Long-term thinking about government spending requires more than good intentions. It requires understanding the incentives built into the system itself. One of the clearest ways to see those incentives comes from Milton Friedman, who described four basic ways money gets spent. The framework is simple, but it explains a great deal about why government spending so often grows beyond expectations. Friedman’s idea starts with two questions: whose money is being spent, and who receives the benefit. From that, he outlines four scenarios. This video explains each scenario, with commentary below.
When people spend their own money on themselves, they tend to be careful about both cost and quality. They want value because they bear the cost and enjoy the result. This is the most disciplined form of spending. Waste is naturally limited because the decision-maker feels both sides of the transaction.
When people spend their own money on someone else, they usually still care about cost, but they may be less precise about the outcome. A gift is a good example. You try to be thoughtful, but it is not quite the same as buying for yourself. The discipline is still there, but it is weaker.
When people spend someone else’s money on themselves, the dynamic flips. Now the focus shifts toward getting the best possible outcome, with less concern about cost. This is the classic expense account situation. Quality matters a great deal, but cost control is less important.
Finally, when people spend someone else’s money on someone else, the connection to both cost and outcome becomes weakest. The person making the decision is not bearing the cost, and they are not directly experiencing the result. This is the quadrant that most closely resembles a large share of government spending.
That structure helps explain why controlling spending is so difficult. In government, the people authorizing programs are not directly paying for them, and they are not the direct recipients of the benefits. The cost is spread across millions of taxpayers, and often pushed into the future through borrowing. The benefits, by contrast, are immediate and visible to specific groups. The normal feedback loop that enforces discipline in private spending is diluted.
This dynamic shows up clearly in deficits and debt. A legislator gains political benefit from supporting a program that claims to deliver benefits. The cost is broader, less visible, and often delayed. Borrowing makes the imbalance worse. It allows benefits to be delivered today while much of the cost is shifted to future taxpayers. Over time, this creates a steady bias toward more spending, because the system itself encourages spending. The result is gradual but persistent growth. Year after year, commitments expand faster than the willingness to pay for them.
If this is the system we operate in, the answer is not simply to call for better behavior. The structure itself needs reform. Spending that occurs in the weakest discipline quadrant requires stronger guardrails to compensate.
One reform is to reconnect spending decisions more directly to both cost and outcome. When individuals, families, states, or local communities have greater control over how funds are used, decision-makers are often more sensitive to value and performance. That does not eliminate the role of government support, but it can strengthen the feedback loop that large centralized systems often weaken. When results are easier to see and choices carry clearer consequences, waste and inefficiency become harder to ignore.
Another reform is to force real tradeoffs in the budget. Rules that require new spending to be paid for—rather than financed through borrowing—change behavior. When policymakers must choose between raising taxes, cutting other programs, or forgoing new initiatives, marginal spending becomes harder to justify. Borrowing, by contrast, weakens discipline because it separates benefits today from costs tomorrow.
Programs should also be required to stand on their own over time. Automatic expiration dates and periodic re-authorization force lawmakers to evaluate whether a program is still delivering value. Without that, inertia takes over and spending continues with little scrutiny simply because it already exists.
Transparency matters as well, but not just in how much is spent. What matters is what that spending produces. Clear reporting on outcomes—what improves and what does not—helps create accountability even in systems where normal market feedback is weak. Spending levels alone reveal very little without understanding results.
None of these reforms fully eliminate the incentive problem Friedman described. Government will never function exactly like individuals spending their own money on themselves. But reforms can narrow the gap. They can move parts of the system closer to situations where decision-makers feel more connected to both the cost and the consequences of their choices.
The deficit is certainly about how much we spend — but it is also about how the system is designed. If spending decisions remain separated from both cost and consequence, the bias toward larger government and higher debt should not surprise us. If we begin to close that gap, better outcomes become more likely. For this reason, Friedman’s framework remains a valuable tool for long-term thinking about debt and deficits in America.