FUNDAMENTAL TRUTH #74: “When negotiating it’s important to understand the ‘time value’ of promises. The longer out in time something is promised the less likely that promise will be kept.” -Old Pithy

Posted by PITHOCRATES - July 12th, 2011

A Swath of Broken Promises

Mothers aren’t stupid.  They won’t let their kids have dessert until they eat their peas.  They don’t fall for the old, “I promise to eat my peas after I eat my dessert” line because she knows it won’t happen.  For the same reason kids have to clean their rooms first before they go out and play.  Mothers are on to their kids.  These sneaky little bastards will say or promise anything to get what they want now with no intention of keeping that promise later.  Especially when that promise is due light years into the future.  Like an hour or more later.

For kids are a lot like men.  Who also have a singular focus.  They want only one thing while dating.  And will say and promise anything to get that one thing.  They’ll say, “I love you.”  They’ll promise that their love will be everlasting.  That he will never leave her.  That he’ll be true and faithful.  Never love another.  Never could love another.  For their love is special.  Unique.  And greater than all other loves.  Combined.  If only she will just give it up to prove her love to him.  Which she eventually does, unable to resist his charms.  Or maybe it was all that binge drinking.  Next thing she knows she’s pregnant.  She bumps into her best friend at the clinic where their doctors coincidentally diagnose them with the same venereal disease.  And spends the next 18 years as a single mother chasing down that deadbeat dad for child support.

Of course, not all romances turn out this way.  Some men and women marry and live happily ever after.  Despite leaving a swath of broken promises in their wake.  A promise to watch sports with him on Sunday afternoons.  And a promise to keep going out dancing after getting married.  Even promising to take ballroom dancing lessons.  A promise to have sex as often as he wants to.  And a promise that sex won’t be just the 10 minutes between Sports Center and sleep.  A promise that her mother wouldn’t spend much time in their house filling her head with new ways to criticize him.  And a promise to pee in the toilet.  Not around it.  And to always leave with the seat down.

The Time Value of Promises

A lot of us make these promises with no intentions to break them.  We just do.  Because we wanted something at the time of the promise.  And making the promise just proved expedient.  But sometimes we make promises we have no intention of keeping.  Or know full well that in time we forget a lot of promises.  Such as manufacturers using mail-in rebates to entice us to buy their products. 

Manufacturers could give you a coupon for the savings.  But everyone gets their discount at the register with a coupon.  Which means everyone buying because of that coupon will get those savings.  But a rebate requires a lot of work after the purchase.  Bar codes to cut off.  Envelopes to address.  Stamps to buy.  It takes time.  At a most inopportune time.  You just want to play with your new toy.  Not do paperwork.  So people procrastinate.  And a lot of them forget about that rebate.  As the promise of those savings get pushed out further in time more people will forget.  And not get those savings.  So only a small percentage of people who buy because of a rebate get their savings.  Unlike the coupon user.

Businesses understand the time value of promises.  A future promise (a rebate) is less costly than present promise (a coupon).  It’s similar for compensation.  During difficult economic times employers prefer bonuses over raises.  They’ll promise a raise later when things get better.  But things may not get better.  You may not get that raise.  And if you don’t get another bonus next year you’ll be taking a pay cut.  That’s why unions are dead set against merit pay or profit sharing in lieu of pay raises.  Pay raises are forever.  Profit sharing is not.  Especially if they do some creating accounting that limits their income taxes.  Which ‘inadvertently’ reduces your share of the profits.  Lots of things happen before money becomes profits.  A lot of bookkeeping.  And unless you’re a CPA you haven’t a clue what it all means.  With gross, though, it’s a different story.  What you see is what you get.  That’s why the big movie stars get a share of the gross.  There’s little time to devalue that promise.  If ticket sales are good the movie star’s pay is good.  Simple.

Broken Promises are just a Diplomacy Tool for the Dictator

And then there are those who promise only to buy time.  Or improve their position.  These people have no intention of keeping their promises.  Like dictators.  Hitler promised Chamberlain that the Sudetenland was his last territorial ambition.  So Chamberlain gave him part of Czechoslovakia.   To get “peace in our time.”  Hitler then took the rest.  To protect his right flank for a future territorial ambition.  East Prussia.  Across the Danzig corridor.  But before he attacked Poland he needed to make a deal to protect the back door.

