Other People's Money

The golden rule states that people should treat others the same way they expect to be treated. This should include how local, state, and the federal government spend taxpayer money. It also should include how corporations spend the money invested by stock owners or how unions spend member dues. Most people want to be treated with respect and that includes how others spend their hard earned dollars. Investors and taxpayers expect corporations and the government to be responsible and trustworthy with their money. After all, it is always easier to spend someone else’s money.

In the corporate world there is plenty of fiscal irresponsibility going on. However, for the most part, this fiscal irresponsibility happens at high levels within the company. Most low level managers are “penny pinchers” because they are responsible for posting a profit. Penny pinching can also be bad, but it is certainly better than extravagant wasteful spending. In many cases, managers need to spend money to make money and penny pinching can prevent an organization from expanding and growing to maximize profits. Thus, to some degree, spending and risk taking is needed to be successful. On the other hand, most of the big money decisions within a corporation are left to a few high ranking officers. For this reason, they are often rewarded with outrageous salaries and benefits – even if they have been making bad decisions. My experience in the corporate world has shown that low level managers are forced to implement cost cutting measures to compensate for high level managers mistakes in spending. This business practice is disastrous because it prevents companies from expanding and growing their core business units and therefore, making it more difficult for the corporation to compete. But for some reason big corporations can be very resourceful, case in point my former employer was profitable despite its inept high level leadership.

Federal government spending is handled much differently than in the corporate world. The main and most glaring difference is that governments are free to deficit spend. Too much debt and deficit spending in the corporate world will lead directly to bankruptcy. Government’s can also go bankrupt when they are unable to pay off their debt, but this does not stop government officials from spending taxpayer money in an irresponsible manner.

The federal government’s annual budget is about 2.5 trillion dollars. The government overspends its budget by an average of 200 billion dollars annually. Think about it; 200 billion dollars is bigger than all but a handful of corporations. Some of the biggest companies, such as Wal-Mart, claim to waste about 4 - 6% annually in lost inventory and other poor management practices. This, by most accounts, is a very conservative estimate. On the other hand, small companies cannot afford to have that much waste. Small business waste is estimated to be around about 1 – 3%. Thus, it begs to reason - the larger the corporation, the larger the bureaucracy and potential waste and inefficiency. Thus, it is no surprise that the waste in the federal government is conservatively estimated to be around 15 – 20%. Local and state government waste is conservatively estimated at 10%. This is not hard to believe since government entities have no oversight, budgets are not strictly enforced, and business is conducted in a quid pro quo fashion. Thus, government agencies are free to mismanage their organizations and fraud and corruption goes undetected. What’s worse is that many think these waste estimates are too low because government workers make on average 20% higher salaries than their private sector counterparts, and this is not considered wasteful spending.

The bottom line, it is always easier to spend other people’s money. What’s worse, it is also easier to spend the money in an inefficient and wasteful manner when it is someone else’s money.