1.You spend your money on yourself: this set of circumstances motivates you to get the best deal at the best price.
2.You spend your money on other people: this set of circumstances motivates you to be as economical as possible.
3.You spend other people’s money on yourself: this scenario implies cost is no object, and spending happens in accordance.
4.You spend other people’s money on other people: in which case neither cost nor value has any meaning.
Spending is more than just the weekly shop, it constitutes investment. When you buy a chocolate bar, you’re not just paying the store that provides it and the people who made it: you’re paying for cocoa and sugar farms, the workers on those cocoa and sugar farms, the trucks and ships that transport the sugar cane and cocoa beans, the dairies that provide the milk, the processing plants and so on. There is a cascade of investment which comes from every single purchase made, which flows up and down the supply chain. Category one and to a lesser extent, category two spending means that this investment rewards the best and most efficient producers.
The vast majority of government spending falls into category four; earmarks can be said to be in category three. In this instance, investment allocation is not happening on the basis of efficiency, it is being done on the basis of supposition (as in category four) or on the basis of personal greed at the expense of others (category three).
Worse, there is an effect in economics known as “crowding out”; when government expenditure increases, the amount of private expenditure and investment decreases: there is only so much liquidity in an economy at any one time and government liquidity can only happen if private liquidity reduces. If the government does more category four things, this will come at the direct expense of category one things.