There were few things Hitler hated as much as Jews.  Except, perhaps, Russians.  And Soviet Communism.  The NaziCommunist hatred went back years.  There were political rivals in Germany between the wars, each vying for power.  Hitler finally put an end to the rivalry when he torched the Reichstag and blamed it on the communists.  But before he attacked Poland he needed to make nice-nice with Joseph Stalin.  Which he did.  They made a non-aggression pact.  Agreed they would not attack each other.  Then they conquered Poland (the Nazis from the west and the Soviets from the east).  And partitioned it between them. 

That promise with the Soviets gave Hitler time to invade Denmark & Norway.  And France.  And after obtaining Atlantic ports for his U-boats, airbases within striking distance of the UK and securing his western border, he was ready to do what he always wanted to do.  Attack the Soviet Union.  Break that promise with Stalin.  For he no longer needed him.  And Stalin had something he wanted.  Lebensraum.  Living space.  With lots of grain.  And oil.  Everything an empire needs.  So through a series of broken promises he was going to expand Germany at the expense of the Soviet Union.  Using the time value of promises to his advantage.  Getting what he needed when he needed it.  And making his enemies wait a long time to get what they wanted.  Peace.  Which proved to be a promise not worth holding on to.

A lot of things happen between Tax Hikes and the Spending Cuts

Politicians make a lot of promises, too.  Most of which they break.  For they are professional liars.  But in a way they are worse than Hitler.  Hitler raped and pillaged other countries.  Politicians rape and pillage their own constituents.  They promise the moon to get their vote knowing full well they can deliver little of what they promised.   And then to add insult to injury, their policies just impoverish their constituents.  With higher taxes.  Or costly regulations that increase consumer costs.

But politician on politician lying is some of the worse lying out there.  And the king of all liars is the liberal Democrat.  Who want to tax and spend and change the way you live your life.  Things that don’t help you win elections.  So they lie during elections.  And lie during political debates.  Because being tax and spend liberals, they need high tax rates.  And fat benefits programs.  In fact, their favorite tactic is to deliver the benefits first and then try to find a way to pay for it.  Usually by browbeating Republicans to be ‘responsible’ and increase taxes.  When they resist the liberals belittle them and say they want to kill old people and starve children.  Of course, spending money they didn’t have in the first place is not really the model of responsibility.  But that’s different.  I don’t know how it is.  But in the liberal Democrat world it just is.

And then the negotiations begin.  Yes, everyone agrees the government needs to balance its books.  That they can’t spend money they don’t have.  The Democrats want to fix that problem by increasing taxes.  Whereas the Republicans want to cut spending.  Then the Democrats, being the devious little bastards they are, fall back on an old favorite.  They use the time value of promises to screw Republicans.  They offer spending cuts in exchange for tax hikes.  Often in 2-1 or a 3-1 ratio.  For every new dollar in taxes they’ll make $3 in spending cuts.  But these are a special kind of tax cuts.  They call them ‘future’ tax cuts.  And they happen at some mystical time far out in the future.  Where all responsible government apparently lies. 

Because they often make these deals during a crisis, they need to implement the tax hikes right away so the government can mail those Social Security checks.  And pay their soldiers.  But with the people suffering from the bad economy, they’ll ease the spending cuts in later to ease their pain.  Because they ‘care’ about the people.  That’s why they are always ‘future’ tax cuts.  Of course, a lot of things happen between those tax hikes and future spending cuts.  They write new budgets every year.  And there are Congressional elections every 2 years.  And a lot of the time the new Congress people just write those spending cuts out of the budget.  Especially if the Democrats pick up a lot of seats.  Which is why Democrats are quick to offer this deal.  Because they get what they want when they want.  And a lot of time to renege on those spending cuts promises.

It’s amazing how often the Republicans fall for this trick.  Then again, poor old Charlie Brown will forever try to kick that football.  Unwisely trusting Lucy, his devious sister.  Who no doubt will grow up one day to become a registered Democrat.

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