Milton Friedman on spending money
This is shamelessly stolen from Rodney, but so good I had to repeat it here:
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
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January 15th, 2005 at 7:52 pm
Nice link, thanks David. If anyone happens to want to follow your link, I’d like them to know that the later posts over my speudonym, were not posted by me, and that I have good evidence that many posts through the thread come back to the same source. Furthermore, many of Rodneys’s own posts were removed after he had come to his senses.
May I just say by way of congratulation that at least when you, David, disagree with a post in your thread, you come back in your own name and debate, and that you rarely if ever compromise your high level of decorum. I know that you would never re-enter your own posts to contradict under a third party alias.
January 15th, 2005 at 7:55 pm
oops – Rodney’s / pseudonym
January 15th, 2005 at 8:41 pm
I just made an offer on Hidesight that I’ll repeat here. Friedman’s philosophies feature in a 6 hour PBS doco called Commanding Heights that covers the economic history of the 20th century. Fascinating and informative: google the website if interested. I have the DVD set if anyone wants to loan it – you’d have to satisfy me you’re genuine and won’t rip me off. No charge, I’m happy to disseminate the knowledge. I live in Auckland.
January 15th, 2005 at 10:29 pm
Cheers reid, Actually TV one is (or was ) playing the Commanding Heights doco on Saturday mornings at about 11:00am. There are still some episodes to play so watch out for it. Jim Peron at Aristotles books can also get it in on VHS or DVD.
January 15th, 2005 at 10:58 pm
Well I was wrong again – seems to happen rather a lot, maybe I’ll just keep my big mouth shut. Thanks James, it’s a great series, highly recommend it. Apologies to TVNZ.
January 16th, 2005 at 12:45 am
Reid
I’d love to see it. I’ve read most of Milton’s stuff (including a semi autobiography where he is very complimentary about Don!).
cheers
January 16th, 2005 at 1:44 am
It’s a pithy quote, but I don’t believe it is a good generalisation. I think I’m more careful with other people’s money than I am with my own.
You seem to agree with the quote, David. Am I to infer that you think that if you were ever elected to government, you’d probably abandon your principles and start advocating higher taxes and spending? Heh. But that’s flamebait, I know, and I take it back. Let’s put it this way: do you think that (a) the quote is a good generalisation, and even Rodney “Perkbuster” Hide himself would turn into a tax-and-spend lefty if he was ever in government, or (b) that the quote is witty, but rubbish as a generalisation, and only applicable to some people?
January 16th, 2005 at 1:45 am
It’s a pithy quote, but I don’t believe it is a good generalisation. I think I’m more careful with other people’s money than I am with my own.
You seem to agree with the quote, David. Am I to infer that you think that if you were ever elected to government, you’d probably abandon your principles and start advocating higher taxes and spending? Heh. But that’s flamebait, I know, and I take it back. Let’s put it this way: do you think that (a) the quote is a good generalisation, and even Rodney “Perkbuster” Hide himself would turn into a tax-and-spend lefty if he was ever in government, or (b) that the quote is witty, but rubbish as a generalisation, and only applicable to some people?
January 16th, 2005 at 8:26 am
We can’t have those Aucklanders getting all the goodies! I live in Wellington and have the Commanding Heights DVD (Zone 1) set as well. Thoroughly recommend it, just like Reid.
January 16th, 2005 at 8:31 am
The quote is terrific until you think about it for more than a few seconds and realise that most of private industry also consists of spending other peoples money (the stockholders) without any direct benefit to yourself. Curiously, Friedman, Hide and David would never dream of questioning the efficiency of private enterprise, even though the only real difference is that (in New Zealand at least), it’s probably easier and cheaper to elect a less profligate politician than it is to fire a CEO.
January 16th, 2005 at 8:42 am
The quote is terrific until you think about it for more than a few seconds and realise that most of private industry also consists of spending other peoples money (the stockholders) without any direct benefit to yourself. Curiously, Friedman, Hide and David would never dream of questioning the efficiency of private enterprise, even though the only real difference is that (in New Zealand at least), it’s probably easier and cheaper to elect a less profligate politician than it is to fire a CEO.
January 16th, 2005 at 3:52 pm
Gordon P – The Government is generally an inefficient spender of money no matter who a Minister is. One has tens of thosands of staff who spend the money. A different Government can reduce the amount of money available to unworthy projects and apply better scrutiny, but one will always have significant inefficiencies. The best thing is to restrict the state to core functions.
