Tuesday, October 27, 2009

Spending Someone Else's Money

You are the executor of the late, lamented Ernest R. Megabucks, millionaire philanthropist and adventurer. His well left you in charge of caretaking his vast fortune, now liquidated, by doling out monies as needed for the care of his many children, siblings and other dear friends, all of whom, in the words of Ernest, "should be taken care of for life". Essentially, you have to sign checks.

In the beginning, this is all new to you. You meticulously weigh each request. Does the eldest son really need a car? Is the sister's request for a little spending cash for her vacation warranted? In the end, you okay these things because, well, you are supposed to be taking care of them. Besides, Ernest was a millionare. Fifty thousand here and two thousand there is nothing.

As the years go by, it's just easier to sign the checks rather than fight. You stop checking the account balance every other day; there's plenty of money to go around, and besides, it's not like it's your money being spent.

Eventually, the requests are for larger amounts and even more frivolous things. It's not for a doctor visit; it's for a nose job. It's not for a replacement car; it's for a third one. Still, the money isn't yours. It's theirs. The various heirs have become accustomed to having their every wish granted, their every request fulfilled. Eventually the money runs low. You can't give what isn't there. You try to figure out where the money went, but record keeping was never your strong suit. You know basically where it went; it went to Ernest's heirs. But you don't have any idea how much went to whom or what it was spent on.

Now read this article and see if you can understand why, while the author pushes this stance...

"The bad news is that an estimated $700 billion is wasted annually. That's one-third of the nation's health care bill," Kelley said in a statement.

"The good news is that by attacking waste we can reduce health care costs without adversely affecting the quality of care or access to care."

...I take the opposite: billions of dollars of waste is endemic to a government-run operation because they aren't using their own money.

Private corporations have plenty of problems. Not knowing where the money went is not one of them: they'd be out of business [*]. Private businesses have to obsess over where the money goes. It's how they control costs, grow the business, and create return on investment for the shareholders.

When you're spending someone else's money it's way too easy to sign the check and worry about the accounting later.

[*] Unless someone steps in and bails them out, of course. With someone else's money.

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