Wealth Is Defined By More Than Just Money
from the a-bad-economist's-problem dept
One of the hallmarks of a bad economist is when they define things in terms of actual money, rather than marginal benefit or marginal utility. You hear it every so often, where people claim that the "rational person" will always take a higher paying job or will always "want something for free," when the reality is quite different. Economics really looks at marginal benefit or marginal utility, and even though it's often defined in monetary terms, that doesn't mean that it just counts actual money. After all, money is just one way of measuring and/or transferring value. That's why it's always interesting to see stories that demonstrate the difference between marginal benefit and direct money, such as this
post by Peter Friedman, which highlights the situation where law firms -- that asked law students they hired to take a temporary "fun" job to wait out the recession (while having the law firm pay part of their salary) before joining the law firm for their "real" job -- are discovering many of those students
are no longer interested in law firm jobs:
But as newly barred lawyers have taken this public interest option, many have found jobs they like and enjoy. They picked up some ethical sense in school and enjoy doing work that connects with their values. They sympathize with their classmates who ended up at firms and are working long hours doing work they dislike, but they don't want their jobs. They calculate how much they are making per hour, and find that they are better paid -- at least at first -- than those at firms.
Law firms wanted a reserve workforce committed to them to be on call and ready to go should the market pick back up. What they may be getting, however, is quite different. A lot of these associates are trying to find a way to stay in their public interests jobs, or at least a related field, and may have given up on law firm work forever.
These new lawyers have found that their new jobs are more fulfilling and more interesting, and -- more importantly -- they've seen that they can live on a smaller salary. As one of my classmates put it, "Add up the hours I worked this week and add up the hours my friends at law firms worked. Divide our salaries by the amount of hours and you'll see -- I'm rich."
And that, right there, is a perfect example of the difference between money and marginal benefit. Some will argue, incorrectly, that these associates are making a non-rational decision, but that's not correct at all. The marginal benefit to these recent law grads is much higher at the public interest jobs, and, as that one classmate notes, he's "rich."
Filed Under: economics, money, wealth
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Time is sometimes better than money
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Maybe not - for most people there is also a limit above which extra money brings no greater advantage - no matter how much is offered.
There may even be a point at which some think that extra money would be a negative.
Richard Feynman turned down a huge offer to move from Caltech to Chicago for exactly this reason.
Money only really matters to the poor. The rich ought to be indifferent to it. Those that aren't are probably only using it as a way of "keeping the score".
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I don't know about those people, but I can say about me...
I used to believe that there wasn't a job I couldn't handle if it paid enough. Then I got a job that, to many people, would be considered "good": 6 figure salary, office work, doing nothing morally objectionable. The thing is that I found the work so mind-numbingly dull that my workday was seriously degrading all hours of my life. I left the job for one that paid half what I was getting, but whose work was actually interesting. It was a far, far superior job.
That lesson taught me that it's not true that enough money can make up for any other factors. There are things which are, quite literally, priceless.
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To word your last sentence another way:
There are factors that are non-negotiable.
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work less, earn less, spend less and do more
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Rich Vs Wealthy
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Consider the small private school teachers
They may drive crappy cars, but they see their vocation as having benefits that we can't see when only looking at their paycheck.
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I HAD NO IDEA!!!
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I broke into your house and stole it!
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Wealth
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Re: Wealth
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Industry vs Education
There are, of course, industry jobs that pay well and have good benefits, but it isn't the norm or a guarantee.
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Re: Industry vs Education
Now, I know some work is actually undertaken, I'm hardly saying you sit on your a** all day long. But, again, your "company" cannot fail, and doesn't have to compete for success, like a real company does.
I watched "academic professional" positions being created left and right, in order to squeeze out the traditional civil service positions which offer union protection and benefits. (basic union busting, a standard process)
So, one by one, the real grunts who do the heavy lifting are replaced by elitist music dept grad's who consume double the money, and take years to reach the level of skill that a person struggling in the real world has no choice but to reach as quickly as possible.
You enjoy what you enjoy, because you have a fake job, in which you can dabble in the process at your own pace, while the taxpayer foots the bill.
Good for you, I suppose.
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Re: Re: Industry vs Education
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What is the point of this article?
"The problem with liberals is that they don't know a lot, it's just that they know a lot about stuff that isn't true".
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Re: What is the point of this article?
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Re: What is the point of this article?
--->
"Everyone is free to have their own values, but unless those values are rooted firmly in monetary profit, they're unpatriotic."
FTFY
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Re: Re: What is the point of this article?
John, you're probably more in agreement than you think. Your paraphrase is exactly the opposite of what Mike (and Adam Smith) said.
You seem to think that linking happiness (my term, I think) and monetary value means you're conflating the latter for the former. What we (if I may be so bold) are saying is that most people weigh the former against the latter. Therefore there is an equivalence, on a scale-balancing level.
E.g., I value very highly jobs that are near where I live. If you paid me a million bucks to move to Dubai, I'd give that some serious thought, but it'd probably be a roughly fifty-fifty shot of me accepting.
What Mike is saying is that the 'close to home' aspect should be afforded a higher monetary value than it is commonly (and 'monetary value' is chosen because it's numerical and can be broken down once in that format, not because 'money trumps all.')
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Re: Re: Re: What is the point of this article?
What Mike wasn't saying is that money is not a consideration at all.
In any case, you and I are in agreement. Rick and I are not -- as I understand what Rick was saying, it is that money is the factor that should trump everything else. That's fine, as it's his personal calculus, but he also added that his valuation is the "correct" one, and people who value things differently are destroying America. That's where he and I couldn't disagree more.
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Re: What is the point of this article?
Uh, I said no such thing. Did you even READ? I just said that wealth is measured by utility, not just money.
Spread the wealth socialism and communism is good?
Have you not read this site? We are huge supporters of free market capitalism, but to understand free market capitalism, you have to understand that it measure marginal benefit, not just cash.
The ability to profit from something and to gain wealth is what drives capitalism and innovation, creates jobs and provides this country the great standard of living we have.
Indeed. But the point is that *wealth* is defined by more than just money. And we're talking about in the very free market capitalist economics form.
But - to reiterate, the opportunity to profit is what drives our economy. You take that away - you can kiss America goodbye.
Who said *anything* about taking away the opportunity to profit? We're just saying that out here -- in the real world -- people measure profits in marginal utility, not just in cash.
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Emotional vs. Rational
Until economist fully understand this, they will continue to make the same mistake Alan Greenspan made, assuming that people will make decisions base on rational outcomes rather than emotional fulfillment.
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Re: Emotional vs. Rational
And there is also game theory. Strategies can depend on common beliefs or on what you believe others believe or will do.
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Agree...
I work and live in Sweden (I am originally from the UK). I have lived and worked in several other countries including the UK (naturally) and the USA.
In Sweden, I earn significantly less than I could earn in either the UK or USA. Most goods are also more expensive.
However, I choose to remain in Sweden because of the following factors:
- 6 weeks of paid vacation a year
- Less stress
- Sweden's population density is 1/12 that of the UK, with all the benefits that provides in terms of clean air, lack of traffic etc
- I can live in a house that is both 5 minutes walk from a national park and 30 minutes drive from the headquarters of my multinational employer
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