Here’s an interview with the late economist Milton Friedman where he talks about the 4 ways to spend money.
The core of his view rests on this chart:
The idea being that when You spend Your money on Yourself, you’re going to get the best quality for the least cost. But when you spend Someone Else’s money on somebody else (public education, healthcare, etc..) you get the worst quality with the highest cost.
The interview focuses on education spending, but the same is true for health care, or any public sector spending – and the results bear his view out!
The great thing about Friedman is his use of simple examples to get his point across, and this interview is no different. His example of the business lunch to illustrate spending Someone Else’s money on Yourself is instantly appreciable to most people.
Here’s the interview:
Special thanks to Todd for sharing this video with me!
Here’s a story that’s near and dear to my heart. It comes from the Wall Street Journal by way of Yahoo! finance: Millionaires Go Missing
No, it’s not near and dear to me because I’m a millionaire (I wish!). It’s because my home state of New York is considering doing just what Maryland did, and just like the middle class in Maryland, people like me will likely take the hit.
“Here’s a two-minute drill in soak-the-rich economics:
Maryland couldn’t balance its budget last year, so the state tried to close the shortfall by fleecing the wealthy. “
The problem, of course, is that the wealthy decided to leave Maryland. This only exacerbates the initial deficit, and leaves the middle class (who are less likely to be able to pick up and move) to pick up the tab.
“One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller’s office concedes is a “substantial decline.” On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year — even at higher rates.“
I’m sure the “tax the rich” mantra played well politically in Maryland when the tax hike was passed, but at the end of the day they’re left with the reality that penalizing the wealthy doesn’t address the underlying cause of the deficit – namely, over spending on the part of the government.
This is the same sort of thinking being espoused in Washington, but it would have the same effect on a national level if the federal government pursues such policies. Sure it will be more difficult for the wealthy to leave the country than it is to leave a state, but those who don’t flee will likely not work as hard or produce as much, since they will have to forfeit more to a government that can’t manage its money.
You may wonder why we should care about the rich, or what they produce since they aren’t in the trenches like the “working class”. The short answer is jobs. And any hope of a real economic recovery and a decrease in unemployment is on hold until the wealthy entrepreneurs of this country start producing jobs. For that to happen, they need incentive to do so, not a penalty.
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