Tag: Money

Limitations of Money: Market Outsiders and Impersonal Systems

Posted on by jabittan

Something I have noticed in my own life recently is that I am less patient and less personable with random strangers in stores. My wife and I do most of our grocery shopping on the weekends, but typically each week we have a meal planned that will turn out much better if I pick up a single ingredient the day we cook that meal rather than four or five days ahead of time during our weekend shopping. This means that usually at least once a week (more if I forgot an important item) I am running to the store after work. During these trips I’m usually in a little hurry to pick up what I need, get through the afternoon rush hour traffic quickly, and make my way through the store and everyone else who is at the store after work to get home and start cooking. I know what I want at the store, where it is in the store, and I’m not really interested in chatting with a random person who I may never see again about the weather, local sports, or some peculiarity of the grocery store. Sometimes I feel bad about it, but I just don’t feel like engaging in personal chit-chat with the grocery store employees or other shoppers. I’m simply on a cold and heartless shopping mission.

My story reflects one of the limitations of money and markets. It enables trust between people and helps organize and order our lives, but it doesn’t really build community or relationships between people. This heartless impartiality of money is a fair critique and it is one of two primary critiques that Yuval Noah Harari presents against money in his book Sapiens. Harari isn’t denouncing money, but he is demonstrating that money and economics are an insufficient explanation for human global expansion and dominance. Humans live as a globally connected species, forming relationships and connections with people from Alaska to Japan to South Africa to England and back again. Money and modern economies helped us forge this global path, but there are things within the human experience that lie beyond the reach of money and the markets that currencies enable. To explain how we got to where we are today, we have to consider economics, but also look beyond money.

“Human communities and families,” Harari writes, “have always been based on beliefs in priceless things, such as honor, loyalty, morality, and love. These things lie outside the domain of the market.” There are certain things we cannot buy and sell, or at least if we do, we are aware that they are not exactly genuine. Purchasing honor, love, or loyalty is more like a quid pro quo rental agreement. I provide you with certain financial incentives and you signal a certain amount of honor, love, or loyalty back toward me. Like modern college football coaches, as soon as a better financial opportunity comes along, all the rhetoric around such values is out the window and all those values are instantly transferred to someone else. Humans don’t cooperate on large scales and build massive societies and institutions simply because someone payed a lot of people to do so. Something more intangible to human existence is necessary.

Markets and money don’t seem to be able to reach those intangibles. Money fosters cooperation and trust between people, but doesn’t necessarily get people to connect and relate to one an other or feel any sense of mutual respect and geniality between one another. My grocery store example demonstrates this. The store trusts that my plastic card will transfer sufficient digital numbers to the store in exchange for the steak that I am taking with me. But I don’t have any real loyalty or good will toward the store and it’s employees. Harari continues, “for although money builds universal trust between strangers, this trust is invested not in humans, communities, or sacred values, but in the money itself and in the impersonal systems that back it. We do not trust the stranger, or the next-door neighbor, we trust the coin they hold. If they run out of coins, we run out of trust.”

Money can break down barriers between groups of people. It can facility trade, cultural sharing, knowledge spread, and tolerance. But it isn’t enough for humans to be a globally peaceful and cooperative species. Money is off limits in some domains, as there are certain things that lie outside the realm of markets. Money doesn’t build meaningful relationships between people in a way that forms long lasting and deep trust and engagement between people. It seems to have been necessary for human global dominance, but insufficient to explain exactly how we have arrived at the modern world we inhabit today.

Money is the Root of all Large Scale Social Cooperation

Money is the Root of all Large Scale Social Cooperation

Posted on by jabittan

In his book Sapiens, Yuval Noah Harari writes, “for thousands of years, philosophers, thinkers, and prophets have besmirched money and called it the root of all evil. Be that as it may, money is also the apogee of human tolerance.” Calling money evil is shortsighted. Even saying the pursuit of money is evil is shortsighted. The reality is that humans evolved in small tribal groups where mates were not evenly distributed. Social status and power were important factors in who was able to mate and pass their genes along to the next generation. For ancient hunter-gatherer tribes this often meant that the most physically dominant, the most well connected socially, or those who rose to the highest social status by other means became the person to pass their genes along. The key was accumulating social status and demonstrating status so that everyone knew about it. We can do that today with money, but we can also accumulate wealth, power, and prestige and signal those things through means other than money. Harari calls this out in his book and suggests that money has actually had much more important values throughout the human experience than just serving as the root of all evil as men try to compete for status and power.

