortfall.
  2. Slash entitlement programs, and limit all government officials to no more than three mistresses.
  3. Go down to the bank and borrow about two billion dollars.

Now, each of the solutions was to some extent unpalatable. Formerly sanguine about taxes, the now cash-strapped Fruitopians were in an ugly mood when rumours of tax increases began to circulate. With their wages rolled back and their hours cut — and their credit-card debt expressible only in exponential notation — they had little to spare.

Liberals rarely indicate before turning left.

Cover of the Fruitopian Federal Budget, 1972

In addition, the Fruitopian government realized that removing more money from the economic wheel would further slow down the economy and hinder the recovery that they were counting on to save their butts.

The Fruitopian president looked up "slashing entitlement programs" in his desk dictionary and found that the definition read "see political suicide." While no rocket scientist, he was astute enough to realize that telling his electorate that voting for him would mean a sharp reduction in all the good stuff they'd been getting thus far was unlikely to get him re-elected. Actually, it was likely to get him tarred and feathered.

The only thing left was to borrow the money to make up the shortfall. The Fruitopian government saw this as a "short term stopgap measure" — at least, that's how they presented it to the Fruitopian congress. Faced with the prospect of giving their mistresses pink slips, the Fruitopian congressmen passed the spending bill.

Fruitopia now had a two-billion dollar national debt.

LIVING IN INTERESTING TIMES

By 1977, the Fruitopian economy had worsened, and the Fruitopian national cheque book would no longer balance. The government was still taking in ten billion dollars a year in taxes. It still needed twelve billion dollars a year to pay all its bills. It also needed two hundred million dollars more to pay the interest on the money it had borrowed, or to "service the loan," as the Fruitopian finance minister phrased it.

Liberals rarely indicate before turning left.

The next year the government was four billion dollars in debt, and still more of the tax revenue was going to bankers, rather than to the good citizens of Fruitopia.

By the end of the eighties, Fruitopia had a national debt of 31.5 billion dollars. Its economy had shrunk considerably. Almost a third of every dollar being collected in taxes was going to pay the interest on its national debt. Its government was still borrowing several billion dollars a year, on the assumption — probably correct — that if the crushingly over-taxed Fruitopian people were deprived of the entitlement programs they were being bled white for, they'd probably have their government burnt alive on public television during prime-time.

For several years, the Fruitopian government spent a considerable amount of its dwindling disposable income on more spin-doctors to better explain this situation to the Fruitopian people. Among the PR messages were:

  • We are creating a kinder, gentler nation.
  • Those with money should be prepared to pay for the benefits they receive.
  • We are creating a future for our children.
  • The government is spending money to create jobs.

Actually, most of these ideas, while coming off well in a fifteen-second sound bite, didn't hold up during the weekly political discussions on Fruitopia's public television. However, as the manager of FBN, the Fruitopia Broadcasting Network, prudently scheduled these programs at 5:30am on Sunday mornings and then erroneously told the editor of the Fruitopian edition of TV Guide that this time slot actually featured re-runs of the All-Fruitopia Cattle Breeders' Semi-Final Stock Competition, they were not widely viewed.

What the panel members in these discussions tended to say was that Fruitopia was rapidly becoming a kinder, gentler nation with an alarming increase in street crime — the ruinous taxes had closed most of Fruitopia's businesses, and many people who couldn't get work and had exhausted their welfare benefits decided that dealing drugs was at least marginally preferable to starving to death.

They observed that the rich, who had the bulk of the money and as such were "asked" to pay the bulk of the taxes — and "invited" to attend one of Fruitopia's fine prisons if they declined the request — derived almost no tangible benefits from the system they were supporting. They paid the most and got the least for it. They were unlikely to need welfare, government funded day care or state-subsidized swimming pools. Feeling a bit like cash cows, many of them moved their money and their businesses off shore to avoid the Fruitopian taxes — and the jobs their money created went with them.

Canada - beautiful scenery, vast resources, intelligent, hard-working people... pity about the government.

An unidentified citizen of Fruitopia opens her morning mail.

The future being created for Fruitopian children was looking more and more like a society in which Fruitopian dollar bills would have greater value as a source of fuel than as a currency. By the time said children were old enough to become part of the Fruitopian work force, there would be no work left to do. The country would be effectively bankrupt.

The problem with the jobs the government was spending money to create was that the taxes it was levying to create them were destroying three jobs for every one that came into existence.

Rather belatedly, most Fruitopians came to appreciate that everything they made and subsequently attempted to sell included a substantial tax component, as Fruitopian employers had to pay their employees a lot such that said employees could pay all their taxes and still have enough money left over to eat something other than fruit. Products which involved raw materials from Fruitopia, assembly on Fruitopia and sales by Fruitopians included several levels of these hidden taxes. Fruitopian products grew increasingly expensive and uncompetitive, and more and more Fruitopians found themselves out of work as a result.

