MAKE MONEY ONLINE POSTS: The Wisdom of Frugality: The Philosophy of Frugality in a Modern Economy

الخميس، 26 يوليو 2018

The Wisdom of Frugality: The Philosophy of Frugality in a Modern Economy

This is the sixth entry in an eight-part weekly series that provides a detailed look at the book The Wisdom of Frugality by Emrys Westacott. If you’re new to the series, feel free to hop back to the first entry.

One of the biggest arguments against frugality is that it appears to be unambitious, at least in the sense that it’s not about creating value for others and earning income, but about maximizing value within your own life and that of your immediate family and thus saving money instead. Isn’t that idea at odds with a modern economy, which is oriented around a cycle of earning money and spending it, which keeps the economy going?

In other words, is frugality outdated?

In modern societies at peace, life is far more secure than it ever has been. Thanks to enormous leaps in technology, meeting basic needs in a modern economy is as easy as it has ever been. Our supermarkets and retailers provide abundance. Our homes have infinite entertainment options and are larger than ever. Recreational opportunities have exploded. At the same time, our jobs are less physically taxing than ever (though they can be mentally taxing) and offer incredible financial rewards for many career paths if people are ambitious.

These things are seen as large positives, but at the same time, they also lead to increased dissatisfaction. It’s not a secret that many people are unhappy in the modern world. It’s something I struggle with myself.

Many of the best opportunities are very expensive, which leads to a dissatisfaction treadmill where we buy things to feel temporarily happy and then the lethargy sets in again until we can buy the next thing that makes us happy for a little while.

That dissatisfaction has, for many people (myself included), led to a strong renewed interest in frugality.

The Nostalgic Appeal of Frugality

Many people feel nostalgic for a earlier time in their lives when things felt “good” to them. Often, the past – particularly childhood – is recalled as a time of happiness and virtue. People seemed generally good and the world seemed generally good, particularly in comparison to today, where people are dissatisfied on the hedonic treadmill and are constantly bombarded with negative news.

That kind of nostalgia for the past often connects to things like a closeness to nature, contentment with simple pleasures, lack of acquisitiveness, an absence of luxury, and moral purity. I think back to my own childhood and I think of running around in the woods near my house and eating ice cream and playing with my cousin in the sandbox and having a sense that the people around me were good people and that I was generally safe. Those feelings have incredibly strong appeal.

Rousseau argues that one of the key reasons for that strong sense of happy nostalgia is unhappiness with many aspects of modern life. A simpler life is something we naturally see as more joyous. Rousseau attributes much of the unhappiness of modern life to private property and the desire to acquire it, which often causes people to be cruel to each other.

Westacott also points to themes in art, which often harkens to a simpler, natural past.

The catch, of course, is that such nostalgia is often seen through rose-colored glasses, as nostalgia hides the difficulties of the past from us. The past was harder than the present in many ways, yet when we look back, we don’t see those difficulties. We just see the good side of the simpler past.

Simplicity, in the modern sense, is really just an effort to strip away the worst of modern life, but is that itself a bad thing? Is it bad to want to strip away the worst of modernity? Is it wrong to reject materialism, hedonism, technology fetishism, and consumerism?

This digs down to what the root of frugality really is: it’s a reorientation of values. It’s about eliminating the values of modern society that you don’t agree with and substituting other values in their place.

This might be good for the individual, but is it good for the society?

Economic Growth and Well Being

There is an obvious and strong economic argument against frugality. Most modern economies continue to grow because of a cycle of constant spending of almost all earned wages, which continually cycles through the economy. If people stop spending as much money and instead save that money, that economic cycle starts to slow down. Money isn’t flowing through the economy nearly as quickly.

In other words, a mass frugality movement would have a pretty noticeable negative effect on GDP, which is the primary measure of economic activity.

The question then becomes, why is GDP and economic activity seen as a be-all-end-all measurement of a society’s success? We often buy into the notion that GDP is some sort of indicator of well being, but that isn’t true. GDP doesn’t directly line up with a lot of indicators of well being. There are many arguments for broader measures of well being and, in fact, well being indicators often indicate upcoming changes in GDP and national stability.

There’s also what’s known as the “Easterlin paradox,” which states that at any given moment in a given society, richer people are happier than poorer people. However, that connection vanishes over time and across societies. In other words, you’re not required to live a certain way in order to be happy; actual happiness depends a lot more on circumstances beyond your financial state than it does on the state of your money at the moment.

Another way to look at that: Emotional well being and happiness rises with income, but only to a certain extent. In America, that number is usually somewhere just above the average household income – income above that doesn’t really bring additional happiness.

Another challenge in all of this is that people try to project an image of happiness and well being, even if they don’t actually feel happy. Social media is full of this kind of thing, where people post things about how great their life is and how happy they are, even when they likely don’t actually feel that way. This often creates a sense that everyone else is happier in their lives than you are, which further clouds the picture.

A final factor: relative social standing is enormous in determining personal happiness. We tend to feel happiest when we’re just slightly better off than the people immediately around us, such as our neighbors or our close inner circle. We don’t want to feel like the “worst” person in the group. (The key here, I think, is to find friends that compare along metrics that you would use as guidance to improve yourself, such as a social circle that values fitness or frugality.)

What If Frugality Went Viral?

This is a question that I’m often asked in the reader mailbag, and it’s an issue that Westacott handles thoughtfully here.

