The Four Different Ways To Spend Money By Milton Friedman
The reason why Warren Buffet is so great is because he’s able to distill the most complicated financial topics into very simple terms. Lucky for us, there is someone like Warren in the economics world. Regular reader, Investor Junkie who disagrees with the government’s unemployment insurance extension, but agrees with the cessation of rising taxes, highlights a fantastic video by the great economist Milton Friedman about four different ways of spending money.
Professor Friedman’s examples are simple and perfectly to the point. In an environment where we are spending other people’s money on someone else (deciding how other people’s tax dollars are spent), we don’t maximize the value of the dollar because we simply don’t have much at stake.
Professor Friedman highlights that people spending someone else’s money on others is a “distributor of welfare funds.” Strong words with a certain amount of truth wouldn’t you agree? In “The Ultimate Solution To A Fair Tax Policy In America”, I discuss the concept of limiting the voting ability of the 47% of non tax paying Americans on raising taxes for the other 53%. Don’t worry, voting rights for everything else is status quo. The reason why I suggest this rational solution is because it makes sure the country isn’t overrun by those who have their cake (don’t pay taxes) and get to eat it too (enjoy the benefits).
One can easily see an America where 90%+ of citizens don’t pay taxes and stick it to the 10% rich because it’s rational to look out for your own interests. It’s up to balanced people who believe in equity to continue fighting for those who perpetually get unfairly blamed for our economy’s problems. It really is ironic, because if everybody studied hard in school, volunteered their time to help others, and were self-sufficient (doesn’t have to be wealthy), America wouldn’t have nearly the amount of problems we have now!
The 4 Ways Of Spending
1) Spend your own money on yourself.
2) Spend your own money on somebody else.
3) Spend somebody else’s money on yourself.
4) Spend somebody else’s money on somebody else.
Readers, do you agree or disagree with Professor Friedman’s thesis that the 4th way of spending is the worst way of spending? If you do agree, why do you think people feel it’s OK to spend other people’s money as they wish?
Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”
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