Time Preference, Civilization, and the State

 

shutterstock_125764985My husband has always admired certain things about Eastern cultures, particularly their view of time. The Chinese did not sell the island of Hong Kong to the United Kingdom, they leased it for 99 years. When the deal was made, Britain was a superpower and China was unstable, to say the least. A little over a century later, Great Britain is not so great anymore, and Hong Kong — with all its wealth and innovations — is a jewel in the crown of China. A long game, indeed.

The concept of time preference is an interesting one, and one given a lot of credence to in Austrian circles. The Wikipedia article explains the it as “the relative valuation placed on a good at an earlier date compared with its valuation at a later date. […] Someone with a high time preference is focused substantially on his well-being in the present … while someone with low time preference places more emphasis than average on their well-being in the further future.” So, a person with a high time preference wants instant gratification, while someone with a low time preference is willing to delay their pleasure.

There have been studies done on this, such as the one by Walter Mischel, the Stanford professor of psychology. Young kids were given the option of eating a marshmallow immediately or waiting (say, for 15 minutes) to get two marshmallows. Most kids ate the first marshmallow but about 30% were willing to wait to get two. In a follow-up, the researchers found a correlation between those who waited and high SAT scores in later life. Low time preference, then has its rewards.

As the Ludwig von Mises Institute notes:

Savings remain key to this process of capital construction, and it is the time preference, that manifests itself in savings. If people enjoy current consumption so much, that the promise of an increased future consumption cannot bring them to save (and sacrifice the current level of consumption), the production will not be improved.

When one talks of “the Protestant work ethic,” one is talking about a lower time preference. As a young person, just starting out, you may start with a high time preference and blow through a lot of money. But, as you accumulate wealth, your savings go up as your time preference goes down. The same goes for nations, says Hans Hermann Hoppe in Democracy: the God that Failed:

Hoppe argues that in general an advancing society will see a decline in time preference towards zero (but never reaching zero), because as individuals become wealthier they will require a lower portion of their wealth to satisfy present needs and thus have a higher supply to dedicate to future needs. Or in other words, as society advances on average individuals will have a higher savings rate.

In other words, the process of civilization is that of reducing the time preference of its people. As people become more civilized, their time preference reduces. Ditto for individuals.

This only holds true, though, to an extent. Imagine that in the experiment involving children who were given incentives to wait for additional marshmallow, there was a bully lurking around who ate their marshmallow before the rewards were handed out. Would any kid wait for the second marshmallow? This is where the state comes in. Only the state can disrupt the “lowering of time preference” in a country, by implementing policies that counteract it. Does a “stimulus” increase or decrease time preference? If you knew that, like in Argentina, the state would confiscate 401k savings, would you continue to save? If you knew that currencies were devaluating, would you save more or less? Does Social Security encourage savings? Does welfare? In Hoppe’s view, while the process of reducing time preference (saving, accumulating wealth) is “civilizing,” the actions and policies of the state are the opposite: i.e. “Un-civilizing”.

So where does this leave us? What is your time preference? While most of us are looking to save for retirement, the Chinese in the 1800s were looking 100 years in advance; not just at their lifetime but at that of their offspring. My husband is not (only) looking to save for a retirement, but looking to build a legacy. He wants to leave an impact not just on the next generation, but for many to come.

This is why I feel that while the next election has significant in our lives, what matters more the the next generation, and the next.

There are 32 comments.

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  1. Midget Faded Rattlesnake Contributor
    Midget Faded Rattlesnake
    @Midge

    Barkha Herman: This only holds true, though, to an extent. Imagine that in the experiment involving children who were given incentives to wait for additional marshmallow, there was a bully lurking around who ate their marshmallow before the rewards were handed out. Would any kid wait for the second marshmallow then?

    They have actually run something close to this experiment. Not with a bully who takes the marshmallow, but by having the administrators of the experiment lie to the children about when and if the promised rewards will ever appear. And big surprise: they found that children can be taught to decrease their self-control if they are mistreated in this way.

    Delaying gratification depends crucially on trust. You must be able to trust that the promised rewards will in all likelihood eventually appear, else delaying gratification is not rational. And I agree, a capricious, overbearing state undermines that trust.

