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Source link: http://archive.mises.org/16413/the-case-for-frugality/

The Case for Frugality

April 8, 2011 by

It is a natural and healthy reaction to a politically created economic downturn that has devastated the stability of so many families. FULL ARTICLE by Wendy McElroy

{ 40 comments }

Michael Spencer April 8, 2011 at 9:47 am

You’re right about your frugality philosophy, that perspective of “only consuming what we need and truly want” can help us be happier. However, it is important to note that we should spend money on things we want the world to develop. Consumption is voting. I don’t think the “minimalism-only” mentality is a great one, because it is not the driving force for innovation. Consumption breeds innovation. However, when we consume things that are useless or new versions of things that are not any more efficient/better or pay for excess luxury premiums that don’t encourage innovation, we waste our power to drive the growth of productivity of the world.
Also, I don’t believe working less hours is a good thing. Perhaps for people who work overtime to buy those “shoes”. As they say, the only people who retire are the people who hate their jobs. If anything, people maybe could be doing charitable works if they have enough money saved up to live a happy retirement. However, it would be best if people used their skills to help the world to the fullest.

The Anti-Gnostic April 8, 2011 at 10:19 am

“However, it would be best if people used their skills to help the world to the fullest.”

Help people within your zone of influence–you, your family, your friends, your neighbors–and “the world” will take care of itself. This macro view of humane obligations to “the world” is uneconomic and counter-productive.

Michael Spencer April 8, 2011 at 11:40 am

This is selfish thinking that leads to moral-less acts like the Financial Crisis. If you forgo the “world,” it’s perfectly okay to screw over the country legally for your profit. The people who caused the Financial Crisis were indeed helping themselves, their family, their friends, and possibly some of their neighbors, but not the world. Short-sightedness creates most of the evil acts in this world. The world impact should always be considered.

Sione April 8, 2011 at 12:44 pm

Micheal

That’s nonsense.

The people who casued the financial crisis were indeed “helping the world”. They issued plenty of fiat money and ultra cheap credit because, according to them, that would “help the economy” and make it strong. That way everyone, even the poor, could attain the goals of the American dream, they said. Well, everyone didn’t. The intelligensia and the politicians were dreaming alright and now many, many people get to suffer for it. THAT is what the pompous and arrogant notions of “helping the world” achieve.

Best to mind your own business, stay out of everyone else’s (that is, don’t interfere with the rest of the world) and be aware that you do not know better than another man how he should live his life.

Sione

Michael Spencer April 8, 2011 at 9:03 pm

Sione,

It’s not nonsense. Like I said, short-sightedness causes most of the suffering in the world. Stability=development. Massive debt=long-term instability=short-sightedness.
When I say “helping the world” I don’t mean going into debt while doing it. We have limitations and we shouldn’t try to do more than we responsibly can.

I’m not sure what you mean by “It’s best to mind your own business.” I agree with isolationism. But all I was saying with my above comment was that people should think about their impact to the world, not just their friends and family. If people don’t care about their impact, immoral practices pop up, such as predatory lending, fraud, etc. Profit for your “social circle” does not mean the world is getting better.

Inquisitor April 9, 2011 at 7:20 am

When he refers to minding your own business, he means not using the government to go about attaining various economic or social ideals (of dubious justification mostly.) People will still care about all those things you mentioned, but right now there is the sociopathic tendency to use the government to maximise one’s own gain and disperse the costs across society (especially for well-connected individuals like Zuckerberg.) What anti-gnostic is saying is that you do not have legally enforceable positive obligations to others, that the government can then act upon. That is all.

Sione April 10, 2011 at 4:20 pm

Michael

Stability is something guilds and unions and mercantilists seek to impose upon other people (that is, society). They do this with rules, regulations and the creation of monopolies, cartels, special permissions & priviledges. They do it with the institution of government (which is an institution for their welfare, not yours or mine or anybody else’s). That has a tremendous cost and eventually ossifies society at the direct cost to those people within it. For example, entrepreneurs, creators of the new, are hampered by these structures (as they seek to change present arrangements and do things in new and more effective ways). The public misses out on the improvements that would be generated by the entrepreneurs who are unable to find work-arounds. The general level of well-being, wealth, savings/capital accumulation, life style etc. declines. The well connected and the powerful get priviledge at the expense of everyone else.

