Daily Archives: October 11, 2011

Wealth, Money, and Happiness

So if you’ve been reading all the comments on the blog on importance of inequality you’ve noticed a lot of brouhaha.

My argument was that there is no correlation between distribution of wealth and standard of living. There is a correlation between GDP and economic freedom and standard of living.

Most of the argument didn’t focus around this. First they complained about my use of UN data for standard of living numbers even though I despise the UN and make no attempt to hide it. I found this odd; I admitted I was playing in the opposition’s ball park. I know that if I use data from more conservative sources of course it will show the same thing, but my point wasn’t to show that numbers from the sources I trust justify my beliefs (that’s a given), it was to show that numbers from liberal sources don’t even come close to justifying liberal beliefs.

But I made this other statement about if you had a way to measure happiness in an accurate way you would not necessarily see the diminishing returns you see in the set of data I was using.

Now diminishing returns is an idea that the same incremental gain has a lower return with each new increment. One steak dinner is great. Two in a row we’re eating like kings…three okay, can we cook it another way…four, did we just slaughter a cow and need to clear out some freezer space…five in a row, can I have some chicken please…a week of steak, is this some kind of psych experiment. The first hundred year old book I bought was the coolest thing in the world at the time, and while I love my growing collection and like any English teacher find old book smell practically an aphrodisiac, each new addition never quite reaches the high of the last. Economics states the same thing; every new $100 dollars is less fulfilling than the last. And new economics stated this, as a fact…but something didn’t make sense about this. To me I see more money as creating more opportunities and not having a lessening effect with the more you get. And just last night it hit me as to why.

I was talking about money and my opponents (and most economists) were talking about wealth. What’s the difference you ask? Wealth is the acquired material things. Money can actually be a part of wealth if you acquired it just to acquire and save it. And this is where the diminishing returns come in. The first house you own is a spectacular thing. But if you buy a second it’s still cool, but not the thrill of the first. By the time you own four or five houses they’re just things without much personal or emotional value to you. This applies to all material things from a cup of yogurt to an entire company. You have a clear demonstration of diminishing returns. Why because things don’t buy happiness. A minimum level of stuff is required, but after you have comfortable shelter, sturdy clothes, and enough cash to insure medical care and a safety net through old age anything after that has a diminishing return effect.

However, while math and economics were quite clear, from both my knowledge of psychology and personal experience I knew that this wasn’t the full case when it comes to money. From the psychological viewpoint I would look to Maslow as a guide to happiness. Maslow’s hierarchy is basically a clear path of needs that once met will take you to the next level of the hierarchy. At the top is something he calls self-realization, which Aristotle and the ancient philosophers called eudaimonia, and which is usually rendered as Happiness (the capital H is intentional). If diminishing returns on wealth were a complete story about how to get to the highest level of standard of living then you would think you would need an increasing amount of money to get to each next level. But you don’t. It’s quite the opposite. To meet all your first level needs you probably need about $25,000 a year. To meet your second level needs of security you probably only need about $20,000 more. Hell you probably only see a minimal increase in the next level (I’m figuring if you get married, which is part of that level, either you’ll need about $15,000 increase to pay for two people at the same lifestyle you were at in level one). Is money really even needed for the next two levels, not really (although if you make it to those levels you’re probably good at what you do and make more, but you don’t need it).

And then there is personal experience. If you have diminishing returns with all money then the biggest high you should get is when you make your first payment on a loan, and get less and less excited with each new payment. Yet we all know it works in the reverse. As we get closer and closer to paying off a debt each check actually becomes more fulfilling. The check that pays off the car, the house, the college loan, that’s the one that you’re jumping for joy on. And when I think about my own life in general it holds…think about this for yourself. If I got a $10,000 raise, I’d be ecstatic because I’d have all my debts paid off in 10 years instead of 30. If I got a $20,000 raise I’d be even happier because now I would be even closer to the end and could really start planning about life without debt. A $30,000 raise I could start investing which is always far more fun. $40,000, hell I could start looking for a house. This keeps going with every increment up I could do more and get further out of debt sooner, take more control of my life and have less concern. So it has to get up there before I really see a diminishing return on a $10,000 increase in my yearly income.

