Tuesday, January 18, 2005

Four Ways To Spend Money - Milton Friedman Misses the Boat

Via JurisPundit on Behavioral Economics

we are taken to

Cafe Hayek

on the Distorted Case for [Government] Intervention

quoting Milton Friedman

as interviewed by David Asman of FoxNews at QandO:

"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 is a great guy and we love some of his economics, which are quite practical, if often too simplistic, but Miltie sometimes misses the boat on the fact that "spending" money also has something to with "earning" money as opposed to "having" or "inheriting" non-earned money.

Although all the world struggles to earn a living, most of the world's wealth is passed by inheritance each generation in amounts that most people could never earn in a lifetime. Is that inherited money really "their" money? Yes, by law it is, but only because "the government" says so. We could or could not allow inheritance by law. Why should we? Why not make everyone earn their way? Why not abandon taxes on "earned" money and increase taxes to 100% on "not-earned" money. Then you would have a fair system for all and the world would look much different than it does today.

We have plenty of examples of inherited money being burned away by the inheritors, because even if it is "their" money, they never earned it. The daughter of Onassis reportedly spent millions per day, yet the revenue on her inherited wealth increased more per day than she could spend. Her money? Naw. It was the money others were earning for her by the sweats of their brow, not hers.

Miltie, you missed the boat and really do not have a good idea of where the money is. If you have to earn money, you are basically poor. If you have money earning for you - which only can happen if "others" are working to earn it - then you have a luxury ride. That's the way a good share of our economy works and why over 90% of America's wealth is in the hands of 1% of the population.

The problem is not so much government. The problem is in fact false distribution - and that distribution exists because of inheritance and not because of Uncle Sam. Frankly, Uncle Sam does not do enough to distribute America's wealth fairly, and that is why there is so much criminality and social unrest. On this score, Europe thus far has done a much better job, but we now have so many idiots here in government as well, chief of whom are the Schroeder administration in Germany, so things do not look good for the future. Some are getting richer and richer and more and more are getting poorer and poorer. Miltie, your economics will not help them.

Down the road, there will be war and revolution. That is the price for false economics and inequitable distributions of wealth.

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