Harari continues, “money is more open-minded than language, state laws, cultural codes, religious beliefs, and social habits. Money is the only trust system created by humans that can bridge almost any cultural gap, and that does not discriminate on the basis of religion, gender, race, age, or sexual orientation.” Money enables human trust and cooperation at a grand scale. As Joseph Henrich explains in The WEIRDest People in the World, human tribes broke away from family, clan, and guild centric groups in part through trust that money could build across groups. There was of course much more to the story, but currencies enabled cooperation, trust, and coordination among humans at a large scale, something that other institutions had difficulty accomplishing.

Today people complain about companies and corporations pandering to certain groups or messaging and marketing their goods and services in ways that reinforce what is often called identity politics. The reality is that businesses need to be profitable to survive, and that means they need to convince people to purchase their products and services or shop in their stores. Money and currencies can flow between people of differing demographics and ideologies, allowing for cooperation where none would exist before. Messaging and signaling to people that they should spend their money in a certain way is not an evil, but is a demonstration of tolerance and acceptance. Rather than an evil, money and currency pushes a more accepting stance, even if that means that companies are slow to denounce clearly objectionable people and beliefs and slow to push for needed reforms and innovations. I think it is fair to argue that has more of a moderating effect, limiting the extreme and irrational rejection of some groups in an attempt to sell to the general middle or in a willingness to lose the fringes to remain more in the middle of opinions and beliefs generally. In the end, money, as corporations demonstrate, builds more trust and cooperation among people with different identities and ideologies than would otherwise exist.

Ultimately, money is the root of all large scale cooperation, but not necessarily the root of all evil. It is a neutral tool that has encouraged less discriminatory and biased stances at the same time that is has been a means for signaling dominance and status. Without money we likely couldn’t exist as a global species that interacts and cooperates peacefully a majority of the time.

Money - Signaling & Counterfeiting

Money – Signaling & Counterfeiting

Posted on by jabittan
Growing up, I was much more interested in the design and appearance of money than I am today. I remember being fascinated by the faces on paper bills and coins, by the small printing details and hidden items present on currency, and by the small details that contained important information within serial numbers or other markings. Today, as we get further into a digital world and use less physical currency, I hardly think about these factors, but for much of human history, these physical markings and the signals they contain have been incredibly important and worthy of the awe my younger self felt toward them.
 
 
In his book Sapiens, Yuval Noah Harari spends some time examining currencies as a medium of exchange and discusses the crucial role that state sponsored currencies played in the growth and development of human economies and human trust. Currencies created a medium of exchange and money became a great tool to build trust between individuals who had never met, were not family, and otherwise had no reason to trust each other. Currencies helped hold the social world of humans together, and counterfeiting currencies quickly became one of the most serious crimes. Harari writes, “counterfeiting is not just cheating – it’s a breach of sovereignty, an act of subversion against the power, privileges, and person of the king.”
 
 
Ancient currencies tended to feature the likeness or symbol of a powerful ruler. Their images and depictions had tremendous signaling potential, and special, hard to copy markings, helped uphold that signaling potential. Harari explains that a coin stamped with the face or emblem of a ruler was a guarantee based on the honor, power, and authority of that ruler that the coin contained the amount of precious metal that was indicated by the coin – contrasting unmarked ingots or in-kind goods that could be subtly adjusted and manipulated to create unfair trades. Counterfeiting was an act directly against the ruler, their social order, and the trust that a population would have in that ruler.
 