Why? Because I’m not looking to acquire wealth. I’m not looking at money as a thing to hoard or transfer for other stuff, which it can easily be. I’m looking at it as a tool. And tools don’t have diminishing returns. The chisel and hammer don’t become less effective the longer a sculptor uses them, they become more effective with time and practice and skill. Tools are not subject to diminishing returns. And tools are designed to be used to achieve a goal. For me it goes (A) Get out of debt (B) build writing career (C) establish financial stability (D) become philanthropist.  (Your goals maybe different or even better than mine…but I had to give an example.)

Most people don’t have goals. They just buy stuff. Most people when they get a raise they go out and increase their lifestyle to match their new income. They keep up with the Jones’s. They treat money as wealth. They do not have a goal; they just are concerned with things. (In case you’re wondering I may be a die-hard capitalist, but I also believe in the virtue of personal frugality). If you have goals that require some kind of financial backing (most goals do), each incremental increase brings you closer to the goal and thus heightens your happiness, your anticipation, your joy and lowers your doubts and worries. If you treat money as a tool for reaching goals and stay focused on those goals the diminishing returns don’t come into play because it’s not just something you already had and now you’re just getting more of it. When are you happiest and most energetic in a race, at the end of course when you can see the finish…same with money when treated as a tool and not just as wealth, it helps you get to your goal and thus each new amount actually brings more happiness than the last increase of the same amount.

I do not know how many times  I can repeat the phrase goal oriented, but just so we’re clear if you have a goal and are working towards it then money does not have a diminishing return because it always brings you closer to your goal which make you happier.  If you don’t have a goal…well what’s the point in life?
My mistake was making a logical fallacy that I often complain about others making, the “I am the world fallacy.” I was thinking about increases of money with someone goal oriented. I hate this fallacy and yet I fell victim to it, hey, I’m only human, I admit it. I forget not everyone lives the rather Spartan lifestyle I do, and not everyone is always long-term goal oriented, and that most people don’t by habit think everything through 10 years ahead. Yes I am an incredibly boring person. And I’m okay with that. And because of this I wasn’t realizing that everyone else was talking about money as wealth, which comes with absolute limitation of diminishing returns. This was my mistake for not realizing how I was putting everything on a different playing field.

Now to reference back to my above goals. Odds are I’ll never fully reach D (but I’m not one to play by the odds), but this is another reason why I don’t see more money as having diminishing returns. There are few joys as great as charity. To be able to raise it to the level of philanthropy I imagine to be just short of ecstasy (the state of being, not the drug). If it’s done right. Philanthropy like charity needs to be done at a personal level…so I guess yes once you hit this point you will find a diminishing return on money as a tool, but only because you’ve kind of lost any long term goal. The minute you have so much money that you can’t personally oversee giving it away it loses a lot of the happiness factor…it’s still fun but not as fun as doing it yourself.

So if you’re talking about money as wealth, yeah it has a diminishing return. Because money as wealth is its own goal, kind of a silly goal if you ask me, but this does seem to be the prevalent idea in the world. However if you are goal oriented then money doesn’t have to have a diminishing return (at least until you reach the super rich level)—as long as it is a tool to achieve your goals then it holds and increases value with every addition because each time you’re closer to your goal which always feels good.


Filed under Capitalism, Charity, Debt, Education, Free Will, Happiness, Individualism, Law of Intention, Long Term Thinking, Purpose of Life

Laws for the GOP to pass: Copyright and Patent Sanity

I’ll be honest, I’ve been doing this series of laws since the November election of last year. One a week. You come up with 48 individual laws on a wide range of subjects. I’m ending this at 52 laws. Just FYI.

This week we’re going to cover copyright and patent law. And this, believe it or not is a case where I will say that the government having been bought by corporations is to blame. Yes I’m actually going to attack corporations.

First a word on what copyright and patent law is. It says I created something, thus I am entitled to any profits that come from that idea. If I write a book, I have to get paid for the selling of that book. If I create a new microchip, I get to get paid for any sales of that piece of technology. I get make money on the ideas I come up with (Communists, having no respect for the human mind call this profit “surplus value” and think the creator has no right to it, but as we all know communists and socialists are stupid…and if you listen to people who have to work on Wall Street, they smell too).

Congress is empowered by the Constitution to come up with laws to govern this. Why? Because the Founders were smart enough to know that if there is no incentive to invent, no profit in it, there would be no one who invented things. However, as with all things just because one extreme (no protection) the other extreme (eternal protection) isn’t valid either. If ideas stay in under copyright or patent forever (especially for technology) stagnation begins to occur. You need incentive to make things, but you need the freedom to use what other people have done.