    • #1
  2. Barkha Herman Inactive
    Barkha Herman
    @BarkhaHerman

    Midge – I am disappointed to have missed your previous post.  Fascinating reading.

    I noticed that the term “time preference” is widely thrown around in many circles (I move in) however never referenced in some (as on Ricochet).  Hopefully my attempt on describing it brings a little bit of information to those interested :-D.

    • #2
  3. Midget Faded Rattlesnake Contributor
    Midget Faded Rattlesnake
    @Midge

    I have heard “time horizons” (Sowell’s term) and “discounting” used on Ricochet.

    But “time preference” is, indeed, a very helpful addition to our vocabulary!

    • #3
  4. Jimmy Carter Member
    Jimmy Carter
    @JimmyCarter

    Barkha Herman: In Hoppe’s view – then – while the process of reducing time preference (saving, accumulating wealth) is “Civilizing”, the actions and policies of the State are the opposite : i.e. “Un-civilizing”.

    Exactly. You can find evidence of this time preference shift in the way politicians speak and act along with the Citizens’ vote.

    Years ago politicians would speak of America’s greatness and the future…. then spoke of “helping” others, then voters voted (government grows….)…. then spoke of “helping” You, then voters voted (government grows….)… then spoke of “helping” Yer children (government grows….)

    It was first for future generations, then for Yer generation, then what They did during Their first term in office, to what did They do or will do in Their first hundred days, to now: “On My first day in office….”

    [I hope this made some sense]

    • #4
  5. Barkha Herman Inactive
    Barkha Herman
    @BarkhaHerman

    Jimmy Carter:

    Barkha Herman: In Hoppe’s view – then – while the process of reducing time preference (saving, accumulating wealth) is “Civilizing”, the actions and policies of the State are the opposite : i.e. “Un-civilizing”.

    Exactly. You can find evidence of this time preference shift in the way politicians speak and act along with the Citizens’ vote.

    Years ago politicians would speak of America’s greatness and the future…. then spoke of “helping” others, then voters voted (government grows….)…. then spoke of “helping” You, then voters voted (government grows….)… then spoke of “helping” Yer children (government grows….)

    It was first for future generations, then for Yer generation, then what They did during Their first term in office, to what did They do or will do in Their first hundred days, to now: “On My first day in office….”

    [I hope this made some sense]

    Made a lot of sense to me; and glad it spoke to you.

    As in Midge’s article, this stuff is very important; and very basic to the direction of raising kids, or raising generation of nations.  If we lose sight of the simple concepts underlying the big picture, we will end up losing in the long run.

    #WhyIOpposeState

    • #5
  6. Instugator Thatcher
    Instugator
    @Instugator

    Hong Kong is the traditional spelling…

    • #6
  7. Barkha Herman Inactive
    Barkha Herman
    @BarkhaHerman

    Instugator:Hong Kong is the traditional spelling…

    I blame spell check on that one….. As bad a speller as I am, I would not make that mistake so consistently.

    • #7
  8. Matt Balzer Member
    Matt Balzer
    @MattBalzer

    I might have to read up a bit on the lease of Hong Kong to Britain; I’m not sure I agree but since I don’t know more than the basics I can’t say right now.

    The problem with these studies (or with me) is that I always look at the things they don’t cover. One marshmallow now, or two later? Maybe I’m content with one marshmallow, and I don’t feel like waiting. I imagine they’d only choose kids who did like marshmallows for the study, or else what’s the point?

    • #8
  9. Barkha Herman Inactive
    Barkha Herman
    @BarkhaHerman

    Matt Balzer:I might have to read up a bit on the lease of Hong Kong to Britain; I’m not sure I agree but since I don’t know more than the basics I can’t say right now.

    Agree with what?  That Hong Kong returning to China after 100 years was good for China?

    The problem with these studies (or with me) is that I always look at the things they don’t cover. One marshmallow now, or two later? Maybe I’m content with one marshmallow, and I don’t feel like waiting. I imagine they’d only choose kids who did like marshmallows for the study, or else what’s the point?

    By all means – read the study.  My one line description is hardly enough to tell anything about it.

    • #9
  10. Midget Faded Rattlesnake Contributor
    Midget Faded Rattlesnake
    @Midge

    Matt Balzer:The problem with these studies (or with me) is that I always look at the things they don’t cover. One marshmallow now, or two later? Maybe I’m content with one marshmallow, and I don’t feel like waiting.

