Tuesday, April 01, 2008
Did you have fun in college? Of course you did. It was awesome.
But wait, didn't you live in a tiny room and eat ramen and pizza for every meal? How were you happy without a big fancy house and expensive sushi dinners?
The saddest part about this sub-prime/mortgage crises is that EVERYONE has convinced themselves that having a McMansion is not only their right, but is a pre-condition for being content.
In the 1950's when average house sizes were 2000 sq ft, were people thinking to themselves that they needed an extra 1500 sq ft and a 3 car garage? No, they were happy, and studies have proven that despite how it appears today, people in the 1950's were not stupid.
Because your "happiness function," which henceforth we will call f(h), reveals that once you have some type of roof over your head, the size of your shelter suffers from rapidly declining marginal value. Think about the difference between a 5 bedroom house and a 6 bedroom house. It's basically just one more room to heat, cool, and keep clean.
So people waste their lives in jobs they hate, locked-in by mountains of debt, in order to pay for something that, from our examples of college students and people in the 1950's, we strongly suspect has minimal impact on f(h).
But here we encounter a problem in the analysis. Having a large, expensive house, affordable only by financial gymnastics and a soup of acronyms such as ARM, PIM, MBS, CDO, etc., effects other variables in f(h) negatively. Namely, reduced leisure time from the working to afford it, and increased stress levels from always being close to insolvency.
f(h) = Utility(House Size) - (Work Effort + Stress Level)
It does not make sense to buy large houses. The small increase in utility is swamped by the negative impact of the second two variables. But with the average house size steadily increasing over time, and assuming we are rational economic agents, clearly the formula above is incomplete to describe the situation. We must adjust the function thusly:
f(h) = Utility(House Size) + Pride(House Size) - (Work Effort + Stress Level)
It now makes sense. People are willing to forgo vacations, delay retirement, and spend less time with family and friends because of Pride, the original and most serious of the seven deadly sins. Pride is the desire to be more important or attractive than others, which is exactly the point of buying an expensive and fancy house.
Now I'm not saying you shouldn't aim high and strive, but you should do so for the right reasons, because you love what you do, not because you want to be able to afford something. Because when it comes down to it, time is the only resource that matters. It's limited and declining, and trading it for something you don't need because of your pride is... bad.
But wait, didn't you live in a tiny room and eat ramen and pizza for every meal? How were you happy without a big fancy house and expensive sushi dinners?
The saddest part about this sub-prime/mortgage crises is that EVERYONE has convinced themselves that having a McMansion is not only their right, but is a pre-condition for being content.
In the 1950's when average house sizes were 2000 sq ft, were people thinking to themselves that they needed an extra 1500 sq ft and a 3 car garage? No, they were happy, and studies have proven that despite how it appears today, people in the 1950's were not stupid.
Because your "happiness function," which henceforth we will call f(h), reveals that once you have some type of roof over your head, the size of your shelter suffers from rapidly declining marginal value. Think about the difference between a 5 bedroom house and a 6 bedroom house. It's basically just one more room to heat, cool, and keep clean.
So people waste their lives in jobs they hate, locked-in by mountains of debt, in order to pay for something that, from our examples of college students and people in the 1950's, we strongly suspect has minimal impact on f(h).
But here we encounter a problem in the analysis. Having a large, expensive house, affordable only by financial gymnastics and a soup of acronyms such as ARM, PIM, MBS, CDO, etc., effects other variables in f(h) negatively. Namely, reduced leisure time from the working to afford it, and increased stress levels from always being close to insolvency.
f(h) = Utility(House Size) - (Work Effort + Stress Level)
It does not make sense to buy large houses. The small increase in utility is swamped by the negative impact of the second two variables. But with the average house size steadily increasing over time, and assuming we are rational economic agents, clearly the formula above is incomplete to describe the situation. We must adjust the function thusly:
f(h) = Utility(House Size) + Pride(House Size) - (Work Effort + Stress Level)
It now makes sense. People are willing to forgo vacations, delay retirement, and spend less time with family and friends because of Pride, the original and most serious of the seven deadly sins. Pride is the desire to be more important or attractive than others, which is exactly the point of buying an expensive and fancy house.
Now I'm not saying you shouldn't aim high and strive, but you should do so for the right reasons, because you love what you do, not because you want to be able to afford something. Because when it comes down to it, time is the only resource that matters. It's limited and declining, and trading it for something you don't need because of your pride is... bad.
