- 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.
- 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!
- 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.
Via Joshua Kaufman.
Mr.Smarton 03 Mar 10
Can`t wait till the next episode, where you tell us all where is the best place to look for somebodies else money :)
Jeff Mackeyon 03 Mar 10
Greg Mintonon 03 Mar 10
So does VC funding fall under #3 or #4? I can see an argument for either side.
Jeroenon 03 Mar 10
I actually disagree with some of this. Because many people are very aware of the fact, probably varies, that spending money on someone else is so rewarding that it is easier to give more to other than to myself.
Giving is better than receiving. Simple. Giving feels better than receiving. Simple.
But then again this probably varies from person to person.
Jason Tuttleon 03 Mar 10
Number 4 describes the spending habits of socialist states and is one of the primary reasons why socialism/communism is a bad idea. This also explains why the United States should NOT be instituting socialist policies right now. —Hello… Mr. Obama, are you listening?
Patrickon 03 Mar 10
Going from 1 to 4 leads to progressively less effective returns. Governments and Non-Profit Organisation (by nature) are in point four. But so are many For-Profit Organisations. Therefor, watch out!
Erikon 03 Mar 10
And so I am reminded that a federal budget is EXACTLY like my household budget. Thanks, Uncle Milt!
Senor Marquezon 03 Mar 10
People do not function as utilitarian automatons like these rules imply.
Adam Nearyon 03 Mar 10
I am with Patrick. 99% of global spend is cat 4 because governments and public companies alike fall into that category.
I don’t think the solution is to complain about socialism, particularly having seen public sector and private sector firms both handle their spending just as foolishly.
I think the solution is increased visibility, and cheers to Obama for at least starting the process with data.gov and recovery.gov. Plenty more to do, but since so much of “other people’s money” gets spent every day, we better be thinking about it in both realms.
Dave!on 03 Mar 10
Number 2 explains why birthdays at Uncle Milts always sucked.
Personally, when I care enough to buy a birthday present I put a lot of care and consideration into the content.
But that’s why economists are so often wrong: they make broad based assumptions about how people will behave based on the way they think people should behave.
Jeffrey Tangon 03 Mar 10
@Jeroen – I wonder, though, how much of “giving feels better than receiving” is due to intense social pressure telling us “this is how you’re supposed to feel about giving and receiving.”
Jason Zippereron 03 Mar 10
In short, all people’s default is to be selfish. It takes effort to be otherwise.
Berserkon 03 Mar 10
Friedman can never have spent much time downtown and watched all the crap that people buys for themselves.
This is one gigantic straw man.
Yes. (But see 1.)
If someone has given me money to give something to someone else I’m even more careful about what I give (and what it costs).
(Yes, I’m from (in the eyes of the US) socialist Sweden. And mostly happy about it.)
franciscoon 03 Mar 10
@MR SMART: i suggest wallstreet
thorstein veblen: “It is always sound business to take any obtainable net gain, at any cost and at any risk to the rest of the community”
Jorn Mineuron 03 Mar 10
1. I can spend money on myself. Then I don’t really watch out what I’m doing or what I get from my money, because I am only accountable to myself. 2. I can spend money on somebody else. Then I’m very careful about the content and cost of the present, because those tell that somebody what kind of person I am. 3. I can spend somebody else’s money on myself, but I don’t feel good about that, so I just return that money and spend my own money instead. 4. I can spend somebody else’s money on somebody else, but then there really is nothing at stake, so I don’t spend it and leave before I get bored.
Lukason 03 Mar 10
And this is the very definition of why economics should not be called a science. It’s so far removed from how humans actually work that the results have nothing in common with reality.
Anonymous Cowardon 03 Mar 10
@Jason Tuttle: Then you won’t mind if the socialized fire department doesn’t douse the flames of your burning house, or if the socialized police force doesn’t track down your loved one’s killer. And I’m sure you would never accept an unemployment check should you find yourself in that unhappy boat. Doofus.
royleron 03 Mar 10
1-4 is the foundation for what got us into our current economic situation. A set of values that idolizes money itself, which leads to exploitation.
Money is supposed to be a means to an end. But for money to have a reasonable worth to someone would require them to be an adult.
Anti-Over Simplifieron 03 Mar 10
Police, Fire and even to certain extent an unemployment check (as distinct from welfare) are specific tasks of extremely limited scope, with far fewer chances to screw things up than what @Jason is implying.
