December 16, 2005
Spending, saving, happiness, and policy
Megan McArdle ("Jane Galt") offers sensible and much-needed advice on dealing with downward economic mobility. Actually, the advice is broadly applicable to about the bottom 95% of the income distribution: put savings first; distinguish between wants and needs; notice that the thrill of buying something new usually wears off before the debt from buying it is paid off; remember that lots of things could plunge you into financial crisis pretty quickly unless you have a substantial rainy-day fund saved up; consider how miserable old age can be if you enter it with too little money.
If more people listened to this advice, untold misery would be avoided. But if more people listened to this advice, we'd be living in a different sort of society. In particular, I doubt that following Megan's advice would help a single person's -- especially, but not only, a single man's -- chances in the courting market.
In good libertarian fashion, Megan's focus is on individual choice rather than social forces or public policies. But it's hard to read her posts, and Laura's post, and the related comments, without thinking how strongly they illustrate the arguments in Robert Frank's Luxury Fever.
We live under a social, economic, and political system focused on encouraging consumption. There's good reason to doubt, as Megan points out, that more consumption leads, on average, to better or happier lives, unless people are better than most of us now are in distinguishing expenditures with lasting benefits from expenditures that provide only transient satisfaction (and build up a baseline level of consumption under which it becomes painful to fall).
To paraphrase an old poem-paper by Herbert Gintis: in the richest society so far in the history of the world, is a way of life which makes hard savings decisions and solving complicated financial-planning problems at age 25 socially necessary capacities, and which even in the fact of parsimony and good planning leaves penury a constant threat as a result of several different kinds of possible ill luck, a socially necessary way of life? Wouldn't we be better off with a system that combines less relentless pressure to get and spend with stronger income-security measures, thus reducing the stakes in the game of personal financial management?
Could there by anything crazier, at a social level, than telling young people with the talent and determination to pursue careers in the natural sciences that doing so isn't a wise move from a personal-financial-planning perspective? It's true, of course. But think of the social waste involved in converting a potential biologist in to, say, a detail man for a pharamaceutical company. Even at an individual level, do we really want to live in a world in which most of us have to choose between work that is materially rewarding and work that is satisfying?
The other message that comes through clearly, both from Megan's post and from the comments to that post, is that even good planning and good discipline can't fully insulate most people from financial distress if they run into really bad luck: divorce, disease, bad timing in coming into the labor market, layoff in middle age. So even the prudent are left with the gnawing fear we boomers observed in our parents' generation and attributed to Depression-era upbringing. Is "Be afraid. Be very afraid" really the inevitable corollary of "enrichissez-vous"? Or wouldn't we all be better off in a world a little safer for the unlucky and imprudent? And yes, I'm thinking about most of Western Europe.
Of course, this problem is connected to a different problem: the successful class warfare waged over the past quarter-centory on behalf of the top 1% of the income distribution -- the half-a-million-dollar-a-year crowd -- against everyone else. Taxing away some of their increased share of the national income distrubution could finance measures of income security (and not just retirement income security) for everyone.
I'm not convince that doing so would reduce the rate of GDP growth; it might well increase it. (The biologist rescued from life as a detail man might discover or invent something valuable.) But even if more security meant somewhat slower growth, wouldn't freedom from financial worry more than compensate for the somewhat slower introduction of 50" flat-panel television screens?
So I hope Jane converts her thoughts into a book, a lecture series, a newspaper column, or some other form in which they can reach millions of people who might benefit from them (and incidentally simplify her own financial planning problem). But I don't really think that good advice and recipes for cheap, tasty cook-at-home meals can do all of the work that needs to be done here. Some of that work needs to be done publicly. Social safety net, anyone?
Update Megan replies, thoughtfully, here and here. I agree that some income gradient is necessary to get the lousy jobs done. I'm not opposed to the free-market game. I just want it played for lower stakes.
And I'd ask Megan to look at the proportion of graduate students in the hard sciences at top U.S. universities who natives. I'm delighted that we can still attract the smartest rising physicists and biologists in the world to come study here; I'm appalled that so few of them were born and educated here.
