Monday, August 26, 2013
Economics and The Lost Art of Not Worrying About Stuff
It's not news that when all you have is a ruler, everything looks like a piece of string ... Oh, wait, that's not it.
It's not news that when all you have is a cup, everything looks like coffee. No, no, that isn't it either.
I know: when all you have is an odometer, everything looks like a mile?
OK forget it. The principle, of course, is that when you have only one way of measuring, you only see the things you can measure that way. Which sounds pretty innocuous. But as everyone points out, the fact that you can measure "money" or maybe "goods" but not "love," "community" or even "that pleasant feeling you get crossing little items off your to-do list," means that the economic lens, when you use it, is always distorting your life.
I say "when you use it," but really do you have any choice? These days with the economic lens, you can run but you can't hide. You have to practically fashion yourself some kind of crazed rebel to even have the blandest opinions that contradict what the economic lens shows you.
An example of this I think about a lot has to do with risk, rationality, and the comforts of planning. A few years ago my friend and I had to renew our mortgage for a condo we own. For everyone who doesn't live in Canada: this is a thing we do here, where the terms of a mortgage are only good for five years, and you have to renew or renegotiate or whatever. Obviously it doesn't mean you have a five-year mortgage. Just the terms are only good for five years.
I don't know how this started or who it's supposed to benefit. It doesn't matter. We used what's called a mortgage broker, whose job is to help you find the best deal. At one point, we had to make a decision about whether to accept a certain fixed-rate (for the next five years only!) or go for a variable rate. For certain reasons the broker was convinced that the variable rate would be better in the long run.
I told him, as I'd told him before, that we wanted a fixed rate.
He insisted, as he'd insisted before, that we wanted the variable rate --that it would be better in the long run.
We went back and forth a few times until I just stopped offering reasons and justifications and just ordered him to put us down for the fixed rate. Now, I'm able to do that sort of thing, because I'm somewhat naturally who-gives-a-fuck about things like this and also because years of being a professor has reinforced my ability to just say "no, we're doing it this way." If I'd been a more deferential, shy, or uncertain person -- forget it. We'd have had a variable rate mortgage.
Now, it's worth considering what could make a mortgage broker so convinced that there could be no good reason for preferring a fixed rate -- for preferring it even granting, for the sake of argument, that it might cost you more dollars in the long run.
From various things the broker said, I know one thought he had concerned what he thought of as the irrationality of risk-averseness. The principle behind this idea is that from the economic point of view, money you get is no different from money you fail to lose; money you lose is no different from money you fail to get. So while I might have balked at a risk of losing money, I was not balking at the risk of failing to gain it. And that's "irrational."
I suppose from one point of view, whether something is framed as a loss or a failure to gain might seem arbitrary and then risk averseness would indeed be a bias.
But from the point of view of your actual life, it's obviously not. In increasing order of importance, a non-exhaustive list of reasons losing is genuinely worse than failing to gain:
4. Human lives are enmeshed with commitments and plans, many of which depend on money. You can plan for what you have if you're not going to lose it, but you can't plan for what you might gain if you don't fail to not gain it.
3. People get used to things. Think about your home. Giving up its comforts would be traumatic compared to failing to gain house twice its size and luxuriousness.
2. Not everything is relative for humans. The difference between having three chances to eat per day and having six are small. The difference between having three chances to eat per day and having none are -- well they're about as big as you get.
1. Only the risk averse can Stop Worrying and Actually Enjoy Life. Are people so unimaginative about their lives that they can't imagine anything they'd rather be doing than worrying about their money? How is the time I enjoy not worrying not factored in? When I factor that pleasure in, the fixed rate would have to far far outstrip the variable rate to even make me consider the variable rate.
But of course we know the answer to the last question. The economic lens doesn't even see that pleasure. There's no way to count it, so it might as well not be there.
For this post, a tip of the hat to my former co-blogger Captain Colossal, with whom I had a meeting of the minds on these subjects a few weeks ago. These days, if you're to be a crazed lunatic who actually cares about having a nice life, it helps to have some fellow travelers with you.