Massive long term debt is a symptom of having “modern” government. The type of permanent debt (with its basis in fractional reserve banking, fiat money, the Fed, the welfare/warfare state, permanent war and all the rest of it) being experienced in the USA today is impossible in the absence of a powerful socialist government. That sort of institution meddles in everything, every aspect of every human life (right down to the type of light bulb you can illuminate your house with, the size of toilet you can fit in your own bathroom, the kind of shower head you can fit to your own shower etc etc etc etc etc etc etc etc etc etc- take a look at the thirty-thousand plus pages of regulations in the federal register as but a small example). A corollary is that the type of systemic economic failure being experinced in the USA today is impossible without its causal element- government.

The trouble is that some consider that they know better than every other person how that person’s life should be lived. As one consequence they are attracted to the institution with monopoly priviledge on coercive power over other people. There they gain security and, worse, power over other people. There they are enabled in their quest to interfere and there they enable their dreams (or, rather, enable nightmares for everyone else). They project every personal inadequacy, weakness, perversion, fault, dishonesty, lack of integry, ignorance, stupidity, venality, immorality- the all of it projected upon those they hold authority or control over.

As to widespread predatory lending practices or fraud or whatever, in the absence of govt protections such behaviours would be finite, limited, readily exposed and eliminated at source. They would be found and exposed and halted by those minding their own business precisely because there wouldbe no protection or cover granted by priviledge or special permission.

By all means consider your impact upon the world if that’s what you like, but just remember this, as with every other individual you do not know everything about the whole world. You are only familiar with your own small portion of it. Deal with that portion as best you are able. The rest will take care of itself. As I stated, mind your own business. If you do that well, the world will get better.

Sione

Anthony April 8, 2011 at 1:12 pm

Michael,

The people who caused the financial crisis were the government planners who were giving free money to big, politically connected banks. The crisis would never have been possible without direct action on the part of the government. If someone takes your money and throws it out of a helicopter do you blame the people who took it after it hit the ground or do you blame the one who took it in the first place?

Without government interference in the market the ONLY way to get rich is to provide the maximum benefit to “society”… once the government come in the best way to get rich is rent seeking and lobbying, both of which big banks are very good at.

Try reading a few articles here about the financial crisis. They will give you something to think about.

Michael Spencer April 8, 2011 at 9:39 pm

Anthony,

You’re right, Government is to blame also, perhaps moreso for getting the ball rolling in the Financial Crisis. However, I disagree that Government is the only reason for immoral wealth. There are tons of immoral ways to get rich. Predatory lending, monopolies, manipulation of prices, and fraud, all many times unregulated. In unregulated privatized small colleges, people pay for degrees without learning anything. Is that “maximum benefit” to society? If advertisements were allowed to be dishonest, would their initial profits based on lies be providing “maximum benefit”?
If you’re only talking about Banks, Banks could use a lot of reform. Perhaps doing away with the derivatives market? Stricter rating agencies?

In short, many companies have been (or could be, without regulation) scamming the public without the help of Government. All organizations are made of humans, thus all are corruptible.

Daniel April 8, 2011 at 10:39 pm

True dat, but what would you rather have: a corruptible institution whose authority is predicated on answering consumer needs or a corruptible institution whose authority derives from its coercive monopoly that answers to no one?

Also, I’d argue that institutions that rely on coercion are by default anti-social, and not merely because of the fact that they must employ violence or the threat thereof to insure its revenues, but because of its capacity to crowd out competitors and the default ideological trust placed on it which infantilizes society.

An example of this would be the SEC, which failed to warn investor’s of Maddof’s ponzi scheme while Aksia, a private for-profit due diligence firm, warned its customers to not invest in this ponzi scheme.

Inquisitor April 9, 2011 at 7:10 am

“Predatory lending, monopolies, manipulation of prices, and fraud, all many times unregulated. ”

Of those, monopolies either are legal fictions or aided and abetted by government regulations. The government and its cronies (like GS) are the biggest manipulators of prices. Fraud is a crime anyway.

The Anti-Gnostic April 8, 2011 at 10:16 pm

You don’t know who “the world” is, so it’s absurd to govern yourself by how your actions impact “the world.”

Don’t change out your car’s oil and dump it in the creek that runs through your back yard. Help a family member fallen on hard times. Tend your sick parent, etc. There is no way you can rationally extend this humane sense to some unknowable entity called “the world.”

In my experience, people with their hearts just brimming with compassion for “the world” use it as a way to dodge local and familial responsibilities. Like the naive idiots who join the Peace Corps or Teach For America, wasting their own prime childbearing/parenting years on other people’s children. Or His Glorious Obamaness, just so full of compassion for the Libyan people, and so disdainful of the Americans whose interests he should consider paramount.

