The Fourth Way of Spending Money

Milton Friedman famously claimed 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.
• 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.
• You can spend somebody else’s money on yourself. And if you do that you’re going to have a good lunch!
• You can spend somebody else’s money on somebody else. And if you spend somebody else’s money on somebody else, you’re not concerned about how much it is, and you’re not concerned about what you get. And that’s government. And that’s close to 40% of our national income.

That 4th option would account for the news that the public sector is being fleeced by contractors (a direct and honest reporting of the story obscured by the BBC as Watchdog exposes PFI charges gap).

The charge to Wirral Schools for installing an electrical socket was a staggering £302.30 – compared to the charge to Kirklees School of £30.81. That charge to Wirral Schools, incidentally, is three times the maximum amount recommended by the Royal Institute of Chartered Surveyors.

Here’s a juicy example from the report:

At one unnamed PFI building, the authority wanted to take down smoking shelters. The base cost for removing the shelters was £750 but the PFI contractors were paid an extra £2,600 a year “on the assumption that removing the shelters would result in a greater spread of cigarette butts around the site, adding to the cost of cleaning”

You can spend somebody else’s money on somebody else. And if you spend somebody else’s money on somebody else, you’re not concerned about how much it is, and you’re not concerned about what you get. And that’s government. And that’s close to 40% of our national income.