    Being content with what you have now, and not feeling like waiting, is part of time preference, though.

    Nor is being content in the moment always bad.

    “I’m sure I’ll take you with pleasure!” the Queen said. “Two pence a week, and jam every other day.”
    Alice couldn’t help laughing, as she said, “I don’t want you to hire me – and I don’t care for jam.”
    “It’s very good jam,” said the Queen.
    “Well, I don’t want any to-day, at any rate.”
    “You couldn’t have it if you did want it,” the Queen said. “The rule is, jam to-morrow and jam yesterday – but never jam to-day.”
    “It must come sometimes to ‘jam to-day’,” Alice objected.
    “No, it can’t,” said the Queen. “It’s jam every other day: to-day isn’t any other day, you know.”

    A diet where you always waited ten more minutes to eat would quickly leave you dead of starvation: at some point, eating at all means eating now.

    I imagine they’d only choose kids who did like marshmallows for the study, or else what’s the point?

    Fortunately, the “marshmallows” they use in these studies aren’t always marshmallows :-)

    • #10
  11. CB Toder aka Mama Toad Member
    CB Toder aka Mama Toad
    @CBToderakaMamaToad

    Midget Faded Rattlesnake: “You couldn’t have it if you did want it,” the Queen said. “The rule is, jam to-morrow and jam yesterday – but never jam to-day.”

    I got to play this character in a play a couple of years ago. So much fun…

    • #11
  12. Great Ghost of Gödel Inactive
    Great Ghost of Gödel
    @GreatGhostofGodel

    Unrelated: where is our Lewis Carroll? I’m recently back from a wonderful England trip, and one of my few regrets is that I didn’t get to Oxford to see his portrait hanging in the great hall of Christ Church. I did get to Bletchley Park, however, so I suppose my geek credentials are adequately burnished. (As are my emotional mess credentials—I walked out of the visitor centre’s introductory video with tears streaming down my face. Computer science/cryptography geeks will understand.)

    • #12
  13. twvolck Inactive
    twvolck
    @twvolck

    If I recall correctly, the island — Hong Kong itself — was ceded to Britain in   perpetuity.  The adjacent mainland — Kowloon, etc.  was subsequently leased to Britain for ninety-nine years.  When the lease expired, the British government ceded both sections back to China.

    • #13
  14. The Reticulator Member
    The Reticulator
    @TheReticulator

    Yes, I prefer time to the alternative.

    • #14
  15. Matt Balzer Member
    Matt Balzer
    @MattBalzer

    Barkha Herman:

    Matt Balzer:I might have to read up a bit on the lease of Hong Kong to Britain; I’m not sure I agree but since I don’t know more than the basics I can’t say right now.

    Agree with what? That Hong Kong returning to China after 100 years was good for China?

    Having now come back to this post, I’ve forgotten what my disagreement was. Mostly I was not sure on the terms and such, so I was questioning its use as an example. I’d also question whether the change of government in China would allow for arguing against its return based on the political structure having changed; I assume not because they did return it. I’d say it also raises the question of which governmental structure is best for making decisions based on time preference.

    • #15
  16. Tom Meyer, Ed. Contributor
    Tom Meyer, Ed.
    @tommeyer

    Barkha Herman: This only holds true, though, to an extent. Imagine that in the experiment involving children who were given incentives to wait for additional marshmallow, there was a bully lurking around who ate their marshmallow before the rewards were handed out. Would any kid wait for the second marshmallow? This is where the State comes in. Only the state can disrupt the “lowering of time preference” in a country, by implementing policies that counteract it. Does a “stimulus” increase or decrease time preference? If you knew that, like in Argentina, the state would confiscate 401k savings, would you continue to save? If you knew that currencies were devaluating, would you save more or less? Does Social Security encourage savings? Does welfare? In Hoppe’s view, while the process of reducing time preference (saving, accumulating wealth) is “civilizing,” the actions and policies of the state are the opposite: i.e. “Un-civilizing”.

    Slight disagreement here.

    Many state actions — particularly those championed by Progressives — are in opposition to encouraging a low time preference. Others, such a basic policing, can be conducive to it.