 
The signaling potential of currencies has carried forward to the modern day. American quarters feature a wide variety of state-specific designs on the back, intended to promote the authority, Americanness, and prestige of each state and the notable landmarks in the country. Paper bills feature the faces of presidents and founding fathers (and one day a woman will be added). These currencies still signal the history and authority of the United States. Difficult to copy markings and printing techniques still give us confidence that the currency is authentic. The paper and the coins we may still occasionally use are backed by the authority and trust of American governance, even if that authority and trust is no longer tied to a single king or ruler. Many of the same features of ancient currencies are still at play in our modern money. The signaling role of currency is still central to it’s use, as is the trust it generates. 
Money & Trust

Money & Trust

Posted on by jabittan
Currencies are not always intuitive. At a basic level, human trade is more straightforward when we can trade item for item, service for service, or knowledge for knowledge without the use of a different medium of exchange. After a natural disaster, on the playground with playing cards, or in the neighborhood, exchanges of similar things without a currency can be common and straightforward. If you have a lot of extra water but need fuel for a generator after a hurricane, you can probably come to agreement with someone close by who has extra fuel and is need of water. A limitation, however, of exchanging like goods, as can be seen in all three examples, is that such exchanges often require proximity and trust with the individual. Young kids on the playground probably wouldn’t make a lot of trades with random kids they don’t know from other schools (I did as a kid and got burned by a fake card). And neighbors will help each other out, but few of us would ask someone from several blocks away to check on our house while we are on vacation and few of us would shovel snow from the driveway of a house that wasn’t immediately next to ours (no matter how generous we feel during the holidays).
 
 
Currencies are able to overcome these barriers. “Money is the most universal and most efficient system of mutual trust ever devised,” writes Yuval Noah Harari in his book Sapiens. Money allows us to make exchanges with people who are not in our immediate proximity and who we don’t know. I wouldn’t shovel the driveway for someone I didn’t know who lived a few blocks away from me, but I would certainly give them a few pieces of paper or coin in exchange for a lamp if I saw one I was interested in at a garage sale. I don’t need to know the person, know anything about the lamp, or demonstrate that what I was trying to trade them was of equivalent value to the lamp. We could both trust the currency I was using in the exchange and smile and move on without ever seeing each other again.
 
 
Money expands the scope of who we can interact with and facilitates markets by providing a medium through which we can compare different goods, services, and information. It is hard to trade information about an approaching winter storm for a gemstone, but if enough people are willing to give someone money if they can relatively accurately predict the weather, then that forecaster can go purchase a gemstone. If we couldn’t trust the forecaster, if we only had goods and services to exchange for their information, the market couldn’t exist and trades could only rarely take place. Instead we trade currencies, or numbers from digital bank accounts, for information, goods, and services. The money, or digits on the computer screen, are not in themselves valuable, but through our system of trust they become valuable. Currency enables trust and is further enhanced by trust, allowing us to cooperate with more people than just our neighbors or the other kids on the playground.
Saving Money in Poverty

Saving Money in Poverty

Posted on by jabittan
People in poverty are often criticized for the way they live and the decisions they make. From the outside it is easy to criticize the person in deep poverty who buys things they don’t need on QVC, goes to garage sales and buys junk that piles up inside and outside their home, and spends their money on fancy grocery items instead of the cheapest options. However, for people in the deepest poverty, escape to even just a more stable poverty can seem impossible, and when that is the case, there is little reason to work on saving.
Matthew Desmond demonstrates this reality by explaining the situation of a character in a trailer park named Larraine. He writes, “To Sammy [Larraine’s niece], Pastor Daryl, and others, Larraine was poor because she threw money away. But the reverse was more true. Larraine threw money away because she was poor.” Desmond walks through Larraine’s financial situation. She had a tiny amount of money left after paying the rent each month, and if she saved every penny that she could for the whole year, she would bank enough money to afford one month of rent. However, doing so would come at a huge cost, forgoing things that brought her a small amount of enjoyment in her trailer park poverty. Instead of penny pinching, Larraine splurged on frivolous fun items and enjoyed the small perk of getting something nice from time to time. This frustrated the people in her life who she sometimes asked for money because they saw her prioritizing face creams and steak over hot water and sufficient food for the whole month.
Desmond continues, “People like Larraine lived with so many compounded limitations that it was difficult to imagine the amount of good behavior or self-control that would allow them to lift themselves out of poverty. The distance between grinding poverty and even stable poverty could be so vast that those at the bottom had little hope of climbing out even if they pinched every penny.” When this is the life you are stuck with, then why continuously live with nothing. Why continuously try to save when a whole year of saving only gives you enough cash in the bank (or under the mattress) to be secure for one month of rent payments if something went wrong. If there is almost no hope of your financial situation improving, then why not enjoy what you can, even if it means you are going to suffer a little more in some areas or risk having a utility shut off for a few weeks.

