Wednesday, 20 June 2007

Quotes to be reminded of: Milton Friedman pt.1

Long overdue. The following quotation is key to understanding where I am coming from. Before you can argue about why I think the way I do, first get your head around this:

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. And that's close to 40% of our national income. - Milton Friedman


Once you have understood the above, which is undeniably true, you might want to re-visit how you think money should be spent.

Sometimes collecting and spending tax revenue, or, more accurately, Other Peoples' Money (OPM) is the least-worst option, but in the UK it is currently 43% 45% of GDP AND RISING and there is NO WAY that even a sizeable minority of the cash is spent in the least-worst way.

Update: Mark in the comments mentions that the government currently borrows another 3%, there are liabilities of 5% in pensions and PFI of (only?) 1%.

"Many a trough betwixt cup and lip" as it were.

6 comments:

Mark Wadsworth said...

I think taxes collected are about 45% of GDP but actual spending is about 9% higher than that - i.e. considerably more than 50% of GDP;

On top of 45% tax collected, there is govt. borrowing of 3% of GDP, plus unfunded public sector pension liabilities being clocked up at about 5% of GDP and another 1% or so for liabilities hidden under PFI.

Oh boy, are in for some tough times!

Roger Thornhill said...

Thanks for the update, Mark, I will reflect above.

Mark Wadsworth said...

Having thought about it, I think that it's the vast amount spent in the third category that's the real problem

"I can spend somebody else's money on myself [and my chums]. And if I spend somebody else's money on myself, then I'm sure going to have a good lunch!"

Roger Thornhill said...

Maybe it is a fifth option:


"I can be in charge of spending somebody else's money on somebody else, but in the process I can spend some of that money on myself"

Phil A said...

... or at least make sure I travel in style and eat very well whilst I do.

Mark Wadsworth said...

It's "Friedman" actually, only just noticed.