In 1992, using nothing more than a calculator and revolver with one bullet in it, the Fruitopian finance minister illustrated to the Fruitopian president how by the end of the decade, the economy of Fruitopia would be effectively unsustainable. The people could not be taxed any further. The principals of the Fruitopia New Democrats did not permit any further "erosion" of the "social safety net," that is, a reduction of the entitlement programs. With the deficit growing at an alarming rate — the government was now effectively borrowing money to pay the interest on the money it had borrowed in the past — there would quickly come a time when every cent of the nation's tax revenue would be going to pay the interest on the debt, and it would still not be sufficient.

The Fruitopia New Democrats decided that it would be a really good idea to lose the next election, and then leave the country in shame and disgrace for an undisclosed destination with no extradition treaties.

DISPATCHES FROM FRUITOPIA

The fictitious land of Fruitopia — you did know it was fictitious, right? — is a pretty good "economic model" for what has really happened in most western nations over the past half-century or so. Governments overextended themselves during the boom years of the sixties and early seventies, to get into power or stay there, and subsequent administrations lacked the political courage to tell their constituents "sorry — we can't afford all the free stuff any longer."

Ham and eggs: A morning's work for a chicken, a lifetime commitment by a pig.

"I swear to God, I thought pigs could fly." — Fruitopian Finance Minister, 1985

It's important to keep in mind that governments are transitory, and they know it. They want to survive their current term of office, and perhaps get re-elected. If they turn the long-term economy into road-kill, they will in effect most likely dump the problem on the party that defeats them at the polls, a fitting revenge.

Most nations now run permanent and usually fairly huge deficits, and as such, truly magnificent national debts. These numbers are often very difficult to get a handle on — to begin with, they have an uncommonly large number of figures, with the magnitude of their largeness being open to some interpretation. Secondly, the damage done to an economy by deficit financing is predicated to some extent on the health of the economy in question. A poorer country can suffer less of a per-person debt load than a richer one.

It's also not always obvious what a government is really doing to borrow the money that makes up its deficits. Lenders include:

  • Private banks and bond agencies, which float national loans in much the same way as they do new car financing. The loan agreement just has room for more zeros.
  • Government bonds — such as "savings bonds" — in which the government in question borrows money from its own people. Governments love these things, as they get to tax the people they borrow the money from to pay them their interest.
  • Other countries, which will in some cases "loan" governments money, often in the form of trade credits or other monetary concessions.

While it's unfashionable to appear apocalyptic about national economics — it sounds too much like a room full of accountants getting flustered all at once — most national economies are shoulder-deep in quicksand of their own devising, and are just now beginning to realize that they've forgotten the aqualung back in the Jeep. We are all very much in the position of paying off the loan for a car that was scrapped years ago, that is, we're paying for entitlement programs and election bribes enjoyed by voters a generation earlier.

It's probably fair to say that no western nation is really beyond economic redemption as yet, however much some of them might be dangling precipitously at the edge. Some, like Canada and the United States, have enough momentum in their respective economic engines to evade the real consequences of this problem for another decade if they see fit to do so. Others, such as several of the European economies, are beginning to find themselves in the Fruitopian Squeeze — the situation wherein they can't raise enough in taxes to support their level of spending, can't bring themselves to cut their entitlement programs and are seeing more and more of what taxation revenue they do have vanish into the black holes of loan servicing. Their economies are deteriorating, causing the demand for social programs like welfare to increase while reducing the number of employed people who can pay for them.

If you listen carefully, you can probably hear the first rumblings of government change — "reform" parties seem to be appearing in a few nations. These are typically governments headed by leaders who appreciate the unsustainability of deficit financing, and offer to change it.

He who laughs last didn't get the joke.

This was the (real) premier of Ontario, Mike Harris, at the time this article was written. Mike has since retired from politics. Mike tried to wriggle out of the Fruitopian Squeeze by instigating somewhat responsible government — he certainly looked like a fire-breathing capitalist in comparison to his predecessors. He developed a popularity problem in some quarters. You can always spot the pioneers — they're the ones with the arrows in their backs... or wherever...

In Ontario, for example, where I live, the Harris government came to power after a disastrous term of the New Democrats — the far left silly party — which ran up a huge government debt and increased taxes at every opportunity. One wonders why socialists always want to call themselves "democratic."

The Harris administration was arguably a model for reform government — after several years of cutting entitlement programs, and coincidentally taxes, it was reviled by large sections of its constituents, who resented the loss of much of the free stuff they were brought up believing was theirs by right. While many of them would have acknowledged the need for government restraint — at least, they arguably did when they voted for Mr. Harris — far fewer wanted to put up with its effects.

