Friedman Explains Why Government Spending is Inefficient

The Four Different Ways To Spend Money

As a Financial Samurai, I believe in fiscal responsibility. Therefore, I have long been bothered by the government’s general lack of fiscal discipline. Instead of trying to spend within the government’s means, like most of us seeking financial independence try to do, the government tends to just borrow and spend more. 

To get us thinking about our future government, it’s worth watching this short clip from Professor Friedman on how to spend money. 

1) You can spend your own money on yourself. 

If you spend your own money on yourself, you’re very careful on what you spend it on. You make sure you get the most for your dollar. 

2) You can spend your own money on someone else.

When you spend your own money on someone else, you’re careful on not spending too much. You don’t worry as much about the gifts you buy for other people as the things you buy for yourself.

3) You can spend somebody else’s money on yourself.

You’re careful to get good things for the money. But you’re not very worried about getting the best bang for your buck. You’re happier to spend more of somebody else’s money within reason. 

4) You can spend somebody else’s money on somebody else.

You become a “distributor of welfare funds.” You’re interested in making your own life as good as you can. But you’re not going to be anywhere near as careful as spending this money on other people. 

In an environment where we are accustomed to spending other people’s money on someone else, we end up not maximizing the value of the dollar. We also don’t end up appreciating money as much either.

Economic Waste Is A Shame

We can agree that spending somebody else’s money on somebody else usually doesn’t result in the most efficient use of funds. There’s just too much economic waste because people don’t have as much or any vested interest.

However, I do recall that when I used the company’s corporate card to entertain clients over a lavish meal or a show, I wanted to maximize the expense because my boss ultimately had to sign off on the bill. If I spent too much, my judgement would come into question. If it did, my year-end bonus would be in jeopardy. 

The four ways to spend money by Milton Friedman


Government Spending Is A Different Matter

As an individual, spending someone else’s money on someone else is one thing. It’s a whole other level of waste when it comes to the government spending the taxpayer’s money on someone else. The government doesn’t have direct accountability for how they spend our money, so they are OK with being billed $100 for a paper clip. 

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Yes, politicians are supposed to be good people who have their voters best interests at heart. However, to become a politician, you also need to have a big ego and an unusual amount of narcissism. Being a politician goes completely against my beliefs of stealth wealth and avoiding fame

If you don’t pay a lot of taxes, you probably won’t mind as much that the government isn’t allocating your tax dollars efficiently. You are probably the largest advocate of tax hikes because you want the government to spend somebody else’s money hopefully on you. 

But if you are paying a lot of taxes and you’re miserable at work, you’re going to want the government to spend more responsibly. You’d much rather keep your own money to spend how you please.

Professor Friedman says that people spending someone else’s money on others is a “distributor of welfare funds.” So long as these funds are actually spent on helping those less fortunate, being a distributor of welfare funds is good for society.


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Friedman on Gov Spending by Tom Zawistowski is licensed under N/A N/A

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