In the short term, the consequences of a huge frugality movement in America would be dire. Much of the American economy centers around consumption, much of it rather unnecessary. Large segments of the economy centered around luxury goods and fulfilling desires would fall apart.

Since our economy requires so much constant economic activity to thrive, the shift of people moving away from luxury goods and lots of unnecessary purchases and experiences would cause things to just grind quickly to a halt in sectors that aren’t serving basic needs.

Why Increased Frugality Need Not Have Dire Consequences

That disastrous picture is just a short term result, however. There would be a number of benefits to a frugal society, but most of those benefits would take some time to appear.

First of all, many luxuries that cause ill health, such as unhealthy food, cigarettes, and so on, would eventually go away because they’re not really frugal expenses. This would likely improve the health of the average American, which would result in significantly lower long term medical expenses.

Second, the short-term collapse in the economy would be due to shifts in demand, but over the long term, there are more factors at work than just demand. What’s actually happening is that demand isn’t disappearing, but that it’s just changing significantly, and it would take the market some time to catch up, but it would catch up.

At first, there might be significant unemployment as the market reformed itself around the change in demand, but over time, that would fix itself in a number of ways.

Westacott predicts that one major change would be a shift to shorter workweeks or longer vacations from work. This would take care of the significantly reduced demand for nonessential consumer goods without devastating unemployment, but it would take some government intervention.

In the public sector, there are tons of jobs that need done: infrastructure repair, schools, hospitals, parks, public transportation, public research. People want to do those jobs as long as taking those jobs doesn’t lead to poverty. The issue is that we don’t define those things as a societal priority right now, and that would likely change as individuals become more frugal. Again, this points to a change in government.

All of these changes have some benefits. They would result in more people being employed, more potential income tax dollars, and healthier and happier lives for all.

However, there are potential problems, too. The biggest one is that employers would face higher labor costs. People, as always, will seek the highest wages they can earn, and if we live in an era with a shorter mandated work week, this means paying benefits to a larger pool of employees than before.

One potential solution to this is the one that Europe discovered in the process of many European nations moving to 35- and 30-hour workweeks: simply move the costs of typical workplace benefits to the government and increase payroll taxes. That way, the employer is no longer paying for things like health care packages and 401(k) packages that are pretty typical white collar (and often blue collar) benefits.

Westacott makes a pretty good argument that the current system of having employers handle the costs of those benefits is incredibly inefficient and that such requirements tie into the reason that Americans have a “40 hour workweek” but many work far more than that. This begs an obvious question…

Why Do We Work So Hard?

People work harder than ever. The reality is that in America, although working hours have declined slightly over the last century, the average worker productivity has gone way up and thus the average worker is far, far more productive than ever before at work. Many people a century ago predicted that these huge leaps in productivity would result in progressively shorter working hours. Why hasn’t that happened?

The biggest reason is that, as a general rule, Americans have a deep desire for improved relative status and capitalism inflames that desire. People want to be better off than their parents were and, as mentioned earlier, better off than people in their social circle. People want to have the latest and greatest new things.

At the same time, individuals are at the mercy of the system. Most would like to work less, but fear they can’t out of fear of losing their jobs or damaging their career. Their employer demands more and more productivity from them for their pay.

Also, cost of living isn’t going down. It’s staying nice and high, and market forces often move the cost of essentials up in price at a rate much higher than wage growth. Housing is a perfect example of this – it rises in value faster than the wages of the average American. This benefits those who already own a home because their home allows them to build wealth and avoid the increases in the housing market, but works against those who don’t yet own one. A similar escalation is happening in higher education and health care. With education, you have the same phenomenon – people who already have an education aren’t affected, but it’s becoming financially harder and harder to obtain an education for those who don’t have one yet.

Things like housing, education, and health care aren’t optional luxuries. They’re required to keep living and to have access to most career paths in America today. These things reside far closer to the “need” end of the spectrum than the “want” end. We’re not talking about luxury goods here, but basic things, and when those basic things become more and more expensive, it becomes harder and harder to make ends meet and to maintain a solid relative social status, something that’s intimately tied to self-respect, as noted earlier. Is it any wonder many people are unhappy today?

Why is this happening? One solid argument is that our technological cleverness has outpaced our moral wisdom. We know how to do a lot of things, but we don’t yet really understand all of the consequences of it and whether it’s right or wrong to do them.

In the past, when new technologies emerged, we had generations to adapt to them and figure out whether they were good for society and how to maximize the benefits and minimize the negatives. It took millennia for society to move from a hunter-gatherer state to agriculture, for example, and it took centuries for the ramifications of the printing press to be really understood.

Today, technological change is coming so rapidly that society simply does not have the time to acclimate itself to one change before other changes are already here. Complex societies are difficult to understand already, and new technologies change them rapidly. A hundred years ago, there was no real way to mass communicate at all aside from newspapers – phones were rare, radio basically didn’t exist, television didn’t exist, the internet didn’t exist. All of that change has happened in far less than 100 years, and that’s just in how we communicate and share information. We haven’t really figured those changes out yet as a society, let alone all of the other changes that seem almost constant.

What’s the solution? There isn’t one. However, Westacott points at frugality as being something of a form of resistance against this kind of rapid change. A frugal society would inherently be much more slow to adopt massive technological changes, and perhaps that would serve all of us better.

Next time, we’ll take a look at the environmentalist case for simple living.