John Mitchell and the Four Fairies

Last week’s blog post I referred to a presentation John Mitchell gave at the annual HFO Investor Roundtable event on January 8^th.  I specifically honed in on his comments about interest rates.  If you missed it, I would encourage to find the link to last week’s article located in the lower right hand column of this email under Recent Blog Posts and read the article. 

But there was also another part of his January 8^th presentation that I want to focus in on in today’s blog post.  Mr. Mitchell began this part of his presentation talking about his four year old granddaughter Stella who recently lost a tooth.  As Mr. Mitchell, heartily emphasized, “When your four years old losing a tooth is a big deal!”  And so it is because you get introduced to the Tooth Fairy who exchanges the tooth under the pillow for money.  When I was her age, I think the Tooth Fairy usually gave me a dime for my tooth.  I bet Stella received a whole lot more than a dime, at least I hope so. 

Mr. Mitchell then segued his discussion about the Tooth Fairy into the four fairies that many adults these days appear to believe in.  I thought his presentation was insightful, if not absolutely courageous, considering the likelihood of offending many of the people in his audience.  The four fairies are:

1.   The Free Medical Services Fairy – Think about it.  Medical services have never been and never will be free.  It takes real resources to pay for them.  Someone has to pay for them or they don’t exist. 

2.   The Entitlements Fairy – this fairy pays all the promises that our politicians have enacted through legislation down through the generations.  This fairy waves her magic wand and all entitlements are fully funded.

3.   The No New Taxes Fairy – this fairy may have died on December 31^st of last year but those who believe in this fairy believe that we are going to fix our fiscal crisis with no new taxes.  If you look at the numbers (most people don’t look at the numbers because ignorance is preferred over making informed decisions) what you find is that the sum of all federal revenues – corporate, personal, social security, tariffs, etc. there is just enough revenue to pay for Social Security, Medicare, Medicaid, interest on the debt and the federal retirement program.  The problem is there is another trillion dollars worth of spending that is left unfunded. 

4.   The Rich Will Pay Fairy – Again look at the numbers.  The top 1% of income earners pay 29% of all federal taxes; the top 20% pay 70% of all federal taxes.  Anyway you look at it the rich cannot fill the gigantic fiscal deficit that we have today.  I (Doug Marshall) have never understood how those who self righteously believe that the wealthy (I’m unfortunately not one of them) should “pay their fair share” think that it is perfectly okay that the bottom 47% of the population pays no federal income taxes.  Could someone explain that to me?  Whatever happened to the idea that all of us should pay our fair share of taxes proportional to our means?   

I want to end this article with two quotes which I believe are appropriate for our current fiscal situation:

“People only accept change when they are faced with necessity, and only recognize necessity when a crisis is upon them. “ Jean Monnet

“If something cannot go on forever, it will stop.” Herbert Stein

The fiscal path that the federal government is on is unsustainable.  Why not fix the problem while there is still time to act?