Milton Friedman on Types of Spending
Via Nuggets and Aphorisms.
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. [Link]
I will make analogy based on this classic piece by Milton Friedman about types of spending.
Suppose you want a new car (or motorized vehicle). What kind of car do you get?
1. A buys a car for A with A’s money: Honda Accord – a good quality car for a nice price.
2. A buys a car for A with B’s money: Ferrari – a great quality car for a ridiculous price
3. A buys a car for B with A’s money: Bajaj – a nice vehicle for the money for a ridiculously low expenditure
4. A buys a car for B with C’s money: Yugo – a piece of junk car worth nothing and costing much more than it is worth
In most cases, the Accord plan works best and the Yugo plan is one of the worst. But you got to watch out for that Ferrari plan: it will really bankrupt a nation!
I am planning a post about health care and this will be part of it. The current health care system in the U.S. is definitely the Ferrari plan.