Individual vs. Bureaucratic Spending
Channel: misesmedia
Date: 2024-03-27

San Francisco officials decided in 2022 that the city needed more trash cans. While they could have simply purchased simple, ready-made bins, they decided instead to commission a local firm to create fifteen custom designs, costing between eleven and twenty-one thousand dollars each. They then placed QR codes on reach respectable so residents could vote for their favorite model, despite having no knowledge of the price. 

One member of the city’s Board of Supervisors, Democrat Matt Haney, criticized the plan, despite voting to approve it. “I think most people would say just replace the cans with cans that we know work in other cities,” he said. “A trash can is one of the most basic functions of city governance, and if the city can’t do something as simple as this, how can they solve the bigger issues?”

Haney’s criticism raises important questions about why bureaucrats make different decisions on how to spend money than private individuals. Consider how you make spending decisions for your household. Most likely, you try to maximize quality while minimizing cost. But how would your priorities shift if you were purchasing something for a stranger? You would likely prioritize price well above quality.  

Now imagine that you’re spending somebody else’s money. If you are purchasing items for yourself, you will probably prioritize quality over price. But if you were spending somebody else’s money for the benefit of strangers, you would likely pay far less attention to both price and quality than you would when spending your own money on yourself and your family. This is how bureaucrats make decisions about how to spend the money you pay in taxes.

Think about how much money your household pays in taxes each year. Let’s assume a family of four earning $70,000 a year, which is the national medium household income. Most obvious are the taxes withheld from your paychecks, which include income and payroll taxes. Depending on the state you live in, you will have your salary reduced by roughly $21,000 each year.

But this is only the tip of the taxation iceberg. When accounting for property taxes, sales and excise taxes, and embedded taxes—which refers to the higher price of goods we pay due to things like business taxes and tariffs—the total tax burden for a family earning $70,000 will be around $30,000 each year. And even this doesn’t include inflation, or the many fines and fees levied by government agencies. 

But it is enough to ask one simple question: how would an additional $30,000 per year change your family’s life? Would you voluntarily spend it on things like custom-made trash bins? Or would you make better spending decisions than bureaucrats who have little regard for price and quality when spending the money taken out of your hard-earned paycheck?

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For more animated content, check out Economics for Beginners at https://BeginEconomics.org.