Monday, March 11, 2013

Milton Friedman Was Wrong

Milton Friedman once divided all spending into four basic categories, claiming that government spending would always be inefficient because it all fit into his fourth category.

Here's his breakdown:

There are four ways to spend money. 

1. You can spend your own money on yourself. When you do that, why you really watch out for what you're doing, and you try to get the most for your money. 

2. 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. 

3. Then, I can spend somebody else's money on myself. And if I spend somebody else's money on myself, then I'm going to have a good lunch!

4. 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 costs, and I'm not concerned about what I get. And that's government. And that's close to 40 percent of our national income.

His point, of course, is well-taken, but incomplete.  Government spending isn't restricted to Category #4.  But I think the good Dr. Friedman should have anticipated the amount of government spending devoted to Category #3 (spending someone else's money on myself.) 

Consider this:

Poor oversight at the U.S. Department of Veterans Affairs allowed agency officials to waste as much as $762,000 at a pair of multimillion-dollar conferences that took place last year in Orlando, according to an investigative report released Monday.The report, released by the VA's independent watchdog, estimated that the agency spent about $6.1 million on the two conferences, including $762,000 that was identified as unauthorized or unnecessary. Among the wasteful expenses: $97,906 worth of promotional gifts for the federal workers attending the training sessions; $154,000 for contractor travel; $16,500 to produce daily "Happy Face" videos of those in attendance; and nearly $2,300 for beverages, such as soda and juice, consumed by conference officials and speakers.

And this one:

Where does a muffin cost more than $16?At a government conference, it turns out.They may run just over $2 at your average coffee shop, but the Justice Department paid seven to eight times as much at a gathering it held at the Capital Hilton in Washington. And on Tuesday, the muffins seemed well on their way to joining the Pentagon’s $600 toilet seat as symbols of wasteful spending.Justice Department auditors also criticized a $76-per-person lunch at a conference at a Hilton in San Francisco, featuring slow-cooked Berkshire pork carnitas, hearts-of-romaine salad — and coffee at $8.24 a released Tuesday by the department’s acting inspector general,Cynthia A. Schnedar, is full of what she called “wasteful or extravagant spending” at 10 law enforcement conferences spanning the George W. Bush and Obama administrations. Descriptions of cookies and brownies costing the government nearly $10 each and beef Wellington hors d’oeuvres at $7.32 per serving struck a nerve in Washington, where austerity and belt-tightening are the watchwords at a time of economic hardship.
And there are the recent GSA scandals:
At least 77 General Services Administration employee conferences that totaled more than $6.7 million in costs are under review by the agency’s inspector general, the watchdog said at a hearing before a House panel Wednesday.

The conferences, which cost at least $10,000 each and were attended by 25 employees or more, were held between October 2010, when the agency held an $823,000 employee conference in Las Vegas, and April 2012, when that conference became public.

The conferences were the focus of a hearing before the House Transportation and Infrastructure Committee. GSA acts as the realtor and purchasing officer of the federal government.

The conferences ranged from a a five-day regional marketing managers meeting that cost $10,920, to the 2011 GSA Training Conference and Expo that cost $1.2 million.

According to GSA preliminary findings obtained by The Washington Post, the Federal Acquisition Service held 30 conferences costing more than $3.5 million, the Public Buildings Service held 38 conferences costing more than $2.5 million, the Office of Governmentwide Policy held one conference costing $136,495, the Office of the Chief Information held two conferences costing $177,960, the PBS and FAS held a single joint conference costing $112,131, the Chief People Officer held three conferences costing $60,588; and one for Intergovernmental Relations, costing $15,922.

While the list gave numbers of people who attended, it did not break down the number of employees.

Since the 77 conferences are currently under investigation, the agency’s inspector general could not give examples of which conferences had problems or red flags.

The committee also reviewed a one-day $270,000 awards ceremony in Arlington County for employees of the Federal Acquisition Service.

The one-day conference was held four weeks after the Las Vegas event with a more than $140,000 tab for coordination and logistical costs, $34,000 for the venue, $28,000 on picture frames and $20,579 for drum sticks, Brian Miller, GSA’s inspector general, testified.
So, yeah, Government spending my neighbor's money on me isn't very efficient. 
But I bet spending my neighbor's money on $20,579.00 worth of drumsticks is a lot more fun! 

If you've ever wondered how the Federal Poverty programs can spend over $61,000.00 per family in poverty and still have families in poverty?  Look no further.  Milton Friedman's category #3

3. Then, I can spend somebody else's money on myself. And if I spend somebody else's money on myself, then I'm going to have a good lunch!

1 comment:

MingoV said...

Milton Friedman got it right. The examples you cited were government employees attending (unneeded and wasteful) government-related functions. The spending at those functions fits into category 4 because the government is spending other people's (taxpayers) money on someone else (government employees). This isn't category 3, because the employees are part of the government, and their spending is government-approved and government-budgeted.