Other People’s Money

by Don Boudreaux on April 24, 2011

in Other People's Money, Subsidies, Video

Here’s a letter to the New York Times:

Wisely warning against the folly of government-subsidized high-speed rail, Stanford University historian Richard White notes that “Without bond guarantees, private investors, which so far seem more prone to due diligence than the California High-Speed Rail Authority, have yet to put up money” (“Fast Train to Nowhere,” April 24).

Yep; people spend their own money more prudently and astutely than they spend other people’s money – a fact that Mr. White usefully documents for both 19th- and 21st-century rail subsidies.  Which raises the question: why does Mr. White open his op-ed by complaining that “It is hard for liberals like me to find good news in the latest agreement to cut the federal budget”?

Because Mr. White is correct that irresponsibility and cronyism are unleashed by giving politicians power to spend other-people’s money on glitzy choo-choos, we have no reason to believe that irresponsibility and cronyism aren’t unleashed by giving politicians power to spend other-people’s money on ventures such as education, health-care, social ‘safety nets,’ or the heaps of other programs and projects that politicians today undertake.

Donald J. Boudreaux

Speaking of spending other-people’s money, Charlie Frey reminds me of this video of Milton Friedman.

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Gil April 24, 2011 at 12:59 pm

Or should that read “you spend other peoples’ money foolishly when you can’t be held accountable for the losses”? If you were an investment banker for the Mafia and told that if you get foolish and lose their money then you’ll a horrible death then chances you’d be very careful on how the money is invested.

Ken April 24, 2011 at 1:15 pm


Politicians exempt themselves regularly from accountability making it impossible to personally hold these clowns to any form of irresponsibility. The best that can be hoped for is to vote them out of office, but we all know what happened with the seriously corrupt politicians Robert Byrd, Charlie Rangel, John Murtha, Ted Kennedy, Chris Dodd, and Barney Frank. These corrupt and nasty people keep getting reelected. These people only leave office when they die.

No law suits can be brought against them personally. They will never do a day in jail no matter how badly they rape the country, and as in Kennedy’s cases actually get away with murder.


Jonathan M. F. Catalán April 24, 2011 at 1:34 pm

It’s not just about cronyism. Those who’ve gained wealth through the market have done so by being good entrepreneurs. Those that receive their wealth through wealth redistribution have a high probability of being poorer entrepreneurs than the original owners of the money. The result is that resources are not coordinated as efficiently as they would have otherwise been, which amounts to a net loss manifested as opportunity cost.

Richard Stands April 24, 2011 at 2:30 pm

A perfect opportunity to link back to Professor Boudreaux’s nod to Uncle Milty.

Richard Stands April 24, 2011 at 2:33 pm

Drat. I should have noticed that final link in the original post.

(I’m starting to say “Wordpress” the same way Jerry Seinfeld said, “Newman”.)

vidyohs April 24, 2011 at 3:08 pm

As long as someone among us in America has money, all of in America have money. What’s the problem?

vidyohs April 24, 2011 at 3:09 pm

Edit – all of us in America

optimus primed April 24, 2011 at 4:23 pm

High Speed Rail ROIC check list:

1. Cost “overruns” will exceed 2x original estimates.
2. Union only contracts will artificially inflate expense estimates (see 1) and all HSR projects will originate only in liberal strongholds where the local liberal political cartel can maintain and manage the graft.
3. Revenue will not exceed 1/3rd of original estimates.
4. Value proposition will be defined as twice the time and cost of existing air infrastructure for same route.

From a strict capital finance budgeting basis (based on the actual need to identify an IRR) this is obviously a complete no-brainer to get started. Why are those fascist, racist, heartless, greedy, corporatist, right wing nuts so against this?

I wish I could think like a liberal. Life would be so much easier without having to contemplate reality and waste.

JohnK April 24, 2011 at 5:03 pm

Monorail! Monorail! Monorail!

Gil April 25, 2011 at 1:21 am

“But main street still all cracked and broken.”

“Sorry mom the mob has spoken.”

Tarun April 25, 2011 at 6:22 am

It is not the politicians alone who make the financial management decissions, there are also the civil servants who help them decide. The problem arises when the the politician tries to do things just for his constituency or for his own name without considering the overall merit of the project and without getting due deligence done.

kplus April 25, 2011 at 9:10 am


Here is a link to a higher res version of Friedman on Other People’s Money

whotrustedus April 25, 2011 at 2:28 pm


Shaker Srinivasan April 25, 2011 at 6:07 pm

Let’s not forget that the most glaring example of [ab]using other people’s money is government subsidized highway transportation, via the Federal-Aid Highway Act of 1956 – “popularly known as the National Interstate and Defense Highways Act (Public Law 84-627), was enacted on June 29, 1956, when Dwight D. Eisenhower signed the bill into law. With an original authorization of 25 billion dollars for the construction of 41,000 miles (66,000 km) of the Interstate Highway System supposedly over a 20-year period, it was the largest public works project in American history through that time.” [Wikipedia]

Martin Brock April 25, 2011 at 6:35 pm

The Korean War cost $67 billion in 1953 dollars, so I have a hard time reckoning that the interstate highway system is the most glaring example.

Terc April 25, 2011 at 7:26 pm

Most federal highway funds come from gas taxes. User fees, in other words.

Shaker Srinivasan April 25, 2011 at 8:20 pm

According to the National Surface Transportation Policy and Revenue Study Commission [http://mtcfilehost.net/transportationfortomorrow/global/did_you_know.htm]

“In 2004, $145.3 billion was generated for all Federal, State, and local government spending on highways and bridges. Approximately $83 billion (57.1 percent) was attributable to highway-user charges, such as motor-fuel taxes, motor-vehicle taxes and fees, and tolls. The remaining $62.3 billion (42.9 percent) came from a number of sources, including property taxes and assessments, other dedicated taxes, general funds, bond issues, investment income, and other miscellaneous sources.”

Not quite “user fees”. It is not clear what the counter-factual might have been, had it not been for government intervention in the transportation business.

vikingvista April 26, 2011 at 2:36 am

Something tells me that if government were not around, people would still be interested in quickly getting from here to there.

Shaker Srinivasan April 26, 2011 at 12:07 pm

You have completely missed the point. Think again.

Nacho Mesquita May 2, 2011 at 2:33 pm

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Earl Fuster May 2, 2011 at 2:38 pm

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