Saving Money vs Spending Less Money

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"Saving Money vs Spending Less Money"

When talking about the household budget, I think it’s commonplace to draw a distinction between a claim like “you could save money by bringing Diet Coke from the store into the office rather than using the soda machine” and a claim like “you could save money by buying Popov instead of Grey Goose” or “you could save money by never drinking anything other than tap water.” These are on a spectrum, basically, between the idea of getting the same stuff in a cheaper way and spending less money by buying less stuff.

Unfortunately, we don’t do a good job of drawing these distinctions in the public sector. I was on the radio yesterday, for example, with a woman who said that the GOP’s Medicare privatization plan would save money by giving people vouchers to buy private insurance. That makes it sound like the Diet Coke case. But what Ryan’s plan actually does is first privatize/vouchers Medicare, and then “save money” by arbitrarily mandating that the cost of the vouchers have to grow slower than the cost of health care. In other words, with every passing year Ryancare vouchers get smaller and smaller relative to the cost of medicine. That’s just “saving” money by buying less. It’s like saying the police department could save money by not replacing officers who retire. It reduces expenditures, but not by exploiting any exciting efficiencies.

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