Tuesday, January 20, 2015

Never enough now

Rob Carrick is half right in his response to the firestorm surrounding the story of Eric and Ilsa:
Canada’s No. 1 problem in personal finance is not a lack of saving, it’s spending beyond our means. Eric and Ilsa show us that it’s a problem uniting people of all backgrounds. This couple is you and me, only with a higher income.
Mark it down – income inequality is a problem with legs. Economic growth isn’t going to raise all boats any time soon. Seven years after the global financial crisis, we continue to hear dismal economic news that suggests people fighting to keep what they have and not gain ground. We have a generation of young adults today who seem poised to achieve a lower standard of living than their parents.

Darn right, people are mad about this.
The real issue is not the wealth of the 1 per cent, but the difficulty the 99 per cent is having in raising its own standard of living. Why are young people having so much trouble landing career-building jobs? Why are pensions disappearing? Why are more companies offering contract work instead of full-time jobs? Why is it so hard for laid off middle-aged workers to find new employment?

If you want to hear more about wealth inequality, make it an issue in the federal election campaign coming later this year. As for Eric and Ilsa, let’s dial it down. Mocking them means we’re not talking about what really matters.
But if mockery may not be the most productive response to a couple overspending a budget most families can only dream of, surely it's worth looking at the example to question our assumptions about increased income and wealth. And on that front, Michael Lewis' observations are worth keeping in mind:
(I)t is beginning to seem that the problem isn't that the kind of people who wind up on the pleasant side of inequality suffer from some moral disability that gives them a market edge. The problem is caused by the inequality itself: It triggers a chemical reaction in the privileged few. It tilts their brains. It causes them to be less likely to care about anyone but themselves or to experience the moral sentiments needed to be a decent citizen.
Or even a happy one. Not long ago, an enterprising professor at the Harvard Business School named Mike Norton persuaded a big investment bank to let him survey the bank's rich clients. (The poor people in the survey were millionaires.) In a forthcoming paper, Norton and his colleagues track the effects of getting money on the happiness of people who already have a lot of it: A rich person getting even richer experiences zero gain in happiness. That's not all that surprising; it's what Norton asked next that led to an interesting insight. He asked these rich people how happy they were at any given moment. Then he asked them how much money they would need to be even happier. "All of them said they needed two to three times more than they had to feel happier," says Norton.
The evidence overwhelmingly suggests that money, above a certain modest sum, does not have the power to buy happiness, and yet even very rich people continue to believe that it does: The happiness will come from the money they don't yet have.
Hence the apparent inclination to overspend at nearly any income level in an effort to seek out a bit more of that supposed happiness than one can currently afford. And while Eric and Ilsa offer up a particularly obvious set of unnecessary expenses which are being treated as inevitable parts of a family's spending, I'd strongly suspect most family budgets include some regular expenses which are similarly questionable in importance (if not in amount).

Which means that in addition to Carrick's message about income inequality, there's another lesson to be learned.  

Rather than settling for the default assumption that everybody will be perpetually unhappy for want of several times their current income, we should work on ensuring that everybody's basic needs are met, then developing family and social fulfillment within our means. And an essential part of that process involves stopping the cycle of finding happiness only in terms of what can be bought - no matter what one's current income.


  1. Doesn't even have it half right in my opinion. It's becoming more and more clear that the rest of us are struggling precisely because the 1% have so much. The income and the wealth are being redistributed upwards. We're being ripped off. This is partly because of investment income, but professions defined as high-status are also being paid proportionately more than they used to be, less "important" jobs proportionately less.
    So anger at the Eric and Ilsas of the world is not a diversion from what matters; to the contrary, it is directly relevant.

    1. Fair points to be sure. But part of the reason why high-status professionals are demanding that much is surely the same insatiable-consumer mentality that exacerbates inequality across the income scale (and that's promoted primarily by people far above their pay grade). So any anger should be tempered by the knowledge that the Eric and Ilsas of the world are largely products of the wider forces we should be combating, rather than the primary object of frustration.