    “Is this likely to increase or decrease time preference?” should be among the many, many tests we subject legislation to. Outside of very basic services, I think the answer will generally be no.

    • #16
  17. Merina Smith Inactive
    Merina Smith
    @MerinaSmith

    Of course, Hong Kong is a jewel in the crown of China because the Brits made it great. The rest of China is suffering right now from short-sighted fiscal policies.  To be fair, so is Britain and so are we, but the point is that Eastern nations aren’t all that great at the long game either in most cases.

    In my own life, I try to walk a line in this regard.  We spend money on travel and getting together with our family because you must keep family relationships strong by spending time together along the way.  You have to create memories with your children and grandchildren and extended family if  you are going to be close.  That is money well spent even if you don’t have it for a financial legacy.  I guarantee you, family strength is a far better legacy than money.  Similarly, if we wait till we are old to enjoy life in ways that sometimes cost money, we likely won’t have much life left to enjoy.  On the other hand, we sure aren’t going to count on social security in retirement, so we save for that.  As for legacies, though, we don’t plan to leave a massive financial legacy to our kids, nor do we plan to get much from our parents.  We want them to spend their money and enjoy it.  We paid for our kids’ education so they can build their own lives and fortunes. They can look at what they have and know that “they built that!”  They’ll get a decent amount of money from the house(since we live in CA), but they have to make their own way in life. Believe it or not, that is a gift to them.

    As for nations and the long game–sure wish we could see it.  Hopefully we can get back to it. That is the conservative way. Unfortunately, progressives love to promise heaps of marshmallows and people have a hard time resisting those fluffy, sweet and substanceless pillows.  As the founders feared, voters like to vote for goodies for themselves and politicians pander to get elected.  Hopefully reality (running out of money) will save us, but for that to happen, conservatives need to take over, and even then….

    • #17
  18. The Reticulator Member
    The Reticulator
    @TheReticulator

    Merina Smith: Unfortunately, progressives love to promise heaps of marshmallows and people have a hard time resisting those fluffy, sweet and substanceless pillows.

    I like how the Clinton administration started labeling those heaps of marshmallows “investments.”

    • #18
  19. Dietlbomb Inactive
    Dietlbomb
    @Dietlbomb

    The democratic process tends to undermine low time preference in governance. Congresses and presidents are under pressure to provide results before the reelection campaign, so programs that are heavy on short-term rewards are likelier to pass than those whose effects are deferred.

    Since 2001 these proposals passed:

    • Medicare Part D
    • 2001 Bush Tax Cuts
    • No Child Left Behind
    • PATRIOT Act
    • Sarbanes-Oxley
    • Obama Stimulus
    • Obamacare
    • Cash for Clunkers
    • Dodd-Frank
    • Unemployment Compensation Extension Act of 2010
    • Campaign finance reform

    In the same time frame these proposals failed:

    • Social Security Reform
    • Enhanced rescission authority
    • Immigration reform of any type
    • Prison reform
    • Reduction of federal regulation
    • Global warming legislation
    • Repeal of Obamacare

    The proposals that passed all had immediate payoffs, whether to voters’ interests, to lobbyists, or to the politicians themselves.

    The ones that failed have deferred (or dubious) benefits.

    This is why you see the term “time preference” frequently thrown about by monarchists and neoreactionaries. It’s a pretty big defect in democracy.

    • #19
  20. Midget Faded Rattlesnake Contributor
    Midget Faded Rattlesnake
    @Midge

    Dietlbomb:This is why you see the term “time preference” frequently thrown about by monarchists and neoreactionaries. It’s a pretty big defect in democracy.

    You know a lot of these? I know of them. Do tell!

    • #20
  21. Dietlbomb Inactive
    Dietlbomb
    @Dietlbomb

    Midget Faded Rattlesnake:

    Dietlbomb:This is why you see the term “time preference” frequently thrown about by monarchists and neoreactionaries. It’s a pretty big defect in democracy.

    You know a lot of these? I know of them. Do tell!

    I only know them from their blogs. The best of the bunch, IMO, is this one. Beware: it’s a deep rabbit hole and a lot of what they talk about is pretty offensive.

