Earmarks and the ‘latte factor’

The economic principle is simple. Our economy offers substantial long-term incentives to invest. When you cut expenses, particularly on luxury, recreation and frivolity, and invest that money instead, the potential accumulated value is enormous. The difficulty is suppressing a near-sighted instinct to seek instant gratification.

This principle is called the “Latte Factor” by financial pundits, bloggers like Trent Hamm and authors like Dave Ramsey and David Bach. They argue that consumers often mindlessly nickel-and-dime themselves out of a larger savings by making needless purchases like a daily drink from a coffee shop. Hamm found that his frivolous snacking cost him $80 a week or $4,160 a year—money which, if invested over a lifetime, could add up to almost $2 million. The details are complicated and some technical aspects of the “Latte Factor” are disputed by financial writers and theorists. The simple principle is nevertheless tangible and undisputed: a penny saved is a penny earned.

Congressional earmarking is a policy matter directly related to this principle. What a $3.00 latte is to you and I, a $300,000 or $3 million earmark is to a Congressman. Congress is diddling away gobs of cash that should be spent or saved in a fiscally responsible way.

These earmarks also ripple Bastiat’s principled waters of “legalized plunder.” Lawmakers are essentially squandering our money legally. But if a private company in which we held stock used similar gimmicks, the company would be cited for grossly irresponsible conduct or maybe even embezzlement. Then we would sell our stock and shake up the company—or we would lose the means to invest in our future and our children’s future.

But earmarks don’t just expose corrupt Tammany Hall economics. They are unjust because they violate the principles of federalism and limited government on which our nation was founded.

David Talbot is an intern at The Heritage Foundation