Are you old enough to remember pagers, those little boxes people used to wear on their hips back in the ’80s that buzzed or beeped when someone wanted to contact them? Pagers were made obsolete by cell phones. The Texas Public Policy Foundation reports that the City of Austin spends over $88,000 per year on pagers, most of which are not used, some issued to former employees who no longer even work for the city. JOI does not intend to pick on Austin, which already suffers the misfortune of hosting both a state capital and a major university. Rather, this is an example of a universal phenomenon that Milton Friedman called “somebody else’s money”.
Friedman recognized that people respond to incentives. That seems obvious when put in these words, but most of us don’t spend much time considering the incentives that other people are responding to. We elect representatives who hire civil servants. Then we send them our money to spend, and that’s exactly what they do—spend our money. These civil servants are ordinary people, like us and our neighbors, responding to their incentives, but we do not provide them with adequate incentives to spend our money wisely. So they do their jobs. They get the money, but it isn’t their money and it costs them nothing to spend it. They purchase stuff with the money, but receive no benefit from the stuff they buy. Their incentive is to get the money spent so they can mark another task as complete and take a break, just as you or I would do in the circumstance. They have no incentive to care if the money is spent on something useful.
This is not just a problem with governments. Businesses fight this constantly. But a business that does not find a way to provide their employees with incentives to spend wisely will soon go out of business. Government agencies, on the other hand, do not face the discipline of a competitive market and can go on wasting resources for decades unnoticed. This is the main reason why unregulated private businesses tend to be so much more efficient than government owned or controlled businesses. It’s not that they have better people—it’s that they face competition for survival.