Would everyone please stop confusing very basic local services with complex national initiatives, however you feel about them? Please, I beg of you.
seth godinon 03 Mar 10
Boy, Milton really was a selfish jerk, wasn’t he?
Must have been fun to be his wife. Or kids. Or neighbors. Or school board.
Just Right Simplifieron 03 Mar 10
A-OS, You are wrong. AnonCow is right.
MLon 03 Mar 10
To everyone who says, “I’m not that way!”: I think he’s talking about the way people typically act. YOU may not act that way. But overall, what he’s saying is generally true.
Also, you may be lying about what you actually do. People do that. Kinda a lot.
Economists are not romantics or idealists. That’s what I like about them. Sentimental notions are nice but reality is a difficult obstacle to overcome – even when it’s out of sync with the way we want the world to be.
Jason Tuttleon 03 Mar 10
Socialism and communism sound great on paper, but the problem is that people don’t actually behave the way socialism and communism say they do. You make not like it, but what Milton Friedman is saying reflects the way most people behave most of the time. To structure a society based on principles that ignore basic human nature is a bad idea.
Socialism and communism ignore these basic truths. As a result, they inevitably fail to produce the results they predict. This is why socialist/communist economies fair so poorly time and time again. Capitalism reflects the realities of human nature and therefore produces excellent results time and time again. This is why I question the logic of pursuing the largely socialist agenda proposed by Mr. Obama.
David Andersenon 03 Mar 10
@Seth G -
I’m assuming that’s not really you because I can’t imagine you’d actually say something so ill-informed.
Jon Thoroddsenon 04 Mar 10
I think these MF asskissers should a) travel to Europe and see how people feel about their “socialized” societies as compared to the US b) specifically travel to Iceland, and see whether us Icelanders liked it better before or after stupid libertarians ruined our country with their childish ideas about “freedom”. Freedom of capital does not equal freedom of people.
Henrique Carvalho Alveson 04 Mar 10
I believe this post is more related to Mr. Jason’s views on startups and venture capital than it is about socialism and government.
David Andersenon 04 Mar 10
@ Jon T -
I don’t know anything about Iceland, but I’ll bet within 10 years several western European countries will be wishing they didn’t spend the last 60 years pushing their societies towards statist models of government. Greece is but the canary in the coal mine.
ben toton 04 Mar 10
oh great and learned one. thank you for parting your infinite wisdom on us dum dum people. your words have increased our little knowledge on useless and inane facts that your mind have thought of all day long.
i feel wiser for reading your useless posts. oh great one.
random swedeon 04 Mar 10
This is probably all time high the worst quote’s you’ve ever had on this blog.
They’re simple not true.
guismoon 04 Mar 10
“Economists are not romantics or idealists. That’s what I like about them. Sentimental notions are nice but reality is a difficult obstacle to overcome – even when it’s out of sync with the way we want the world to be.”
You’re so right.
He never had any problem meeting Augusto Pinochet (Chile’s well known dictator) and giving him economical advices without saying anything about human rights.
I guess that it was his own peculiar non romantic, non idealistic idea of freedom
Andrion 04 Mar 10
Yeah if you are a sociopathic robot some of these might be accurate.
Matt Hendersonon 04 Mar 10
@Jon T -
Wouldn’t you say that Iceland’s fall was more the result of financial irresponsibility and irrational exuberance than a failure of the principles of freedom?
Freedom isn’t a guarantee against failure; in fact, failure is an essential ingredient. That’s why many are against the US bank bailouts. In the words of Jim Rogers, “Capitalism without bankruptcy is like Christianity without Hell; it doesn’t work otherwise.”
I’d also recommend you study the case of Estonia under Mart Laar for a real-world example of the power of Milton Friedman’s ideas.
Kadiron 04 Mar 10
‘To everyone who says, “I’m not that way!”: I think he’s talking about the way people typically act. YOU may not act that way. But overall, what he’s saying is generally true.’
ML, how can you be so sure? Did you check his research? How big was his sample size? Did he take different cultures (european/asian/african) into consideration? Was his methodology correct?
Oh, he made all of this stuff up and spoke out of his arse and you didn’t check? But he is still Milton Friedman, right? Authority rules!
Warrenon 04 Mar 10
There’s some flaw in #4 – it’s far too simplistic. Governments, particularly in the US, spend so much money putting in systems to control the spending that they often outweigh the spending itself, and tie the hands of dedicated civil servants to make rational choices.
