I attribute this phenomenon to at least three possible sources:
- the tendency for desires to expand to use up a given budget
- the skill with which entrenched or otherwise powerful interests are able to keep their negotiating partners (the rest of us) forever on their heels
- the tendency for resources to be applied towards their optimum ends, such that in equilibrium almost all changes produce only marginal effects
- the tendency of governments to extend taxation to the largest extent possible without quite squashing productive activity
- the tendency of corporations to lobby for open borders or special immigration privileges whenever any particular profession reaches the point of being able to negotiate a higher salary, to subsidize activities that favor them and push costs onto other parties, or to otherwise change the legal structure to favor themselves at the expense of others
- the tendency for labor unions to ... be labor unions
- the tendency for banks to collude with governments and compel the citizenry to use a persistently devaluing currency, such that savers are compelled to subsidize the profligacy and excessive risk-taking of borrowers, and then, when their ventures fail, to have the taxpayers bail them out,
These shall I pass over, as the first is rather an obvious matter of individual budgetary choices and discipline, while for the second it is doubtful anyone could actually hope to do anything this side of collapse. Besides, there has been plenty of commentary on that. But in the case of the third I think that there are some interesting dynamics going on and a few important points to be made.
I have noticed this phenomenon in a great number of forms, but I will stick with just one to illustrate. I recently bought a house, thinking that I would be able to save money by avoiding the costs of rent. I was wrong. Between the costs of the house and the expenses of maintenance, I have not saved a penny. That may conceivably change over time as I acquire the tools and other equipment necessary for said upkeep, but at least up front it has been an amazing thing to see just how 'balanced' things are.
On the other hand, this observation makes perfect sense. If there were a great deal of money to be made by one arrangement over the other, people would flock to adopt that arrangement, moving prices to reflect that situation and eventually erase the advantage. So, in most such cases, there is practically very little one could do to rearrange his finances and make a profit, except in such cases as there are powerful barriers to entry -- such as doing extensive car repairs or one's own dentistry or the like -- and even then, should one actually attempt it, as a practical matter it likely wouldn't prove profitable in many cases, for fairly obvious reasons.
Though one doesn't often think of it in these terms, every individual is really acting as an entrepreneur when he fiddles with his finances and his way of life in this manner. He is searching for some discrepancy in valuation or for some innovation in fulfilling his own wants more efficiently so that he can make a profit. He is facing the same problem that most entrepreneurs face -- that doing so is usually very difficult.
I can, however, think of two notable exceptions to this case.
The first I experienced most vividly on my first day in high school. I spent my youth as an inmate of the Texas Public School System, the apparently proud holder of the 49th ranking of such systems in this union, however such things are determined. My high school was horribly overcrowded, such that the lunchroom cafeteria was always filled far beyond capacity.
An intelligent student would have brought his lunch and eaten it outside. I, however, was not an intelligent student, and persisted in waiting in one of the various line for food that was of questionable quality. On that first day, I studied the situation carefully, and reasoned to myself that, all things being equal, probably every line would take a similar amount of time, given that all students were equally undesirous of experiencing the tedium of waiting. Any line which was persistently significantly longer in wait time would discourage students from standing in it until wait times evened out. This is, of course, very similar to the economic reasoning I have been employing so far, that, in general, changes in behavior towards attaining some end usually meet with marginal differences in outcome due to the tendency towards optimization.
I targeted two lines which were, in theory, equivalent in that they served the same food at the same price. One line, however, snaked along a wall, while the other was a rather packed group of people stuffed between a counter and a handrail. Not being one to enjoy the experience of playing a human sardine, I opted for the first, again, reasoning that they would take approximately the same amount of time.
This was a very naïve mistake. The reason was that the handrail limited access to the head of the second line, while the first was left widely accessible. Thus, the long, thin line was the object of prolific line-cutting by cheaters, while one would have had to be pretty brazen to cut in on the line of sardines by jumping the handrail. I did pay for this lesson in economics, as the bell caught me before I got through the line and I had no time to eat. I was in the other line the next day.
The point here is that the assumption of optimization is not a good one where a) cheating is highly probable, and b) this fact and its effects are not obvious to most people. For whatever reason, that line never shortened in proportion to the tendency for people to cut, and a great many students spent their lunch periods waiting for nothing. Perhaps it is because the effects of cheating are not always easy to estimate that the situation never really adjusted. I know for certain that the chronic line cutting was well known, and, high schools and high schoolers being what they are, never adequately dealt with, if at all. In any event, it is a good habit to keep this in mind -- it may be obvious in a situation or it may not.
Too many out there are making deposits of the purse by making withdrawals of the soul, as one David Elginbrod might say. I would say that very many more may be doing it unknowingly. If it is a form of entrepreneurship of the soul, I say it is one to avoid. If gains are coming in too easily, or if one seems to have 'hit the wall' and taken a loss with something that appears that it should have worked, it might be time to reflect on this possibility.
The second exception I would like to talk about is like the first, but the inverse.
In many cases where one alternative appears the rough equivalent of the other in terms of money prices, there is often an unseen aspect of the equation that can throw the balances heavily in one direction or the other. However, the tendency of people to focus on the monetary aspects of the transaction lead them to prefer the one that shows the greatest money profit, rather than 'pricing in' the unseen aspects.
An easy example is one I have already given -- the house. Though I have not much profited in money terms from the purchase, I will say that I greatly prefer it and believe it to be a vastly better environment for myself and my family than the apartment we were living in. With that thrown in, it is no contest at all.
A far more insidious -- and important -- example of this is to be found in those soul-rending decisions of family -- to be married or not, to have children or not, how to care for them, how to educate them, etc. Too often to be due to chance, at least as it seems to me, it is just barely profitable to do the wrong thing. When the numbers are finally tallied, it is so frequently just barely profitable to choose daycare rather than to stay at home, to choose to remain single and sterile than to have a family and children, or to choose private or homeschooling rather than public school. Actually, in that final case it is usually no contest, as one is compelled to pay for the public schools whether one makes use of them or not.
Some have even made the case that the crisis of falling populations of the industrialized world are probably due to the implementation of government pensions like Social Security -- rather than the opposite claim which is usually claimed, that falling populations are causing a crisis in the pension systems. The tax burden coupled with the safety net and support in retirement have induced couples to avoid children, or to have fewer than they otherwise might have afforded, and who could have looked after them in their old age. Financially, it simply didn't make any sense. But like most deals with the devil... I mean, government...it appears that Uncle Sam is not going to hold up his end, and they are to have no children, and no retirement either. But even if he had, and the deal hadn't fallen through -- was it really worth it?
On the brighter side, the fact that it is usually just profitable to do the wrong thing is a fairly stong indication that there is something left out of the balance on the other side. After all, prices usually reflect marginal differences in utility, and if there is a difference in the one, there probably is a difference in the other. For those entrepreneurs of the soul, let that be a clue -- there may be a discrepancy in value to exploit! Consider everything that sits in the balance. If one path is just barely profitable, by all means, consider taking the other.
There are those who stand in line, and those who cut in. There are those whose decisions are guided purely by columns of numbers, and those who do not let the sums blind them.
They each shall have their inheritance. Choose wisely.