Happiness, Well-being, & Money

Posted on by jabittan
A question that is always asked and played with in movies, at family dinners, and in our popular culture is can money buy happiness? We will all say that the answer is no, especially when we hear about a wealthy person who commits suicide or has their life unravel in a public manner. Nevertheless, we all pursue a relatively high level of wealth and income, and we recognize that having more money would mean that we could eat out more often, take more vacations, and buy more things. There does seem to be some level of happiness that can be achieved through more money.

 

Daniel Kahneman shared research on the question in his book Thinking Fast and Slow. He writes, “an analysis of more than 450,000 responses to the Gallup-Healthways Well-Being Index, a daily survey of 1,000 Americans, provides a surprisingly definite answer to the most frequently asked question in well-being research: Can money buy happiness? The conclusion is that being poor makes one miserable, and that being rich may enhance one’s life satisfaction, but does not (on average) improve experienced well-being.”

 

Kahneman’s quote is incredibly helpful because it splits apart happiness and well-being, particularly our experienced happiness and general well-being. The part of our brain that reflects back on our life and our overall happiness is not the same part of our brain that actually lives the experiences we have. As Kahneman showed earlier in the book, asking students how happy they are and then asking them how many dates they had in the last month gives you two separate responses with no correlation, but ask the questions in reverse, and suddenly those students who haven’t had many dates tend to respond that they are less happy. The reflecting part of our brain will experience happiness differently depending on the frames you place it in. The same thing seems to happen with happiness, well-being, and money.

 

When we think about how happy we are overall, we pause, reflect on our living condition, think about our relative success compared to others, and remember the fun events in our lives. Our happiness is improved when we are more sure of ourselves based on our relative social status and as we have more enjoyable and memorable experiences. However, this doesn’t mean that we are more happy than other people in our experienced well-being from moment to moment.

 

The rich person may feel isolated, may be insecure about losing their wealth, or may have the same family and social problems that anyone else has. The momentary emotional status of an individual is not impacted by wealth as much as our reflective happiness. Kahneman’s quote helps to pull these two aspects of happiness apart to see what is happening and understand the role of money. Kahneman continues to write that experienced well-being stops increasing as dramatically once an individual’s household income reaches about $75,000 in high cost areas. Subjectively, in the course of our lives, money doesn’t make us happier from moment to moment once we have received a high, but relatively reasonable income.
Money Isn't About Economic Security (For Most of Us)

Money Isn’t About Economic Security (For Most of Us)

Posted on by jabittan
Tyler Cowen started his February 28th, 2018 podcast interview with his colleague from George Mason University, Robin Hanson, with the following:

 

“Robin, if politics is not about policy, medicine is not about health, laughter is not about jokes, and food is not about nutrition, what are podcasts not about?”

 

Hanson goes on to explain that conversations are not really about imparting useful information and finding out useful things, but that conversation is likely more about showing off and signaling. When you share new information to someone, you are showing them that you are a valuable ally who knows useful things that might one day be helpful. When you share a particular piece of knowledge, you are signaling that you are the kind of person who would know such knowledge.

 

I think that Hanson’s views toward signaling are correct and deserve more attention and consideration. A lot of what we do has more to do with signaling than about the reason we would give to an observer for what we are doing. Hanson is not alone in recognizing this reality.

