August 28, 2001

  • *Just this once.   I want to do it just this once.*


    This notion is so appealing.  I’m wondering: can I really?  Yes.


    But should I?   Hrm….


    Many who have spoken these words and acted upon them have to regret their decision to adopt a time-inconsistent strategy.  Time inconsistency: what looks like the best and is the most appealing course from moment to moment fails to produce the best outcome in the long run.  “The best laid plans of mice and men…” ,  yes! –that’s it!  Best laid for the provision of instant gratification at any and perhaps every point in time.  The long-term plans of many people and even governments often go astray because free decisions are made to pursue such instant gratification. 


    Did you know that the seat of the United States federal government is in D.C. and not New York where it originally was founded because an individual prevailed against a time-inconsistent strategy?  Yep.  Alexander Hamilton as the first U.S. Secretary of the Treasury insisted after the American Revolution that the U.S. repay all its war debts though Thomas Jefferson and James Madison argued against the repayment of some obligations to avoid the difficulties that increase taxation would cause.


    But  Hamilton insisted upon establishing the new government’s creditworthiness.  He understood  that the more expedient course of defaulting on the weaker holders of war debt would cast a shadow upon the trustworthiness of the new government to honor new debts. And that would, in turn, drive up the cost of credit by reducing America’s appeal to investors—an appeal the new nation desperately was seeking. 


    So tenaciously did Hamilton cling to his position that he agreed to compromise and endorse a plan for moving the nation’s capital from New York to D.C. if his debt repayment plan passed Congress.  And it did.  And to this day the seat of the U.S. government shuts down if it snows more than an inch.


    Instant gratification.  Yum.  Will I?  Will you?

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