False Economy

false economy

A false economy refers to an action which saves money at the beginning but which, over a longer period of time, results in more money being wasted than being saved. For example, if a city government decided to purchase the least expensive automobiles for use by city workers, it might be termed false economy, as cheap automobiles have a record of traditionally needing more frequent repairs in the long term and the repair costs will eradicate any initial savings garnered.

The concept is similar to planned obsolescence, whereby the lower initial cost of a false economy attracts buyers mostly on the basis of low cost, who may later be at a disadvantage.

Motivating factors on the part of the party engaging in false economies may be linked to the longterm involvement of this party. For example, a real estate developer who builds a condominium may turn the finished structure over to the ensuing condominium corporation which is run by its members once the last unit is sold and the building has passed a final inspection. Longevity of the components of the structure beyond the final turnover of the facility may not be a major motivating factor for the developer, meaning that the result of the application of false economies may be more detrimental to the end user, as opposed to the developer.

Individuals may also practise false economy in their personal lives. A notable practitioner of false economy was King Frederick William I of Prussia, who was said by Thomas Macaulay to have saved five or six dollars a year feeding his family unwholesome cabbages even though the poor diet sickened his children and the resulting medical care cost him many times what he saved.

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