Money isn't everything

I was reading an old Tyler Cowen post where he argued its wrong to look at increases in measured Gross Domestic Product to measure the success of economic policy, and one should instead look at the standard of living.

It seems obvious to me. People don't produce goods and services for the sake of working - they do so because they want to consume, and other producers are savvy enough to demand payment. GDP just measures how much people are currently producing - but its the enjoyment of that production that really matters.

A lot of my posts are about increasing wealth and efficiency. I don't spend enough time here emphasizing that money is just a way to get some of the things we want - it's not the goal itself.

I think economist Russ Roberts put it best when he wrote recently, "I hate the idea of things being 'good for the economy' rather than good for human beings."

Wealth is just a means to an end. It's human happiness and well being that matters, and there's more of that today than ever before.

Civilization has spent a long time slowly increasing living standards - including health, hygiene, leisure time, nutrition and luxuries, and increases to wealth has simply been the servant of that task - not the overseer. That slow march picked up rapidly in the Twentieth Century and all indicators say it will continue to rush upward.

Roberts said he ends his intro to economics classes with a talk about not always taking the job offer that pays the most. Money often comes as a trade-off for more hours, longer commutes, inflexible schedules and tougher tasks.

Imagine someone working 40 hours a week and making $25,000 a year. That person would probably say yes if offered $5,000 more a year if they worked an additional hour each week. They'd be thrilled if you made that offer a second time, paying them $35,000 a year for 42 hours a week. But if you kept making that offer, they'd eventually say no.

That's not irrational - while 50 hours a year for $5,000 is a good deal the first few times, no one wants to work 16 hours a day, every day, even if it pays $385,000. They would find a spot where they value their time more than the additional money they could be making.

Of course, while money isn't everything, money isn't nothing either. Trade-offs work both ways, and there are times when it's worth sacrificing a great vacation, time with your children or an evening with friends in exchange for money.

There's a lot of bad career advice to only "do what you love," which works great if you manage to land a great paying gig, but terrible if you become a miserable artist who can't afford shoes. Sometimes its worth leaving that job at the bank to become a gardener, and sometimes its worth closing the greenhouse to make some real green. Both extreme positions fall apart, and happiness lies in balancing ones interests with ones financial needs.