Patrick comments:

“If everybody stopped valuing money, I think that the objective standard of living would decline. With less people motivated to do productive work, who would do the activity necessary to sustain our standard of living?”

I think there are several things to be considered here. First of all, it is generally agreed that extreme early retirement although simple in design is hard to follow (much like a diet is simple in design but hard to follow for most people) and thus not many would take this path, at least not as long as it is not popular. It is certainly my hope, though, that more people will pick up on it.

More important here, is the decline of the objective standard of living. What exactly is the “objective standard of living“? My guess is that it has something to do with how much money is spent, that is, a similar motivation to the idea of using GDP, that is, the measure of economic activity as a proxy for economy growth.

I think this is a great fallacy though. What I think has happened and is happening is akin to the broken window fallacy on a grand scale. According to the broken window fallacy, if I break a window, I need to hire a guy to come and fix it and he in turn can spend his income on a loaf of bread, etc. and so by breaking a window, the economy is stimulated and that is a good thing. It is the same fallacy that underlies the idea that war is great for the economy. Of course the fallacy is that if I had not broken the window, then I would have had the money AND a functional window. The problem from the point of view of using the GDP proxy is that I might not have spent it and thus would would not have seen this burst of activity had my window not been broken.

(Keynesian economics is essentially a forced redistribution using work to somehow make it “fair”. It would, however, be much easier just to take money from those who have produced it and giving it to those who have wasted it. This in fact is very close to what one does when economic stimulus is financed through debt which will be inflated away.)

This is not to say that whole purpose of the economy is to break windows and fix them again, but I submit that a growing portion of it is indeed that. After all, if people already had their needs satisfied a hundred years ago and we meanwhile have increased productivity substantially through the use of fossil fuels, what else could we possible do other than generating waste? We’re not exactly building pyramids, right.
There are, therefore, a tremendous amount of “windows” being “broken” in our economy and I am not just talking stimulus packages or wars. You only need to take a look at the biggest companies of the United States. To wit, in the Dow Jones Industrial Average, we have a couple of companies engaged in producing “cheese” and junk food while others are engaged in making cholesterol lowering drugs and insulin. By GDP measures, this is productive, however from a “development” point of view, this is not productive at all. Whether eating burgers and popping drugs is a higher standard of living or not is probably a personal decision. I eat the occasional junk food meal, once a week, but I don’t go overboard and eat it every day. Thus I am not on any drugs and I consider my standard of living high.

But maybe not so productive 😛

Another example is planned obsolescence. I have a pair of boots, which I mention quite often because they are simply a great example of this point. They are made of full grain leather with a Norwegian welt. I have used them extensively over the past 12 years by which I mean walking thousands of miles. Now, lately DW and I have tried to find a similar pair for DW. However, it is impossible to walk into a retail store and buy a pair of boots that are made this well even if we are prepared to pay north of $250. What we do find are snazzy looking glued technicolored boots that last about a season, two if you are lucky, and cost around $100. These would need to be replaced every season and thus, I guess, they would enhance productivity and create jobs for shoemakers in Vietnam, etc. However, this in no way increases my standard of living just as the broken window did not enhance it. Why pay $100 each year, when you can pay $250 and be done with it for the next decade or two?

So to answer the question. Some people would still work. Perhaps this would be working full time for a handful of years like I did or by working for a few hours a week like I also do. Either way. It is enough to enjoy the same standard of living as “productive” people once all the counterproductivity is removed from the system.

Hence, I think the real question is not “what if everybody stopped valuing money” but “what if everybody started valuing money as much as I and others like me do”. This is the solution to the paradox of thrift.

Originally posted 2010-02-10 00:01:42.