Freedom's Fidelity

Monday, May 24, 2004

Milton Friedman - Four Transaction Situations

I got this email from a former professor of mine who attended Freedom Fest in Vegas - short, simple, and powerful, all good characteristics for a blog post:

"DJ and I went to the FreedomFest in Las Vegas. Dinesh D'Souza, Charles Murray, John Stossel, Harry Brown, Nathanial Brandon, Steven Moore (Club for Growth), Libertarian Congressman Ron Paul, bunch of CATO guys and American Enterprise Institute fellows, Arthur Laffer was a no-show. Interesting time.

Couple of quick items from conference: There is now a 99% re-election rate in Congress. "It used to be that voters selected a politician to represent them. Today Congressmen pick a group of voters that they will represent." (gerrymandering).

(Milton Friedman simple but powerful analysis) There are four types of purchasing sitations:

1. Individual spends his own money to buy something for himself. Right item is bought and right price is paid. Right thing; right price.

2. Individual spends his own money to buy something for someone else. Wrong item is frequently bought but buyer tries not to overpay (wedding gift). Wrong thing; right price.

3. Individual spends someone else's money to buy something for himself. Right item is bought and price paid is often to high -- you spend employer's money to buy you lunch. Right thing; wrong price.

4. Individual spends someone else's money to buy something for a third party. Wrong item is frequently bought and price paid is often too high -- Congress. Wrong thing; wrong price."

When taxes are cut our economy experiences increasing instances of situation 1 and less of situation 4. Resources are allocated to a higher valued use, money is spent more efficiently and more wealth is created. Tax cuts work.

posted by Paul  permalink | |