Michael Spencer April 11, 2011 at 3:14 pm

When I say the “world,” I don’t mean overextend yourself to go abroad. By the way, the “world” includes that creek in your backyard. When people think in small pictures (my neighborhood, family, etc.), they tend to leave out certain people. IE people who think differently than us, muslims, our neighbors in the next city, the next country, and this leads to us vs them mentality and hatred/genocide. Who is to say our neighbors 100 feet away are more important than 200 feet away?
You’re right, the further away people get, the less we understand their situation, so we should not try to meddle with their problems.
However, I believe there are pretty important issues at hand that involve the entire world, not just one’s neighborhood. Global sustainability: Overbearing birth rates, possible future shortage of food, pollution. These are long-term issues that will never be solved until it is too late if we look to “only help our neighborhood.” Long-term thinking (multiple generations +) is not innate for us.

Shay April 8, 2011 at 9:57 am

Never mind the time/cost in acquiring things; consider the time/cost in owning something you hardly use for all the years afterwards, and the difficulty in parting with it (“oh, I might need this, so I shouldn’t get rid of it”). In my own life, the latter has been a far greater cost, which has caused me to be very selective about acquiring new things over the past decade, even things like books. At some point (combined with permanently stopping watching TV, listening to the radio, etc.) things became a lot clearer and it was much easier to see the net-negative effects of these things and thus only engage them when it was clearly beneficial.

Anthony April 8, 2011 at 10:19 am

Wendy,

I could not agree with you more… I have use the same approach (money = time) myself and I have tried to convince other people of it throughout the years.

Michael,

Being frugal is in no way inconsistent with supporting things you want to develop… it is just being more particular about voting for the things you think are truly important. By forsaking unnecessary shoe purchases you are “voting” to have fewer unnecessary shoes.

As for working fewer hours (assuming you can freely pick the hours you work), the added utility you gain from having one hour of additional leisure time is necessarily greater then the added utility “society” would get if you worked that extra hour, otherwise they would have paid you more for it and you would have worked.

“it would be best if people used their skills to help the world to the fullest”
I agree, but as you are part of the world helping yourself must also factor in to the equation.

Michael Spencer April 8, 2011 at 12:01 pm

Anthony,

You’re right, valuing frugality/utility does not need to exclude development, however it CAN exclude development. Let’s say you’re in the car market. You believe in hybrid cars for saving the environment, but going by frugality you buy a gas car because they’re slightly cheaper. Perhaps if everyone acted like this, hybrid car development would be much slower than it could be. I’m just saying we should not only value frugality but also development. Both is the best.

About the hours, you’re right, I think I misread the article, thinking the writer was saying “we should work less than fulltime.” But it was just saying we should not work 2 jobs for the extra money.

Sione April 8, 2011 at 12:58 pm

Michael, you do not understand hybrid cars and how they are presently a distortion in the car market. Still, if you want to buy one go ahead and enjoy driving it, but don’t kid yourself that you are helping the world (or what is commonly referred to as the environment) by doing that. Youse aint. You’d be doing better for the world buying a second hand car (nothing wrong with 20 years or older- I have some of those) and doing it up. Before going on about “development” and innovation, take a long and careful look at the automotive after-market (which is where the many of the best innovations for cars tend to come from) and how many of those products are developed for older, second-hand cars.

Anyway, hybrids attract govt subsidy in the USA and in some other jurisdictions. You’ll have a lot of trouble explaining the economic benefit to the world of that sort of thing (unless you happen to be a socialist, which I hope you arn’t).

Sione

Michael Spencer April 8, 2011 at 9:54 pm

Yes, it is hard to see in the long-term what would have the most benefit, as purchasing a new car requires a lot of resources and produces a lot of pollution. Which is why we need modelers to predict long-term costs and help predict consumer decision-making. Perhaps give consumers a little guidance as to the effects of their decisions.
In my idealistic world, people would be minimalists like you, but also pay ahead of time for things they’d want developed. So there would be more money going to research, less towards using the resources because people wouldn’t be consuming as much, only when their device breaks down. Too bad this doesn’t work out with current society or possibly would never work out with human nature. We either want something for our money RIGHT NOW, or to turn it into more money.

Anthony April 8, 2011 at 10:16 pm

Michael,

I think you have forgotten about the role of investors in the economy. In the market today you can buy your new car when you need it, and in the mean time invest in hybrid car company (or lab or whatever). That way you can turn your money into more money AND influence future production.

By the way, the “modeler” role you mentioned above is in fact filled by entrepreneurs. Not only do they predict long term costs and long term customer preferences but they actually invest capital and align production so that when customers want a product it is there waiting for them.

Inquisitor April 9, 2011 at 7:14 am

“Which is why we need modelers to predict long-term costs and help predict consumer decision-making. Perhaps give consumers a little guidance as to the effects of their decisions.”

