Politics
Out of context: Reply #1893
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- tommyo0
Why Government is SO bad with money?
by Don RasmussenEveryone complains about what poor stewards of the people's money the government tends to be, but rarely does anyone address the question why. We chalk it up to greed and stupidity, or we just take it as the natural course of things, joke about $200 hammers and move on.
But there are actual, quantifiable reasons that government is bad with money and those reasons are systemic in nature, meaning that no matter who is in charge, or what laws are passed, the root reasons for the waste and fraud will still be with us.
Milton Friedman brilliantly described the four ways that money is spent.
* The first and most common way in the private sector is people spending their own money on themselves. In this case, the buyer is interested in both quality (the best product or service that he can afford) and value (getting it at the best price) because he is both the producer of the wealth being spent and the consumer of the good or service being procured.
* The second way is when people spend their own money on others (such as gifts). Here they are still concerned about value (it's their money), but less concerned about service quality as they are not the consumer.
* The third way is spending other people's money on yourself. Think of the rich man's girlfriend who buys herself the nicest dresses in the store on his credit card without even looking at the tag. She wants quality, but value is irrelevant since she sacrifices nothing.
* The fourth way is when people spend other people's money on other people. In this case, the buyer has no rational interest in either value or quality. Government always and necessarily spends money in this fourth way. This guarantees inefficient public spending because the spenders have no vested interest in efficiently allocating those funds.
Adding to the inherently inefficient nature of public spending is what is referred to as the "theory of measurable output." This is the idea that every system needs a "yard stick" to monitor its relative health and effectiveness. For private enterprise, these outputs are called profits (or losses), dividends, share prices, etc. However, public entities have no such affirmative measures. The only measurable outputs are increases in the entity itself, bigger budgets, more employees, greater power and regulatory authority, etc. So a million dollar loss in a private firm will signal the need to save money, cut employees, make better products, or cease to exist. In a bureaucracy, that same loss will result in a million dollar increase in budget for the next year with accompanying increases in staff, salaries and political power. If that same bureaucracy fails to spend/waste all of the annual budget, then that budget is more likely to be cut. Hence, failure is rewarded and success is punished.
The third thing to consider is the nature of the legislative process. We have seen this in full color in the last week as the bailout bill grew from 3 pages to more than 400 as additional spending was added to satisfy the special interests that control the votes of the members of congress.
While hardly comprehensive, this should give some insight into why the government is, and always will be, bad with your money. Please keep this in mind whenever someone predicates their argument on the assumption that allowing government to intervene will lead to desirable results. This was a key argument for why they should pass the bailout. We were told that buying worthless paper would be a good deal when the government analyzed these "assets" and sold them back into the market. Don't hold your breath.
- Milton Friedman is a asshat of divine proportions.TheBlueOne
- ..or "was an asshat"...TheBlueOne
- Hisd theories took a perfectly good global economic system and threw them into the goddamn toilet...TheBlueOne
- So the fundamentals are wrong in this article? Government doesn't try and spend all of their budget so that it doesn't gettommyo
- cut in subsequent years?tommyo
- They haven't spent $600 on toilet seats? They look for 'value' for our money they're spending? Companies whotommyo
- get gov contracts DON'T see it as monetary gift from god?tommyo