    • #21
  22. Midget Faded Rattlesnake Contributor
    Midget Faded Rattlesnake
    @Midge

    Dietlbomb:

    Midget Faded Rattlesnake:

    Dietlbomb:This is why you see the term “time preference” frequently thrown about by monarchists and neoreactionaries. It’s a pretty big defect in democracy.

    You know a lot of these? I know of them. Do tell!

    I only know them from their blogs. The best of the bunch, IMO, is this one. Beware: it’s a deep rabbit hole and a lot of what they talk about is pretty offensive.

    Whoa, no kidding! All of five seconds browsing and… whoa!

    • #22
  23. Great Ghost of Gödel Inactive
    Great Ghost of Gödel
    @GreatGhostofGodel

    Midget Faded Rattlesnake:

    Dietlbomb:This is why you see the term “time preference” frequently thrown about by monarchists and neoreactionaries. It’s a pretty big defect in democracy.

    You know a lot of these? I know of them. Do tell!

    Just to let my freak flag fly (more):

    Curtis Yarvin, aka Moldbug, was uninvited from a tech conference he was scheduled to present at. Yarvin is a neoreactionary. The organizers succumbed to a Heckler’s Veto by two self-identified Communists, Bodil Stokke and Steve Klabnik, with progressive Alex Payne playing Trotsky to Stokke and Klabnik’s Lenin and Stalin. White-hat hacker Meredith Patterson’s Twitter comments are linked to from the Slate article in the first link.

    I don’t know Curtis Yarvin at all. The Strange Loop organizers, Bodil Stokke, and Steve Klabnik are acquaintances. I’d have called Alex Payne a friend, but am not sure he’d return the sentiment. Meredith Patterson is a friend.

    Meanwhile, I volunteered here in LA at the first InsTED Fest, organized by neoreactionary Rachel Haywire, mostly because Robin Hanson presented, and it was great to meet and talk with him. The whole event was an eye-opening glimpse into a profoundly “all your sociopoliticoeconomic paradigms are full of [CoC]” millennial mindset. The future’s gonna be unrecognizable.

    • #23
  24. Midget Faded Rattlesnake Contributor
    Midget Faded Rattlesnake
    @Midge

    Great Ghost of Gödel:

    Midget Faded Rattlesnake:

    Dietlbomb:This is why you see the term “time preference” frequently thrown about by monarchists and neoreactionaries. It’s a pretty big defect in democracy.

    You know a lot of these? I know of them. Do tell!

    Just to let my freak flag fly…

    Rachel Haywire

    Wow! No kidding ;-)

    • #24
  25. Matt Balzer Member
    Matt Balzer
    @MattBalzer

    Also, now that I actually read the link to the treaty on Hong Kong, it appears it was forced on China by Britain, as was the 99-year term of the lease. It still looks like China is the long term victor here, but I’m not sure that they get all that much credit for it.

    • #25
  26. Zafar Member
    Zafar
    @Zafar

    Barkha, I plan on completing the Ashtanga first series in agla janam.  Does this make me truly foresighted or lazy? You only tell.

    • #26
  27. CB Toder aka Mama Toad Member
    CB Toder aka Mama Toad
    @CBToderakaMamaToad

    I’d say lazy. You can’t expect Barkha to take care of everything.

    I confess to sharing your sentiments though, if not your theology…

    • #27
  28. CB Toder aka Mama Toad Member
    CB Toder aka Mama Toad
    @CBToderakaMamaToad

    Barkha, listening to PM Netanyahu at the UN General Assembly outline his country’s immediate existential threat, I realize that playing the long game can be rendered meaningless.

    • #28
  29. Barkha Herman Inactive
    Barkha Herman
    @BarkhaHerman

    Zafar:Barkha, I plan on completing the Ashtanga first series in agla janam. Does this make me truly foresighted or lazy? You only tell.

    What if you come back as a worm?  Must do all the right things in this janam to get to agla janam, before you can plan on actions for it…

    • #29
  30. Barkha Herman Inactive
    Barkha Herman
    @BarkhaHerman

    CB Toder aka Mama Toad:Barkha, listening to PM Netanyahu at the UN General Assembly outline his country’s immediate existential threat, I realize that playing the long game can be rendered meaningless.

    Yes.  Here’s an example of something that might put a ratchet in the plans of a well intentioned nation.

    • #30
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