These kind of people exist and provide their services at a cost or free at point of service (e.g. online.) Prediction is just that though, prediction, and in the end this is just consultation/advice. Like Anthony mentioned of course, there is also the entrepreneur (i.e. arbitrageur) who is most important in bringing about coordination in the economy. Profit is the reward for addressing imbalances between demand and supply (and losses the punishment for failing to correctly anticipate consumer demand.) Add in the futures markets and the economy is pretty forward-looking. How much the more so without the state to warp things out of proportion by e.g. manipulating interest rates.

Shay April 9, 2011 at 2:49 pm

Let’s say you’re in the car market. You believe in hybrid cars for saving the environment, but going by frugality you buy a gas car because they’re slightly cheaper.

Except for cars that you can plug into a wall socket, so-called hybrid cars run entirely on gasoline. The only fuel you can put into them is gasoline. True, they are more efficient than many “normal” cars, but they are still totally dependent on gasoline.

Country Thinker April 8, 2011 at 11:24 am

Frugality also has a compnent of security. I don’t buy a fancier vehicle than I need because, not only don’t I want to waste more time of my life generating income to pay for a fancier vehicle, but I also want to own the vehicle outright so I don’t have to worry about losing it in the event of job loss. But then again, our nation’s central economic planners would be appalled by the loss of aggregate demand that would flow from a trend toward thriftiness.

billwald April 8, 2011 at 11:55 am

The Capitalists are right! It is good that the rich are getting richer and the poor are getting poorer. Only the rich have morals to properly handle wealth. It is good the Good Old Days are returning, the moral days when 80% of the population lived in poverty.

Half the people who win the lottery file for bankruptcy in 3 years. This proves that money is bad for working people. When the working class must work 80 hour weeks just to stay alive they don’t have time to be immoral, right?

Michael Spencer April 8, 2011 at 12:08 pm

Haha, I hope you’re sarcastic. There are similar statistics for thoughts on “morality” between rich and poor people, probably even between employees of Government and Corporations. And yes, poor people who are instantly granted a lot of money will not know how to manage it, just as super-rich people who have had everything handed to them probably wouldn’t know how to survive if they were thrown out on the streets. Maybe a fun idea for an experiment?

Anthony April 8, 2011 at 1:17 pm

billwald,

Did you even read the article? How is your comment possibly related to the topic at hand? If you have something meaningful to say then say it, if not then go post your asinine comments on some communist blog or other. I hear they love mindless blathering about exploited workers.

Inquisitor April 9, 2011 at 7:11 am

Billwald is either an idiot or a troll. His comments rarely have much connection to the topic at hand. Who knows who he is trying to caricature, but more importantly, who cares?

El Tonno April 8, 2011 at 5:04 pm

1) Beam in with an anti-capitalist bias and plenty of confused “left-wing” thinking.
2) Read headline.
3) Sarcastically troll in forum based on what you think the headline signifies.
4) ????
5) Fun on Friday!

Joyce April 8, 2011 at 4:32 pm

If you make $25 per hour and buy a $100 item, it didn’t cost you four hours. It cost at least five hours, depending on your tax bracket.

Anthony April 8, 2011 at 10:17 pm

Good point…

Big Head Bob April 8, 2011 at 7:30 pm

Great article! Remember also that things we buy and/or own may possibly be attachments or can become attachments. Attachment generally leads to happiness and misery (if your attachment does not work properly, breaks or gets stolen). What you once knew to make you happy has now made you unhappy or possibly miserable. This is why some monks, buddists, others who posses nothing have peace and are able to keep it. This may have nothing to do with economics but it falls in line with some content of the article. I mentioned to the author that traveling would seem to make us happy but when we travel it is just a miserable experience because of the harrasment, fees and ‘hours we worked’ to pay for the experience

JT April 8, 2011 at 9:38 pm

Isn’t this just what we used to call “living withing your means”?

Anthony April 8, 2011 at 10:19 pm

Yes… but the government has gone such a long way towards dissuading people from saving that most people of my generation don’t think twice about amassing huge debts.

JT April 10, 2011 at 8:33 am

How has the government gone a long way to persuade people from saving? I’d say it’s mostly bad advice from so called “financial experts” and a slick marketing campaign from banks and credit card companies. “No money down”, “buy now, pay later”, “60 days same as cash”, “no interest for six months”, “low monthly payments” etc. I’m 30 and only have debt on my home, and I haven’t had a credit card for almost four years. I guess I’m not typical of my generation.

