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Other People's Money

Posted By Russ Roberts On November 28, 2005 @ 3:31 pm In Politics | Comments Disabled

As Milton Friedman has pointed out [1], here is the declining order of care that people take in spending money:

1.  Spending your own money on yourself
2.  Spending your own money on other people
3.  Spending other people’s money on yourself
4.  Spending other people’s money on other people

There is also a special category of spending money intended for other people on yourself.  Not sure where that fits in.  But whenever people spend other people’s money on other people, there’s always a temptation to divert a little bit (or a lot) your own way.  Today’s Washington Post reports [2] (rr) on a job training program for DC residents:

Archie Prioleau’s finances were in shambles when District
officials entrusted him with $1.7 million in grants in 1998. His
mission was to outfit a state-of-the-art computer center in Southwest
Washington to train needy city residents, then place them in jobs.

Prioleau, a charming, politically connected businessman who was emerging from bankruptcy, first helped himself.

The story of Archie Prioleau and his dealings with the
District is one of broader failings — the propensity across city
agencies to violate their policies as they dispense public funds with
little attention to how the money is spent.

In their
dealings with Prioleau, District leaders ignored signs of his financial
troubles, handpicked him for a major project without requiring him to
compete and broke contracting rules when they paid him. They
rubber-stamped his bills and only intermittently held him accountable.
Officials did not know the extent of his spending problems until The
Washington Post investigated. But the evidence was often sitting in
their files.

And what did Prioleau accomplish?

What Prioleau accomplished remains a mystery. He told the
city’s housing agency that his training center served about 6,800
people from 1998 through 2002.

Victor Selman, chief
operating officer for the housing agency, said he believes the District
got its "money’s worth" but said there is no way to verify Prioleau’s
figures.

Now there’s a COO who you can trust.  He has invented a new model of oversight: "trust, but don’t verify."  He may be a little too trusting:

The Department of Employment Services, which paid Prioleau
$3.1 million to train disadvantaged youths, said his nonprofit
organization found entry-level jobs and other placements for 136 youths
between 2000 and 2004.

After visiting the Southwest
center in 2002, a city official wrote that "only 4 participants were
engaged in activities." In March 2004, a city monitor visiting the
Adams Morgan location reported that he found three people in class.
Two, he noted, left after a break.

Robert Sweeney,
whom Prioleau hired in 2002 to teach high school equivalency classes,
said he did not think DC Link and Learn was prepared for the task. In
hindsight, Sweeney said, "No one when I was there, including myself,
really knew what we were doing."

File this story under reason number 17 for why government-funded training programs have poor results.

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[1] has pointed out: http://en.wikiquote.org/wiki/Milton_Friedman

[2] reports: http://www.washingtonpost.com/wp-dyn/content/article/2005/11/27/AR2005112701055.html

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