Killing The Golden Goose

Aesop was a slave and storyteller who lived in Greece about 2,500 years ago. There are more than 600 of his fables known. Perhaps the most famous is The Goose that Laid the Golden Eggs. It tells the story of how greed and impatience harm.

It provides a helpful way to think about the difference between events and processes and how an event should not replace a workable process.

Today’s Golden Geese

The story of the Golden Goose is an allegory. It is meant to convey a message, not to be literal. I know dozens of farmers, some of whom have geese. None has ever had one that laid golden eggs. None expect to.

Today’s golden geese are businesses that produce more cash than they consume. Some, like Microsoft, produce vast amounts, and the quantity grows over time. Google, Apple, Amazon, Verizon, and Berkshire Hathaway are others. Is there a way to kill them and get all their future cash flow now? Of course not. A better approach might be to see if there are things that would help them produce more cash flow.

Businesses that know how to allocate capital build bigger enterprises, produce more valuable products or services, and hire more employees. They can afford research that creates even more value in the future. What happens if, instead of promoting more cash flow and growth, you reduce it.

Let’s suppose you raise income taxes.

Income taxes are a slow-motion form of killing the golden goose. Corporate taxes make little sense, really. Corporations don’t pay taxes; they’re merely the middlemen. The customers pay the taxes by facing higher prices. Higher prices mean fewer sales and slower growth.

There is an exception that can be dealt with easily enough. Suppose businesses were required to earn their zero percent corporate tax rate. They might pay no tax on amounts paid to shareholders as dividends or stock buybacks. They would pay nothing on income reinvested in the business. Want to build a new factory or do more R&D? No problem, we’re happy to participate. If you want to own cash, bonds and other securities unrelated to your business, you’ll be paying some taxes.

It’s more complicated than that, but you get the idea. You reward those who allocate capital effectively and give no breaks to the others. The best tax systems are comparatively simple.

On the other side 

Governments have an insatiable demand for money. Why? It’s mainly because the only things left to do are mostly expensive things with little or no payback. An intelligent voter might ask why they do those. And I might answer because the big problems have all been satisfactorily solved. Governments used to be more useful, but as problems were solved, they had nothing to do to justify their positions. How many are career politicians? That condition was almost unheard of back when governments solved problems.

If you have no career prospects outside politics, your tendency will be to make previously unseen problems seem more ominous, thus creating the need for your services. They are human too. The response we see from governments today is the response you get when you give a problem to someone to solve and include the condition that when it is solved, they will be fired. The issue will become harder to measure and more widespread. Watch for it.

The moral of the story

If politicians didn’t need to be seen to be doing something, they would need less money, and the golden geese would be allowed to flourish. Government budget problems do not arise from a shortage of funds; they arise from spending money on trivia, misdescribed situations that reward politicians and their friends, and promises that last forever.

The sad reality is if they were willing to wait and let the cash producers grow, they would have the money to do even more.

Like the farmer with the golden goose, their impatience and greed for prestige and power end badly.

I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: