Mmmm, Free Federal Money

The Springfield News-Leader published a letter to the editor on the subject of federal expenditures in Missouri (link via John Combest, emphasis added):

I asked a state representative how the Missouri Department of Transportation arrived at the decision to place mile markers every two-tenths of a mile along Interstate 44. His reply was that this was federal money and not state money that was the funding source for this project. In other words, no cost to taxpayers.

The view that federal money doesn’t cost the taxpayer anything is completely false. As I have argued before, there is no such thing as a free lunch. Even if it’s dispensed by the federal government, all public expenditures come out of the pockets of taxpayers — not out of thin air. From an economic perspective, the only way that federal spending differs from state spending is the fact that the costs are further diffused, and the benefits are further concentrated. The money that is spent on mile markers in Missouri may be paid for by taxpayers in other states — but, simultaneously, taxpayers in Missouri are paying for similar projects in other states.

Later in the letter, the writer asks:

How many communities, counties and states in our United States are celebrating this “free” money?

This is a great question. When people perceive that they are spending “other people’s money,” they are less likely to spend it efficiently than they would if they perceived it to be their own. As Milton Friedman observed, individuals are better at spending their own money than somebody else’s money. If people in all 50 states view federal money as “free money,” they’ll spend, spend, spend, and their collective tax burden will skyrocket as a consequence.