 

In Thinking  Fast and Slow, Daniel Kahneman writes, the following about money:

 

“Except for the very poor, for whom income coincides with survival, the main motivators of money-seeking are not necessarily economic. For the billionaire looking for the extra billion, and indeed for the participant in an experimental economics project looking for the extra dollar, money is a proxy for points on a scale of self-regard and achievement. These rewards and punishments, promises and threats, are all in our head.”

 

Money is not really about economic well-being (for most of us). Its not really about the things we can purchase or the vacations we can take. Money is really about social status. Having more of it elevates our social status, as does using it for impressive and expensive purposes. There is no objective ranking out there for our social status, but we act as if our social status is tangible and will reveal something important about our lives and who we are. Pursuing money gives us a chance to pursue social status in an oblique way, making it look as though we are doing something for high-minded reasons, when in reality we are trying to climb a social ladder and use money as our measuring stick of success.

 

Realistically, we are not going to be able to do much of anything about our signaling behaviors, especially if Hanson is correct in estimating that well over 90% of what we do is signaling. However, we can start to acknowledge signaling and chose where and how we send signals about ourselves. We can chose not to rely on money to signal something about who we are and can seek out more healthy avenues for signaling, with more environmentally friendly and socially conscientious signaling externalities taken into consideration.
Money Priming

Money Priming

Posted on by jabittan
An idea I have been a little obsessed with for the last several months is the importance of community in the lives of human beings. We are social creatures, and we depend on social structures for support, connection, joy, and meaning. During the Pandemic, we have had to face an absence of community, pulling back even more from the social groups and settings of our lives. America was already isolated in many ways, and I am worried for the long-term consequences of what we will lose in terms of community from this Pandemic.

 

One reason why the United States has dealt with diminishing senses of community may be related to our pursuit of wealth. Our culture values money and success so much that we elected a man with no political experience, with a history of bankruptcy, but with extraordinary bravado around his personal wealth to be our president. We elected President Trump because many of us wanted to feel a sense of greater wealth, or at least a possibility of greater financial success, and liked the ways in which he represented those ideas.

 

(I will pause for a minute to note that I think the president is reprehensible and I am glad I did not and never will vote for him. I also want to recognize that I am viewing supporters of the president in the general sense, applying a more positive lens toward them than others might. I recognize and understand that many of his supporters have dangerous and disgusting racial views that should be abhorred, but I also recognize that many of his supporters generally don’t think about politics much and like the presentation of wealth and the possibility of wealth that he presents.)

 

In his book Thinking Fast and Slow, Daniel Kahneman presents information about how money priming impacts our brains. Factors related to money seem to trigger specific responses and behaviors in people. As he writes, “The general theme of these findings is that the idea of money primes individualism: a reluctance to be involved with others, to depend on others, or to accept demands from others.” Money, in other words, works against community.

 

Individualism itself is not terrible. I don’t know where the balance should lie between community and individualism, and I feel myself pulled in separate directions regarding both. However, I believe it is our connections to each other and our shared goals and purposes that will help us feel a sense of meaning and purpose in our lives. Living in suburban homes (as I do), parking in our garages, and withdrawing into our homes to stream shows (also guilty!) is individualistic and exclusionary. It doesn’t help us have meaningful relationships with our friends, families, neighbors, and fellow citizens. It doesn’t help us work toward shared goals, doesn’t help us develop sustainable futures, and doesn’t help us better understand each other.

 

We need more community in our lives to tackle major problems in our society. Unfortunately, America is committed to ideas of wealth creation to an extent that limits our ability to build the community we need. Money priming influences how we behave in relation to each other, and it is not helping rebuild the communities that we have allowed to atrophy over the decades.
Fiduciary Healthcare Responsibility

Fiduciary Healthcare Responsibility

Posted on by jabittan
For many Americans, their job provides them with some type of retirement savings account. Historic legal action, laws, and regulations require that companies who offer retirement savings vehicles responsibly manage the money they invest on behalf of their employees. The investment options that employers chose must perform at a reasonable level. A company can’t push all of its employees to invest back in the company (as Enron did in the 1990’s) and a company can’t just take employees retirement savings accounts and put them in a low return savings account at a bank – the return to the employee in interest would be so small that it would be meaningless. Employers fiduciary duty requires that they offer legitimate retirement savings options that are in the best interests of their employees and will likely achieve a reasonable level of return on the investment. We understand this fiduciary responsibility for employers when it comes to our retirement savings, and now, some leaders are starting to look closely at the fiduciary healthcare responsibility of employers in the same way.