For instance Shakespeare, while motivated by his urge to decry the unjust treatment of Catholics in his plays, he also was heavily motivated by profit. However, if we still had to pay some distant descendent of his every time a book was published, a play was staged, a movie was made do you think Shakespeare would have the opportunity to reach as many people? Probably not.

Same with technology. How much would have been produced if we still had to pay the Watt family for every engine (as everything was derivative off the steam engine).

Now in 1976 copyright was extended to life of the creator plus 50 years (because you do have the right to leave something to your kids for a while). Creations of corporations had a 75 year shelf life under copyright. (And honestly I think 50 years was a bit much…25? 30? Sounds much nicer—50 years just sounds like it’s not just your children living off of your inventions but also your grandchildren…which I don’t know seems a bit much).

However, while this law was a major advancement (it got rid of the rather silly requirements of having to register to have copyright rights and having to renew every couple of years) it apparently wasn’t enough for some companies. Because in the late 90’s one corporation in particular started plastering both houses of Congress with money to get an even further extension to the copyright law. And they won, getting up to 120 years for corporations and life +75 years for individuals (and I’m sorry but I won’t ever really know my great grandchildren, why should people I don’t know personally benefit from my creation?) Can you guess which corporation lobbied for this rather insane law? If you said Disney, you’re right. That’s right, Steamboat Willie, the original Mickey Mouse Cartoon (the one where he whistles Turkey in the Screw). I like Disney. I even understand why they would want keep the rights to that cartoon, Mickey is a trademark (which doesn’t expire), but that still doesn’t mean they won’t lose a lot of rights the minute that cartoon enters the public domain. From a business perspective it makes sense, they probably spent less money than they would have lost if it entered into public domain. But a 120 years? Are you insane?

For better or for worse copyright law needs to go back to the 1976 levels (again I wouldn’t mind cutting it back to life +25…and I’m an author). Overly long copyright laws stifle creativity and originality. (Why is Hollywood remaking so many movies? Because they want to get as much as they can out of the copyrights they have while they still own them…don’t believe me that expiring copyright motivates companies and individuals to do strange things with their works do some research into the copyright surround Superman, it makes Finnegan’s Wake look like an easy read.)

Conversely patent law, which covers technology and invention, is often, but not always too short. The worst case is of course patents on pharmaceuticals. Remember when you pay for an expensive drug you’re not really paying for the research that went into that drug, you’re paying for all the failed research that didn’t pan out. If patents lasted longer, companies wouldn’t have to gouge you as much because they would have a steadier source of income. But, people say, they make huge profits. Yeah they do. Because so many drug companies go out of business. You have to have a huge incentive to go into a business that is almost guaranteed to fail. And you have to pay people huge salaries to justify learning something so mind blowing boring as biochemistry at a Ph.D. level. If you had lower incentives you would have far fewer new drugs.

I would go as far as to say that patents need to be put on complete par with copyright…after all why is a book or movie worth more protection than a pill or microchip. Both are the creation of the mind, both can only be done by a relatively small group of people (I’d argue more people have the potential, but few live up to that potential).   And all patents need to have the same length, none of this drugs have different rules than technology, have different rules from other fields.  An idea is an idea.  Are you really going to trust government to say that ideas in this field are better than ideas in that field?  No.

Extending patent law would help create a new environment for growth and innovation as there would be more incentives.  This in turn would spur more economic growth.

Now two other things need to happen, and this is a little more difficult. First this needs to be an international thing. A lot of countries don’t uphold copyright and patent law. China has grown rich on it. It’s just amazing what you can accomplish when you steal all the technology you use and have a massive slave labor force. If China had to pay for every patent and copyright they have stolen and grown fat on, the U.S. Debt (and that includes the debt of all 50 states) could be paid off and still have some money left over. All countries need to uphold these laws (and I realize this will be almost impossible to do, but we need to keep trying to move toward this).

The 2nd point is I think China should pay for all its violations. And until it does I don’t think we owe them anything.


Filed under Art, Books, Capitalism, China, Civil Liberties, Congress, Conservative, Constitution, Economics, Free Will, Government is corrupt, Government is useless, Health Care, Laws the GOP should pass, Long Term Thinking, Movies, Natural Rights, politics, Unjust legislation