Everyone wants to go to heaven, but nobody wants to die.

What's more common of late is governments which lean tentatively toward reform, either by inclination or necessity. Unable to summon the courage to banish the demon, they seek to reach an accommodation with it. Among the strategies of such governments are:

  • Clawing back entitlement programs, such that everyone can have access to them, but the more well-to-do have to pay for them.
  • Adding user fees to formerly state-supported services. This doesn't sound as bad as taxes, although in many respects it's actually worse.
  • Increasing "sin" taxes, such as taxes on gasoline, alcohol, cigarettes and so on. This appears to occur under the assumption that driving to work is a sin.
  • Instituting national lotteries, casinos, state-run electronic gambling machines and other ostensible games of chance. This is something of a tax on greed and stupidity, as the odds against winning in these games are insanely long.
  • Privatizing previously public institutions, that is, selling them off to private owners. Ideally, these would involve enterprises which were losing money under public control. For example, if a government privatizes its state-supported public television network, it will get whatever revenue is generated by selling the television stations, and it will no longer be responsible for including the television network in its annual budget. Presumably it will not reduce the taxes to its constituents accordingly.
  • Adding high income surcharges and other penalties for the wealthy. Rich people are out of fashion in any case, and there are relatively few of them to vote against a government which penalizes them.
  • Instituting minor tax cuts in an effort to fool consumers into "jump starting" the economy. This one has been popular of late — the idea is to make people think they have more money to spend, in the hope that they'll actually spend it and speed up the economic wheel discussed at the beginning of this document. This is a fine idea, too, as long as a fifteen percent tax cut comes along with a fifteen percent reduction in government spending to pay for it. Going fifteen percent further into debt isn't a suitable alternative.

Governments also do a lot of spin-doctoring in difficult economic times. As I write this, the Federal Government of Canada has announced that its program to provide free Canadian flags to pretty well anyone who wants them has saved an impressive eight million dollars this year — having spent only 23 million dollars of taxpayers' money, rather than the projected 31 million. Well you might ask why a government in difficult economic times is prepared to spend anything on such an enterprise.

Few Britons will forget Margaret Thatcher's pronouncement in the house of commons that she felt that the poll tax — effectively Britain's tax on breathing — would prove very popular.

He who laughs last didn't get the joke.

The sudden interest in all things green has proven to be a windfall of new taxes for most western governments. In Ontario, where I live, the government instituted a mandatory bottle deposit on wine and spirits, ostensibly to encourage consumers to return their bottles for recycling. It arranged to have the bottles collected by its state-run beer stores, however, rather than the wine distributors. Most consumers of wine have come to appreciate that the gasoline required to drive bottles back to the beer store is worth more than the bottle deposits, and the deposit fee is just another sneaky tax.

The difficult part of economic reform and fiscal responsibility in government is that hard-working, cash-strapped voters are being called upon to make the tough economic decisions which their elected leaders don't have the spines to make on their behalf. It's exceedingly difficult to vote for a government which promises to make things harder in the short term when you've been eating Kraft dinner for five nights running, with still more Kraft dinner heaving-to on the horizon. The observation that this will improve conditions for your descendants isn't all that comforting, nor is the understanding that if your parents had voted for responsible government, you wouldn't be in this fix now.

The easy availability of at least one far left silly party per election, which promises to put still more entitlement programs on plastic if it's elected, clearly makes the decision more difficult.

The final pontification, then, goes like this. An understanding of economics is only worth having if you do something with that understanding. It's arguably the case that a lot of the economic problems faced by the western world now stem from voters several decades ago who didn't understand the entirety of what they were voting for, or didn't really care. In some cases their elected leaders were a bit hazy about them as well — not only were the blind leading the blind, but both parties had clamped on earmuffs for added comfort and protection from reality.

We're in a position wherein maintaining a comfortable ignorance of these matters is likely to get us into trouble. For most western nations, there's still time to enact fiscally responsible government with a measure of decorum and forethought. The ensuing reforms will be uncomfortable and occasionally painful — unions will protest, dismissed government workers will occasionally write letters to the editors of major newspapers, calls for the resignation of congresspeople and cabinet ministers will occur with predictable frequency. The number of unwed fifteen-year-old mothers on talk radio will double overnight.


—Steven William Rimmer
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The contents of this page are copyright © 1995 — 2017 Alchemy Mindworks. Some portions are copyright © 1995 — 2017 Steven William Rimmer. The copyright holders specifically prohibit reproduction, transmission, duplication or storage of this page or any portion thereof in any electronic or physical medium, under any circumstances. Reproducing all or part of this page against our express wishes may result in severe civil and criminal penalties. The lawyers made us say that.

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