Manage Money Like A Politician

Imagine if you lived your entire economic life following every financial instinct embedded in a rational person’s brain: stay within your means, never gamble, save up before you buy something rather than pay prohibitive interest, etc.

That wouldn’t necessarily make you rich – you’d still need ambition, serendipity, and the ability to seek opportunity – but at least you’d be doing as well as you could given your income and circumstances. More crucially, you’d avoid being poor, which is a lot more important than being rich.

Now…what if, instead of following the simple common sense rules available to anyone, you studied hard and adopted the more intellectually demanding financial mindset of an elected official?  The average congressman has more formal education than the average American, and the average senator or president more still, so it stands to reason that under those conditions you’d build more wealth than you’d know what to do with. What would that look like?

Well, you’d start by writing a check on January 1 for $31,000.

Excuse me?

That’s this year’s federal expenditures, divided by the number of households in the country.

(Aside – did you know annual federal budgets now have titles? For real. 2010’s is named A New Era of Responsibility: Renewing America’s Promise. We would have suggested Chinese Democracy, but it wasn’t our decision to make. A New Era of Responsibility is more political document than financial document: that’s why its introduction, written by the nation’s chief executive, uses the phrase “the crisis we inherited” on the second page. Two pages later, the first chapter is entitled “Inheriting a Legacy of Misplaced Priorities.” This is what’s called leadership. In modern America, passing the buck is even more effective when it’s done retroactively. Even Konrad Adenauer didn’t complain about his predecessor this much.)

So yes, you’d start every year $31,000 in the hole. But it’s not like that money isn’t going anywhere. $5900 of it is for your retirement. But not via an annuity, or a stock with a regular dividend, or anything like that. Instead, you put your money in…well, in limbo. A former presidential candidate used the phrase “lock box”, which doesn’t exactly imply growth. You’ll get the money back when you’re 65, because by virtue of being a private citizen you’ve shown that you’re incapable of nurturing it yourself. Or you’ll spend it foolishly, or something. Whichever way, you can’t be trusted with it, which is why we elect political betters to handle piddling matters like our futures.

$6000 of that check goes to health care for your a) old and b) poor neighbors – which is to say, people who have spent decades longer than you earning money and those who buy cigarettes by the carton, respectively.

You’d also spend $1400 on interest, for money you’ve been borrowing since before your parents met. That money totals $122,630, if you’re keeping score. Which you ought to. If you read Control Your Cash: Making Money Make Sense and apply it, you’ll only spend $0 in interest on your consumer spending. But by virtue of being part of a citizenry that elects a government, we can work together and negotiate better rates, or something.

I borrowed $122,630? That’s more than I make in a year. Two years. Close to three.

Quiet, you’re thinking like a commoner. In Washington, we do things differently.

Is there a way around this?

There are plenty. One handy method is to see how bad the numbers are this year, then arbitrarily reduce them for future years.

How do I do that?

It’s easy. Get some cameras and a microphone and set them up in your living room. Gather the family and issue what’s called a “forecast”. You announce it in a somber demeanor, while wearing a suit. You surround yourself with earnest, pasty functionaries – also in suits – and carry a ream of paper to emphasize your new, fanciful projections that you then read a prepared summary of. This is a great opportunity to drop some buzzwords, too: talk about “policies and procedures”, throw some “moving forward” in there, and the audience should nod their heads. If you like, you can even add something superficial about spending cuts.

For you and me, cutting spending means spending $x one year and $x-y the next. For many a politician, it means spending $x one year, budgeting to spend $x+z the next year, then announcing that you’ll really spend some intermediate value.

But that’s still larger than x.

True.

And that counts as “cutting” spending?

Yes.

Why?

Look, if you’re going to criticize, you can just move somewhere else.

So if my family’s finances look like they’ll be in worse shape in the coming year, I should just say things will improve, or not worsen, with only the most tenuous of data?

Yes, even (especially) if you’re $122,630 in debt.

Then why am I living within my means, saving, investing, limiting my discretionary spending and not buying things I can’t afford?

Beats us. Again, it’s a wonderful set of new rules you get to play by when you’re authorized to spend money with few strings attached, and the money you’re playing with belongs to someone else.

And doing this will make me rich?

No. It’ll impoverish you. You, and everyone you come into contact with.

This a guest from Greg McFarlane who is an advertising copywriter and lives in Las Vegas and Lahaina. He recently wrote Control Your Cash: Making Money Make Sense , a financial primer for people in their 20s and 30s who know nothing about money.