Anthony April 10, 2011 at 9:27 am

JT,

The first way the government prevents people from saving is through enforced low interest rates. See http://mises.org/daily/3862 for a detailed discussion, but basically the government is taking money from savers and giving it to borrowers through artificially low interest rates; why save my money and earn 0 interest when instead I could buy something fun that I can’t afford and pay almost no penalty.

The second way is through the policy of inflation. Every year the government essentially confiscates a minimum of 2% (if you believe the official policy) of your savings by printing money… and that is in a good year. Why would I save money when come time to withdraw it will buy less then when I put it in?

Add that to the fact that the government is constantly spouting the Keynesian nonsense that saving is evil and that only by spending as much as possible as soon as possible can we maintain our economy.

This is a great example of people blaming the “free market” (especially those marketers you mention) for a problem that is created, perpetuated and approved of by the government. As long as GDP is high the government is happy, regardless of the actual wellbeing of individual people.

JT April 12, 2011 at 12:34 pm

Oh no, the people who amass huge debts only have themselves to blame. I wasn’t implying that the “free market” was to blame. There is still something called personal responsibility. Regardless of the marketing, it’s still incredibly stupid to borrow money at 0% interest on something that looses half it’s value in 2 years (like a car).

I understand what you are saying about inflation. This forces people to try to seek a rate of return on their money higher than inflation, or it essentially taxes people who save at a rate lower than inflation.

However I don’t understand you when you say “why save my money and earn 0 interest when instead I could buy something fun that I can’t afford and pay almost no penalty.”
You aren’t paying 0 interest when you factor in the depreciation of the item you purchased. If you refuse to pay for the item then your credit rating is trashed. Aren’t those penalties?

Mrhuh April 10, 2011 at 10:04 pm

Governments have gone a long way towards persuading people not to save by spouting the Keynesian B.S. that conspicuous consumption and vices are good for society as a whole.

Donald Rowe April 9, 2011 at 9:06 am

Genuine buyer’s remorse.

It’s a simple side effect of free trade and always will be present. It is a powerful force, in the negative feedback sense, that serves to make our decisions better and better over time, whenever we choose to trade goods or services.

Frugality is a subjective value judgment, and the judgment of what is frugal will itself change over time, so *frugality* is irrelevant. The free market remains unmoved by the choice to be ‘frugal’. There is no *case* to be made for frugality. You can spend your money however you like and the world will be no better or worse for it.

There *is* a case for working harder, as long as you get to keep what you have worked for until *you* choose how you will trade it. You and your trading partner will both be better off after the trade. There is a weak case for the argument that a third party may be harmed by the otherwise free trade, but that is in no way an argument *for* frugality.

Of course, there is certainly a *case* against working more or working harder when it is done to satisfy the ‘need’ to pay taxes, or the need to pay interest to your banker when he engages in making fractional reserve loans. These are the direct or indirect causes of *overproduction*.

There is an old adage: Over planting makes a rich father and a poor son.

Anthony April 10, 2011 at 9:36 am

Donald,

What exactly do you mean by “overproduction”?

I don’t really understand you adage either; is it referring to soil depletion? If not then I would think that a more productive father would make a rich father and a rich son.

Besides, while it is true that the “market” does not care if you are frugal or not, Wendy is saying that most individuals will likely be happier being frugal than they would be by spending carelessly. Human action is determined by understanding, and by helping people develop a more complete understanding of costs Wendy is helping people better align their actions to achieve their desires.

“You can spend your money however you like and the world will be no better or worse for it”… maybe that is true but YOU could certainly be worse off for it.

Joe April 9, 2011 at 6:32 pm

@Wendy,
Great article for the times. I think as a person gets older and has experienced the days of youth when you are more inclined to want the more extravagant, you slowly change and learn that the more you own the more responsibility it requires. As you get older you become more focused into what is really important and not superficial in your life. For instance I right now would love to have a dog but I realize how the animal can tie you down and adds more responsibility. When you get older I believe that people want life to be simplier. Life is so much easier when it is simple. Downsize and enjoy life. What really matters in this life is your family. Material possessions are great but only can supply temporary happiness.
Again, great article.

Peter White April 19, 2011 at 4:34 pm

Ma’am, I had a very similar discussion with my ex wife some six years ago. As I tried to point out, our age difference of ten years, prompted all my calculations for our future. Specificaly I had a finite number of hours that I could work, I have a physicaly demanding job as a millwright, and providing for her and myself into retirement weighed heavily on me. I tried to use the hours of work versus percieved reward argument and this fell on unfertile ground. Since then I have been divorced and able to retrieve some semblace of financial balance, by being frugal.

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