Thursday, April 12, 2012

Commentary on two MMM posts

I've been thinking a lot about Mr. Money Mustache's blog posts from April 9th and April 11th. I'm going to share my thoughts and hopefully add something of value.

What if everyone became frugal? [link]

Oh man, let me tell you. I thought about this topic a lot; sometimes it would make my head hurt, and sometimes I would worry about global frugality leading to a ridiculously low interest rate. I'm really glad MMM posted about how everything will be fine if we stop consuming like we're trying to wreck the planet. His post forced me to think more clearly about the consequences of a more frugal world.

The first lesson I'm taking away is don't think about economics if you don't have a model in mind. This is a noob mistake that I make over and over. Let me illustrate with an example.

My thought process went something like this: "Okay, let's say everyone starts saving at a higher rate than before. They're accumulating cash, now everyone has more savings. Increasing the supply of liquid funds will drive interest rates down. That means everyone will have to save more if we're all going to be living off interest. Oh no, now my stash will need to be way bigger...".

I was getting way ahead of myself. Economics is hard, and figuring out what the effects of a global move toward frugality takes more than pondering for a few minutes. Really if you're going to be answering a hard question, you need to work through a model.

Here is a post from an economics professor with whom I almost always disagree. That post, however, is completely uncontroversial, and illustrates the same point Mr. Money Mustache does. As societies save more, they become richer.

If you want to get a bit wonkier, study up on the Solow growth model (Wikipedia article actually not very good). There's a "golden rule" level of savings that maximizes consumption — I know, I know, but remember that in this case "consumption" is broad enough to include leisure time. What happens when a country's savings rate is below the golden rule level of saving, and then all of a sudden people decide to start saving at the golden rule rate? At first consumption decreases, but then it asymptotically approaches a higher level.

Eventually, if we (as a society) save more, we'll be richer. We'll thus be able to consume more leisure. We'll also be more productive, because of the additional capital available, which means we'll have to spend less time building our 'stash and more time enjoying life.

Get rich with: good old-fashioned honesty [link]

I only have a little to say about this one. It's nice to hear, from time to time, about how being honest and doing the right things makes you better off in the long run.

Character counts. I think the more we build our character, the happier we become as a direct consequence.

When I was still in college and looking to graduate, I wanted to stay in academia, because I didn't know how I could be happy with the narrow profit-maximizing head-down existence that a full-time job provides. Now that I'm living the grind, I've found a certain professional honesty to be a real boon to my workplace happiness.

With software development there is always pressure to cut quality in the name of shipping code quickly. To me, and to many, this feels wrong. It leads to shoddy products, and unhappy customers and workers. It's the same as the examples MMM gives about dishonest plumbers or sneaky used car salesmen.

I found a code of ethics from the ACM and IEEE for software engineers, and it makes me really happy. I'll be applying it to my work and thus reaping the benefits of this professionalism throughout my career.

No comments:

Post a Comment