Seth asked a really interesting question:

I’d some point I’d like to hear your thoughts on the paradox of thrift. My brother, who is the only person I know who would be able to relate to much of your lifestyle choices, always talks about the reason he is able to live the way he does is because everyone else isn’t living his lifestyle.

I think there are two answers to this question. One covers the social aspect, that is, how your lifestyle relates to others, and the other covers the financial aspect e.g. the importance of money.

In both cases it is very important to realize that the lifestyle we are talking about is not different in degree but different in kind. For instance, if you strictly consider my monetary outlays ($5.5-7000 a year), you might think I live in poverty with all that entails (menial job, bad apartment in a bad neighborhood, preprocessed food, no education, cell phones, high interest rates, crappy car,…), but that would be limiting your entire thinking to the belief that everybody has the same means of spending and earning money.

Of course this is a very natural tendency in a world when people are so separated from the end-product of their work that their only estimate of how worthwhile their work is is the size of their paycheck. Correspondingly, when people have gotten so used to purchasing everything and one has lost any sense of value, they naturally gravitate towards the belief that price is a measure for quality and when something costs more, it means it must be better. Neither of these are true and this means that in economic terms there is a price-value inefficiency because most consumer-workers have fairly skewed understandings of these two factors, that is, if something didn’t have a price-tag, people would be clueless as to its actual worth. This is something I use to my advantage

For the financial aspect, I derive my financial independence from either lending out my money or by own capital assets that people are willing to work. Naturally, if everybody else weren’t willing to work so hard to fulfill goals which were so short-sighted (typically next quarter or next paycheck/billing cycle), the return-rates I would get on these “investments” would be smaller (because there would less demand for assets). This would mean that it would take me longer to accumulate sufficient assets to have them pay my way. In other words, because I have focused on long term gratification rather than instant gratification I get a free ride from majority of people who want to spend now and who are willing to pay the price to do so.

The classical [interview] question to people who consume very little (and still produce a lot) is usually posed by nervous supply-demand economists who are concerned what would happen macro-economically speaking if everybody stopped buying crap. Now this is not something we will realistically see all of sudden, but here’s what would happen. First one has to realize that this would change the kind of the system rather than the degree. Hence, it would not be a problem. To be specific, it means that the concept of “thrift” would no longer exist as everybody would be “thrifty”; in other words, I would no longer be “extreme”, I would be normal, whereas those who are considered “normal” now would be considered “extreme” in their wasteful ways.

I consider my way of living perfectly rational and reasonable, while I consider most “normal” people crazy. It is somewhat clear what happens when you multiply this craziness by one billion people: You pump up all the oil in the ground, pollute the atmosphere, and fight wars over the remainder to keep the party going (because the party can not be questioned, pun intended).

If everybody became thrifty, my guess is that us thrifty and productive people would still be doing what we are currently doing only we would get paid for what we do rather than for what we own. I think it is important to realize that the only difference between a thrifty person and a spendthrift person is the trail of waste the latter leaves behind due to various inefficiencies.

One interesting exercise is to tally up all the paychecks you ever earned. This will probably be a pretty large number. Now tally up the market value of all your stuff. Subtract those two numbers from each other. The difference is the amount of money you have spent to get exactly to the point where you are now. This can be a very eye-opening exercise, especially if you try to translate this number into what is most likely a large pile of discarded consumer goods and services you are no longer benefitting from.

In conclusion I do not think it is so much a paradox as it is the most efficient way to take advantage of a wasteful system. For instance, in CA it is downright nuts to spend money purchasing an “entertainment center” or whatever that piece of furniture where you keep your TV is called. Normal people seem to upgrade them constantly and give them away. By being thrifty we keep them out of the landfills. On the other hand if they weren’t giving them away, a thrifty person would just buy one center and keep it. It’s not like it’s wearing down with just a TV sitting on it.

Originally posted 2009-04-27 05:55:05.