Dim – In private enterprise, those making the decisions often have a financial stake in the business. And if a particular company does not give a good return on your invetsment, you can take your money elsewhere. Or you can just stick it in the bank. One does not have the choice not to pay taxes because the Govt is wasteful.
January 16th, 2005 at 6:40 pm
But a politician has a personal stake in spending other’s peoples’ money appropriately as it can contribute to their chances of re-election. Aren’t the 2 things pretty much analogous for the purposes of DIM’s comment?
January 16th, 2005 at 7:18 pm
Nope there is far far less acountability in public saector. Has a single person resigned over the $120 million community education scams? Nope. Will anyone lose their job? No. Would a $120 million wasted project in a company lead to sackings. Yes, lots of them.
January 16th, 2005 at 9:21 pm
Dave old bean how many of your beloved Tory pollies lost their jobs over the INCIS debacle,or is it only left wing government’s inefficiencies that bother you.Touche.
January 16th, 2005 at 9:22 pm
Dave old bean how many of your beloved Tory pollies lost their jobs over the INCIS debacle,or is it only left wing government’s inefficiencies that bother you.Touche.
January 17th, 2005 at 1:34 am
Red Fred – Friedman’s passage is a comment of general principle. Farrar is agreeing with the principle and has stated above that, regardless of which Minister heads up a government department (Tory or Labour), the spending of money will always have significant inefficiecies relative to people or businesses spending their own money.
Clearly then, he is accepting the principle as a characteristic of any government, not just of the left-wing. So where is the ‘touche’ here? I don’t see it.
The fact is that left leaning governments are intrinsically worse than right leaning governments, not only because they do not fully understand, and are baffled by, the natural efficiencies that are inherent in the free market, but also because financial efficiency is not a prime motive for them – power and social engineering are far more important in thier world view.
January 17th, 2005 at 9:58 am
Red Fred. It is impolite to say “touche” yourself, it is something the other party might say in recognition of a well played point. In effect you ended your post with “nah nah na-nah nah.”
January 17th, 2005 at 10:42 am
Having worked for some of the worlds bigger companies (PWC, Sumitomo, IBM, SITA), it’s my experience that the people who make hundred million dollar disasters are as likely to get promoted as they are to get sacked. Sure, small companies are different – people are much more accountable and mistakes are much more visible, but that’s because Friedmans ‘wisdom’ applies equally as well to large companies as they do to governments – to get marxist for a second, people in almost ANY large organisation are alienated from the source of, and distibution of capital.
And to address another point, in a sense all of the National Government lost their job over INCIS – they were voted out of office. That’s how accountabilty works for elected officials. If the Nats can make the Community Education Scandal an election issue and the public feels strongly enough about it, then those responsible will lose THEIR jobs.
January 17th, 2005 at 11:02 am
Did National lose the election solely on the basis of INCIS? Has any government lost their jobs because of a single event? The thing is MPs are generally only fired (resign) for MORAL gaffs, and quite rarely for departmental inefficiency. They might get assigned another portfolio, on which to work their dark magic, but rarely lose their jobs outright.
They are voted in by people making their decision on “macro” issues, rather than “micro” failings, especially with MMP and the rather stupid party lists. Political parties AND their MPs are judged on a philosophical basis now rather than a practical one.
National cannot make the Community Education scandal an election issue, they would be seen as myopic and give the impression they dont care about the larger issues.
January 17th, 2005 at 11:16 am
While the quote has changed I think it comes from a PJ O’Rourke book, Eat The Rich. Well worth a read. But it comes from somewhere else originally…
Whoever said Friedman would not dare to criticize private industry had obviously not read much of his stuff.
In fact the problems of people spending other peoples money is well documented – and sadly, they are generally less careful with it.
The problem occurs in private industry as well. Shareholders worry about ‘agency capture’ where the manager of the business worries more about milking the business for personal gain than for generating returns to shareholders.
The ability to fire people is an important way of controlling agency capture. Arguably its more important to be able to fire managers quickly the more senior they are. This surely applies to politicians as well.
It’s also found that agency capture increases with time – so the longer you are around the more likely you are to view the till as your own rather than as the property of those who trusted you with it.
Cullen’s repeated defence of a vast surplus and denial of calls for tax relief seem to indicate the syndrome is taking hold.
Regular changes in government and managers help to avoid this. Sturdy oversight and the ability to swiftly kick people out if they show signs of abusing their guardianship are vital. In public and private positions.