Tuesday, March 18, 2008

When spending money, don't listen to Milton Friedman

There is a famous quote by Milton Friedman, about the four ways in which you can spend money:

"There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income."

The funny thing is that this although he makes out that this is some kind of general rule, it is almost exactly the opposite of the way that I and people I know behave:

When I spend my money on myself, I waste quite a lot of it. I go shopping when hungry and buy food that I don't need. I buy train tickets at the last minute when I could get a cheaper deal by booking ahead. I lose my wallet on a reasonably regular basis. When I get a bill, I put it to one side and try to ignore it until the letters get sufficiently threatening. And so on and on. I know lots of people who do at least some of these things, and only one person who 'really watches out what they are doing' when they spend their money. And as for spending my money on other people, I tend to be more bothered about content than cost.

As for spending other people's money on yourself, I remember the headteacher in the school where I was a governor, who kept on refusing salary increases, because the school budget overall was tight (she recently retired, so this also affected her pension). Or my friends who refuse to claim expenses for all the overtime they work, like millions of workers who work more than the hours that they are paid for. Or I remember working on playschemes and keeping the budget down by cleaning up the community centre after the kids went home.

And spending other people's money on other people - my colleagues at work agonise over literally every penny to try and make best use of the money that we get from some people to spend on other people. The decisions involved in big spending projects are much more complicated than any spending decisions that I face when I'm spending money on myself, and the knowledge and skill that I saw from, for example, the leader of the council on developing the council's budget while I was a councillor still fills me with awe.

What these experiences have in common is that very many people aren't always motivated just by self-interest, but by a sense of some common good, or public service ethos. And they don't think the same way as those who watch out when spending their money, but regard spending other people's money as an opportunity for a good lunch.

And if you've got a choice about who you put in charge of spending all of our tax money, choose the ones who don't use it to enrich themselves and instead think carefully about how best to spend it wisely, rather than the ones who think it is human nature to waste it or steal it.

6 Comments:

At 11:27 am , Anonymous tim f said...

I agree, but he also forgot the bit where the government is elected or booted out by the people whose money they spend and the people who it spends money on.

 
At 7:23 pm , Anonymous ad said...

Saying that you are often careless with your own money, and that some other people are often careful with other peoples money, does not prove that anyone is usually more careful with their own money than with that of other people, much less that most people are.

And if you've got a choice about who you put in charge of spending all of our tax money, choose the ones who don't use it to enrich themselves and instead think carefully about how best to spend it wisely, rather than the ones who think it is human nature to waste it or steal it.

Those people who are most convinced of their own virtue are often the least trustworthy. (“The more he talked of his honour, the faster we counted the spoons.”)

And you are clearly very convinced of the superior virtue of your own side.

 
At 7:30 pm , Anonymous Anonymous said...

"And if you've got a choice about who you put in charge of spending all of our tax money, choose the ones who don't use it to enrich themselves and instead think carefully about how best to spend it wisely, rather than the ones who think it is human nature to waste it or steal it."

Rather misses the point doesn't it? It's not a questions of who spends the tax money - the point is there should be much less tax money anyway since it is bound to be wasted anyway!

 
At 7:31 pm , Anonymous tim f said...

Friedman seemed pretty convinced he was right too - does that mean he was wrong?

 
At 11:12 am , Blogger Mark Wadsworth said...

"choose the ones who don't use it to enrich themselves"

So you won't be voting Labour any more?

 
At 7:54 pm , Anonymous ad said...

Tim, Friedman claimed that his beliefs about the world were right, not that he was honest and that everyone who disagreed with him was a greedy liar.

 

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