 

In his book The Opioid Crisis Wake-Up Call, Dave Chase explains his concerns regarding wage stagnation in the United States. He shows that real hourly wages in the United States, across all education groups, has fallen since 2007 (the book was published in 2019 making the time period of falling wages 12 years). At the same time that wages have fallen or stagnated, healthcare costs and expenditures have soared. With out of pocket spending rising, employer contributions to health plans going up, and patient premiums also getting more costly, Chase argues that the lost wage increases for American’s have been channeled into an under-performing healthcare system.

 

This is where the fiduciary healthcare responsibility of our employers becomes an important issue. Our employers are offering us (for about 50-65% of Americans) health insurance at the expense of higher wages. The money used for purchasing the plans offered to us and helping us access care, can be thought of like a retirement savings account. It is our money, and the company has a responsibility to ensure it is used in our best interest and that the products and services purchased with our money are safe, effective, and likely to provide us with a reasonable return on our investment. The healthcare dollars spent by our employers for health insurance today does not measure up.

 

Chase predicts a series of lawsuits targeting the fiduciary healthcare responsibility of employers in the near future. Lawsuits could target ever rising expenditures for diminishing or stagnant healthcare quality. They could address limits in services that hinder health outcomes for individuals. Companies could be on the hook for failing to do background checks on brokers or failing to shop for the best insurance plan for their employers. All of these issues are addressed by Chase in his book, and he believes that if employers took their fiduciary healthcare responsibility seriously, they could be a major asset in changing the future direction and costs of healthcare in the United States.

Return on Donation

Posted on by jabittan
An argument that Kevin Simler and Robin Hanson present in their book The Elephant in the Brain is that when we donate to charity, we are signaling to others how caring and generous we are as humans. The actual good that our donation will do is secondary to being the kind of person who is caring enough and generous enough to help out with what ever cause we donate toward. It is not, the authors argue, the suffering of other people or creatures that we are concerned about, it is whether or not we think of ourselves and are seen by others as the kind of person who cares about it.

 

Simler and Hanson write, “Occasionally, we’re even happy to donate without knowing the most basic facts about a charity, like what its purpose is or how donations will be spent. “Within two weeks of Princess Diana’s death in 1997,” writes Geoffrey Miller, “British people had donated over 1 billion pounds to the Princess of Wales charity, long before the newly established charity had any idea what the donations would be used for, or what its administrative overheads would be.” When we analyze donation as an economic activity, it soon becomes clear how little we seem to care about the impact of our donations. Whatever we’re doing, we aren’t trying to maximize ROD [return on donation].”

 

If we were very concerned about making sure that we made a difference in the world with any money we donate, then we would take steps to ensure that our donation was going to make a difference. We would want to see a spreadsheet showing how the foundation used our money. We would want to know how many people were helped and in what way. We would want to know how much money went to the salaries of the employees of the charity, what money was spent on office furniture, and how much money was simply used as fixed office costs that didn’t benefit the cause we wanted to support.

 

Instead, the charities we donate to very rarely present any information along these lines. Our donations and charity are something we feel in our hearts, not something we think about in a rational way. Effective Altruists have argued that if you want to actually make a difference you can feel good about, if you actually want to show that you are a caring person, you should make an effort to understand how much good your donation is doing. We act as if that is why we donate, but then we don’t do any of the things (most of the time) that would support the argument that we care. A much more simple explanation of our donations is that we want to look good and feel good internally about our generous and charitable behavior, even when our generosity and charity is effectively wasted on organizations that are ineffective.