Other people’s money

There is a malady infesting our society that is every bit as destructive as addiction to the drug ice. I am referring to the addiction to OPM, or Other People’s Money. In parliament house I am surrounded by addicts.

The great economist Milton Friedman taught us that there are four ways to spend money: spending your own money on yourself; spending your own money on someone else; spending other people’s money on yourself; and spending other people’s money on somebody else.

When you spend your own money on yourself there is a strong incentive to spend wisely. Nobody spends money more carefully than its owner. This is why it is more efficient, as well as right, for people to be allowed to keep their own money.

When you spend your own money on someone else, you will still be motivated to economise, but somewhat less likely to satisfy the needs of the other person. Anyone who has given or received an unwanted gift will understand this concept. Even with the best of intentions, spending your money on someone else doesn’t always work out for the best.

When you spend other people’s money on yourself, you have no strong incentive to keep down the cost, but at least you have a strong desire to fulfil your own needs. Think Kathy Jackson and Sussan Ley.

But the most wasteful type of spending is to spend other people’s money on other people. In this scenario, you care little about either value for money or meeting the needs of the people on whom you spend the money.

Spending other people’s money on other people is the worst kind of expenditure, and explains why so much public money is wasted. It is an inevitable characteristic of OPM that so many grand government plans are destined for failure.

Many government programs are not created because people demand them or because the market was unable to provide the services, but because politicians can buy favour with OPM. Politicians are addicted to OPM because they use it to get on the nightly news, expand their influence, reward political cronies, and keep their constituencies dependent on them.

As a Senator I have many new friends and my calendar is full of appointments with people who want to meet me. I have a strong suspicion at least some of these are less attracted by my fabulous looks and winning personality than by the decisions I influence about Other People’s Money.

Oscar Wilde once described a cynic as being someone who knows the cost of everything and the value of nothing. But there is a far more dangerous type of person in parliament, and that is the dreamer: someone who values everything but understands nothing about the cost. 

We’ve seen heart-felt and teary-eyed declarations for paid parental leave, services for veterans, childcare, a national disability scheme, school funding, higher education and medical research.  These all sound great in principle, but the reality of OPM is that money spent on these things is likely to be spent recklessly, in ways that people would not spend on themselves.

The legal language that we use in parliament tends to hide the cost of things. Perhaps it would focus our minds if we were obliged to give prominent mention to the cost per head in OPM of each piece of legislation as it comes before us, much like supermarkets and petrol stations are required to display the unit prices of their products before decisions about spending are made.

For example, middle class welfare in the form of the family tax benefit costs each Australian about $801, and childcare assistance $314 per person. In reality, both are largely funded by taxpaying Australians who don’t have children. 

Politicians pretending to be compassionate when all they are doing is handing out other people’s money are just thieves masquerading as angels.Far too much of our political debate is restricted to the question of how to spend OPM. Or if you like, who is the better dealer in OPM.

This is the wrong question because, as Milton Friedman taught us, it is the very nature of the spending that is the problem. A much better question to ask is this: why don’t we just let people keep and spend more of their own money?