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Repairs to 18 St. Paul schools will cost 61% more than projected. But hey, it’s only (your) money

You get up, go to work, put in a day’s labor, and you get paid. The government, local, state, and federal, take some of the money from you in taxation. Considering how hard you worked to get it in the first place, you can, at the very least, hope that they will spend it carefully.

But, recently, taxpaying Minnesotans have seen it was reported that “Two state agencies made repeated failures that resulted in Minnesota’s broken $100 million drivers’ license and registration system”. They have heard that fraud in the state’s Child Care Assistance Program could amount to as much as an further $100 million. They have found out that authorities in the Twin Cities “paid more than $3.7 million over the past three years to workers on leave during investigations”. All that money you worked so hard for might as well have been loaded on a barge and sunk.

A further example came this week when the Pioneer Press reported that projects to repair eighteen aging buildings throughout the St. Paul school district will cost around $471 million, according to recent estimates — $179 million more than expected two years earlier. Nan Martin, a former administrative services manager within the facilities department handling the projects, explained that “Every contractor wants to come work for St. Paul Public Schools because it’s frickin’ open checkbook”.

Why is government a “frickin’ open checkbook”?

The economist Milton Friedman explained back in 1980, in his classic book Free to Choose.

When you spend, you may spend your own money or someone else’s; and you may spend for the benefit of yourself or someone else. Combining these two pairs of alternatives gives four possibilities summarized in the following simple table:

Category I in the table refers to your spending your own money on yourself. You shop in a supermarket, for example. You clearly have a strong incentive both to economize and to get as much value as you can for each dollar you do spend.

Category II refers to your spending your own money on someone else. You shop for Christmas or birthday presents. You have the same incentive to economize as in Category I but not the same incentive to get full value for your money, at least as judged by the tastes of the recipient. You will, of course, want to get something the recipient will like—provided that it also makes the right impression and does not take too much time and effort. (If, indeed, your main objective were to enable the recipient to get as much value as possible per dollar, you would give him cash, converting your Category II spending to Category I spending by him.)

Category III refers to your spending someone else’s money on yourself—lunching on an expense account, for instance. You have no strong incentive to keep down the cost of the lunch, but you do have a strong incentive to get your money’s worth.

Category IV refers to your spending someone else’s money on still another person. You are paying for someone else’s lunch out of an expense account. You have little incentive either to economize or to try to get your guest the lunch that he will value most highly. However, if you are having lunch with him, so that the lunch is a mixture of Category III and Category IV, you do have a strong incentive to satisfy your own tastes at the sacrifice of his, if necessary.

Legislators vote to spend someone else’s money. The voters who elect the legislators are in one sense voting to spend their own money on themselves, but not in the direct sense of Category I spending. The connection between the taxes any individual pays and the spending he votes for is exceedingly loose. In practice, voters, like legislators, are inclined to regard someone else as paying for the programs the legislator votes for directly and the voter votes for indirectly. Bureaucrats who administer the programs are also spending someone else’s money. Little wonder that the amount spent explodes.

The bureaucrats spend someone else’s money on someone else. Only human kindness, not the much stronger and more dependable spur of self-interest, assures that they will spend the money in the way most beneficial to the recipients. Hence the wastefulness and ineffectiveness of the spending.

But that is not all. The lure of getting someone else’s money is strong. Many, including the bureaucrats administering the programs, will try to get it for themselves rather than have it go to someone else. The temptation to engage in corruption, to cheat, is strong and will not always be resisted or frustrated.

Its a little less colorful than Nan Martin, but the point is the same.

If you were being conned out of your own money, you’d put a stop to it. But government employees are conned out of other people’s money. Their incentive to put a stop to such fraud is, thus, much less. Friedman once said that “Nobody spends somebody else’s money as wisely as he spends his own”. That is one reason why it best to let people spend as much of their own money as possible.

John Phelan is an economist at the Center of the American Experiment. 

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