The work – money – consumption cycle (or "I had a dream")

I composed this post almost entirely in a dream the night before last. Seriously.  I wrote most of it up in the hour or so after I woke up, finishing it up this morning (busy day yesterday…). Since my dreams usually consist of the physically impossible and discontinuous as a metaphor for something my sub conscious needs to express , a more or less fully formed logical thought is somewhat remarkable.  Here it goes:
Almost everyone I know would say that they work too much, or more precisely spend too much time working.  The success of a book like “The 4 hour work week” is a testament to this. The reason most people give for continuing to work when they say they do it too much, is that they need money.  They need money to be able to consume, both necessities as well as desires (needs and wants).  You need water, food and shelter. You want a nice car, nice clothes and the newest gadget. You need money for all of it.
With everyone working so much, it would seem logical to conclude that it should be easy and cheap to consume, since a large portion of that work would increase the supply of things to consume.  Increased supply equals lower prices.
The reality for most people today, however, is that the things they consume are actually getting harder to find and more expensive. This drives them to work more in order to make more money to be able to afford what they both need and want to consume.
It seems to me that there are three drivers for this contradiction:

  1. Labor is not being efficiently allocated to the areas where it will be most valued, specifically creating the things that people need and or want the most.  The reasons behind this vary from the “everyone needs to go to college” meme (which is increasingly looking to be driven by similar motivations and will have similar results to the “everyone needs to have a house” meme) to all sorts of market distortions (corn subsidies, tax credits for electric vehicles, etc).  Regardless of the causes, the net result of inefficient labor allocation is that people don’t make as much money as they could and things get made that people don’t need (which creates the the need for the third issue listed below).
  2. The supply of money is increasing faster than the supply of stuff to buy with it. Much has been written about the evils and causes of monetary inflation that I will do no better trying to explain here.  Regardless of what you think about inflation, the fact is that by the time you get the money you work for its worth just a little bit less than when you actually earned it.  The same thing that works for goods works for money – the more of it there is, the less each unit is worth. Whether this is a grand plan by cigar smoking, back slapping businessmen or simply the result of a series of poor choices, doesn’t matter. The result is doubly good for producers and doubly bad for consumers. Consumers are driven to consume now rather than later since their purchasing power is continually decreasing – they won’t be able to buy as much tomorrow as they can today. This is an obvious benefit to producers: a bird in the hand is worth two in the bush. The second benefit to producers is that because of this continual source of consumption, producers can afford to make the capital investments required to get bigger. As they get bigger, they will of course produce more, but as long as inflation keeps going they have a guarantee that increased production will not lead to lower prices.
  3. The use of marketing to create demand rather than awareness. As a consequence of the mis allocation of labor and capital surpluses are created. Goods that the market didn’t want and couldn’t consume get made. The modern professional marketer rode in on his white horse with full psychological profiles and neuro-linguistic programming in hand (images of Don Draper should be flashing through your mind). The modern marketer changed the playing field from simply telling people about his product to making people want things they wouldn’t have otherwise. This artificial demand helps producers off load the surplus by filling peoples houses and garages with things they don’t need and over time don’t even want.

So, how about some redemption in the third act? All is not lost. There are (at least) three things you can do to break the cycle:

  1. Engage in production to meet some of your own needs. I can’t emphasis enough how important this is. To be clear, I am not saying you need to make all your own clothes, grow all your own food and build your own house. Even supplying 5% of your own needs, or event wants, in one area will confer all of the benefits. You will start to understand the true cost of things and therefore be wary when you have a chance to buy something that is cheaper than it should be (see externalized costs). Also, you will build self esteem because you will realize that you are not completely dependent on others for your existence.
  2. When you do consume, do so mindfully. Develop a series of questions that you can ask and answer quickly before making a purchase. The bigger the purchase, the more questions you should ask yourself and the longer you should give yourself to answer them. Evaluate the true costs – not only what does it costs in monetary terms, but what else could I do with that money or even more importantly with the time I will have to use to are that money? Is it something a I want or need? The needs of a human are surprisingly consistent over time, so if it didn’t exist 100 years ago, you probably don’t need it (this is not an argument for becoming a Luddite – wants are fine to fulfill as long as they are understood as such). These are just examples – you should come up with your own that make sense to you.
  3. Learn the lost art of barter. Despite all the best intentions of the former congressman of the great state of Texas, the inflationary monetary system isn’t going anywhere anytime soon. Many have predicted its demise, and although it won’t (can’t?) go on for ever, it seems to be so well tuned now that it will go on longer than is good for anyone, including producers (that may be what started to happen in 2008).  The simple realization that people will take things other than paper/digital money in exchange for goods is extremely powerful.  The idea that you can take things in exchange other than paper/digital money can be even more powerful.  Trade some of what you make yourself or pay someone in silver.  Take bitcoin for something you are selling.  It takes some practice, but with a few reps you can get good at trading value for value, where both parties come out as winners.

Not sure what triggered all of this (maybe something I ate?), but I think the work – money – consumption cycle is something that deserves a little more conscious reflection.






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