Sunday, April 1, 2012

"Priorities": an editorial by Overwatch


by Overwatch

Time. You have a limited allotment. While people talk about Earth having exhaustible resources, nothing is more exhaustible than the time you have here on this earth. Time, like money, is a finite commodity. How do you decide what to spend it on? How do you set your priorities in life? The purpose of this article is to give you intellectual tools to prioritize your time and your money.
It is very easy to "lose track of time". In this modern age, there are a million and one things all vying for our time, if not our physical currency as well. Multitasking is the word of the day. More done in less time. Yet this does not answer the question of priorities. Does "it" need to be done? Does "it" need to be done now? Why do you do what you do? Would you rather be doing something else? The answers to these important questions, and the difficulty we sometimes have in answering them, is evidenced by the fact that time management tools are big business.
But we don’t always have to turn to our date books or calendar software to find help managing time. Three concepts from economics can help you prioritize your time as well. They are "Time preference," also referred to as "discounting," "The Law of Diminishing Returns," and "Opportunity Cost". A quick Internet search can provide you with ample details on these terms, but how they apply to personal time expenditures is relatively simple.
Time preference is a term used to describe how much you value an immediate return on your time (in this case) as opposed to a return on your time in the future. The Law of Diminishing Returns, as framed by Murray Rothbard, states that people will always seek maximum returns for their time, and there is, essentially, a point where there can be "too much of a good thing". Everything has an opportunity cost. By using a resource (like time) in one way, you exclude other ways in which it might be used. An example of a high time preference would be taking the lesser amount from a lottery winning in a lump sum, instead of taking the installment payouts, which leads to a greater payout over time (low time preference).
Marginal utility strikes once the lump sum is received. The lottery winner may have been starving before hitting the jackpot, but he will not use all the money on food. He will buy enough to eat, and maybe enough to fill a pantry, but he will not continue to buy food. Once he decides he has enough food, the usefulness (utility) of any food purchased past that point goes down. The winner will begin to buy other things he desires. Opportunity cost strikes simultaneously. Whatever the winner spends the money on, leaves less for him to spend on something else.
Many people understand the concept of "all things in moderation", and yet fail to apply it on a regular basis. An example of this is trading your labor (in time) for dollars, particularly when it comes to working overtime. No one dies wishing they had worked more overtime, yet how often do people do it? Is it because of a low time preference? Sometimes, but not often. Very often it is merely because of unchecked consumerism. How much happier will you really be with the new car every year? With the extra thousand square feet? With an extra few inches of high definition? In the end, are you living to work or working to live?
The world is a vast and beautiful place, yet we rush from workspace to living space and back, virtually isolated. Why? If you have a definite goal to reach, and have considered how to reach it, and are following through on a plan, that is wonderful. However, if you are merely treading water in the river of time, these are tough questions you need to ask yourself. Otherwise you will eventually wind up asking yourself "Where did the time go?" and "How did I get here?"
In the course of my employment history, I worked a job that offered a high amount of overtime for those who wanted it. I declined whenever possible, as did a few others. Most of my coworkers, however, fought over who would get the extra hours (and extra pay). They were outright confused by those of us who did not jump at the "opportunity."
One such coworker was an elderly man, nearing retirement. He was serially single, had little to no contact with family, and spent his off hours alone in his recently purchased new home (bought at the height of the housing bubble of course). He was on multiple medications and in poor health. He ate a regular diet of junk and fast food (no surprise). I really could not see any reason for him to work overtime. I didn't really even see much motivation for him to keep living at all, but yet he showed up like clockwork, and always took overtime when he could.
One day when we were working together, he began to question me as to why I would turn down overtime, especially since I had "a family to provide for". My answer, based on the Law of Diminishing Returns, made absolutely no sense to him.
I told him that I already spent forty hours a week away from my family, and that every hour over what it took to provide for them was time lost to spend with them. He didn't understand. He was stuck in a one dimensional paradigm where "I was turning down money", while I tried to explain that I viewed my choice as time I was spending in a more productive way.
I guess part of the disconnect was trying to explain how I could value family over money, to someone with no family to speak of. I attempted to find out the method behind his reasoning and preferences and all I received as an answer was "But it's more money". He needed more money to cover an underwater mortgage on a larger home (purchased during the housing bubble). Why he upgraded homes as an elderly bachelor made no sense to me. This leads into another timeless maxim: "The things you own, end up owning you". At what point do modern conveniences go from being a means to an end, to the end themselves?
When people will stand in lines for hours on end, and even kill each other, for the chance to get a price cut, or sometimes even to spend a premium in nominal terms for the newest gadget, who owns what?
I would never wait in line for a sale. Think how much you added to the cost of the item by waiting in line. Take your current hourly pay rate and multiply it be the hours spent in line, and then add it to the price of the item. Is it still such a good deal?
Here's another question: Do you need that new gadget now, or are you willing to pay a premium because you merely want it now? Could you wait for it to be "last year's/season's model", and reap significant savings by merely delaying the purchase? This would be a simplified example of implementing a lower time preference, while expanding your overall buying power; especially if consuming now also means entering into debt.
Entering into debt for mere consumption is the worst form of high time preference. Now the cost of the good must also have interest factored in. Now how much does that new toy cost? Remember, your life is time and time is money, so how much of your life is it worth?
These are all things that should be taken into consideration, and yet very rarely do people frame their decisions in these terms. Our modern "Westernized" culture has become one with a very high time preference, and it is leading to our decline.
The population is not educated to think in these terms, as it is not profitable for the current economic or governmental models. Rent-to-Own, car leasing, and quarterly profit targets are examples of a high time preference. The same holds true for deficit spending, which nearly every government is engaged in, in record amounts. Consumption now, at increased future costs, cannot go on forever.
I hope these concepts and their application will become useful tools for you in the future. They have certainly been invaluable to me.

Overwatch is a blogger from the American southwest.  His website can be viewed here:

No comments:

Post a Comment