Uncle Milt and his followers are onto something, but they ignore the intentions of those charged with stewardship.
Paul Schreiberon 04 Mar 10
Number four is enterprise software. (Or: the customer is not the user.)
Anonymous Cowardon 04 Mar 10
If you haven’t already, read or watch “Free to Choose.” You’ll see that Milton Friedman by no means ignores (nor was unaware of) the intentions of those charged with stewardship. In fact, he often points to the irony that most inefficient, ineffective and wasteful government programs are rooted in the very best of intentions.
Senor Marqueson 04 Mar 10
I believe you’re projecting these rules, and that people do not generally act this way.
“To everyone who says, “I’m not that way!”: I think he’s talking about the way people typically act. YOU may not act that way. But overall, what he’s saying is generally true.”
Is an especially specious statement with no proof, a very sly way of getting around the problem by trying to make it not seem like about the people talking it, that one is above it.
David Andersenon 04 Mar 10
These statements are meant to generalize and illustrate major differences in incentives between the four cases. They apply generally. They aren’t presented as irrefutable laws of nature in all cases and at all times. As such, they go a long way towards explaining how people tend to behave, generally. Of course there are exceptions.
Lukason 06 Mar 10
I’m not just saying that I’m not that way. I’m saying pretty much nobody I know is that way. These ideas betray a severe misunderstanding of how humans and human societies actually work. I think Friedman should have consulted with a few psychologists and sociologists before committing to these ideas. And even if you believe that humans do nothing but react to incentives in a way that gives them the most profit: The incentives here are not as simplistic as some of you seem to believe.
Mr. Crazy Chimp [PSDChimp]on 07 Mar 10
I’m gonna add a new one.
Mr.Chimp) Spend money as if it where just that, money. It is just paper. We clean (excuse me) our “behinds” every day with it and the only difference between toilet paper and money is the value we, as society, give to it.
After all. It’s just paper. Spend money as if it where paper. You can’t end up poor if you think about money as it is: paper.
Me, as a chimp, got very confused first time I came out of the jungle. Everyone here uses paper as something called “currency”. Now I use it too, but I don’t give it the same value most of the people does.
It’s just paper.
I can say, I used almost $500 as toilet paper. I did. True story. Someone here can do that? I mean, a lot can say they can but, someone can really use $500 as toilet paper?
Wasn’t EXACTLY $500, more like 460 or something like that, but it is a true story. I had lots of cash and I actually went to a gas station to do my “business”. There wasn’t any toilet paper.
I had no tie to sacrifice. So I ended up using my cash.
That’s when I understood. It’s just paper.
Use it as you want. Spend it in yourself or in someone else. Stop discussing about socialism or capitalism.
It’s just damn paper.
The Crazy Chimp has Spoken.
Martialon 08 Mar 10
I’d call this quote “on the four ways a selfish person/organization can spend money.” That isn’t to say an organization that claims to be altruisitic actually is.
As someone who works in the NGO world (i.e. #4 with some #3 thrown in), I see some organizations that fall under MF’s dour perspective and some that don’t. The percentage of selfish to altruistic differs place to place and time to time. The same holds true for government programs. Some selfish, some altruistic. (No organization as large as a government is ever wholly one thing or another.) But I don’t think the rules are quite as useless as that implies.
The poster who said something about these being “general” rules doesn’t quite have it. They aren’t general rules. They are possible rules. When you observe them happening, they tell you something about the organization: how it will react under certain circumstances and pressures. Also, knowing that an organization is selfish, you can design a better monitoring system for them.
When I read Friedman, I read him in order to think better about dealing with selfish organizations and to watchdog my own. I don’t confuse myself thinking that his models are descriptive of all of reality.
Anonymous Cowardon 08 Mar 10
@Lukas – I’d say you aren’t paying attention to anyone outside your circle of friends.
David Andersenon 09 Mar 10
I don’t think the distinction is between selfish or altruistic behavior at all. What’s altruistic about spending someone else’s money well? That’s not altruism, that’s good stewardship.
Friedman wasn’t necessarily trying to describe all human behavior here – it’s an analogy to explain the incentives present in government (I should have been much clearer in my last comment), not in personal relationships. And I doubt he’d claim that everyone in every government fits this mold either. That’s not the point. The point is: what sort of incentives are present? I can’t imagine anyone who has actually paid attention would claim the US Congress does not generally behave like #4 most of the time.
This discussion is closed.