Hoffer on the Importance of Time Preference

While looking over recent posts of Terry Teachout's blog About Last Night, I came across a quotation from Eric Hoffer Teachout posted:

“One wonders whether a generation that demands instant satisfaction of all its needs and instant solution of the world’s problems will produce anything of lasting value. Such a generation, even when equipped with the most modern technology, will be essentially primitive—it will stand in awe of nature, and submit to the tutelage of medicine men.”

Eric Hoffer, Reflections on the Human Condition

Hoffer does not use the term time preference, but that is what he is talking about. If someone is not willing to forego present gratification, he will not be willing to save, but spend all his income on consumption. Without savings there can be no investment in capital maintenance let along accumulation. Productivity and incomes will fall, along with the standard of living.

On the other hand, if we have social institutions that foster the accumulation of capital and if people have low enough time preferences, capital accumulation and prosperity will follow. As Mises puts it in Human Action (p. 562):

The characteristic mark of economic history under capitalism is unceasing economic progress, a steady increase in the quantity of capital goods available, and a continuous trend toward an improvement in the general standard of living.

Of Marshmallows and Time Preference

Grove City College Psychology Professor Joseph Horton makes a very nice application of a classic study in his field to economic policy and its consequences. In "We Need to Stop Eating the Marshmellows" he describes the study and then uses it to make sense of our national debt disaster.

In a classic psychological study, hungry four-year-olds were offered a marshmallow. They were told that if they could wait about 20 minutes before eating, they could have two marshmallows instead of one.

 Only about one-third of the children successfully delayed gratification and got two marshmallows. This ability to delay gratification as children predicted success in life decades later. They were more likely to study, do well in school and in careers. In addition, they had more successful social relationships. The ability to sacrifice today for gains tomorrow can pay big dividends.

This study illustrates the fundamental economic principle of time preference. Other things equal, people prefer to have their ends satisfied sooner than later. Therefore, to be willing to put off present consumption, people must expect to be able to consume more in the future.

As the study reveals, even doubling the payoff was not enough for two-thirds of the children to do so. This corroborates the observation of  the 13th century monk, Bartholomew the Englishman who wrote, “Children often have bad habits, and think only of the present, ignoring the future . . . They cry and weep more over the loss of an apple than over the loss of an inheritance . . . They desire everything they see, and call and reach for it.

Professor Horton notes in his essay that, when it comes to the American masses' approach to social policy, their behavior is way too childish.

The debt and unfunded liabilities at the federal level are simply astronomical. The debt is more than $16 trillion, or $50,000 for every citizen. This does not count unfunded liabilities for Social Security and Medicare. We are on the precipice of becoming the next Greece, except that no one will be there to bail us out.

Politicians are not the source of the problem. The problem lies in the voters who elect them. It seems more and more voters not only want to eat their own marshmallow right away, but they want to eat the marshmallows of others without regard of how to, or who will, pay for our collective inability to delay gratification.

Much better would be the way of Christ, given to us by His Apostle Paul. "Let the thief no longer steal, but rather let him labor, doing honest work with his own hands, so that he may have something to share with anyone in need" (Ephesians 4:28, ESV). Likewise, we should not willingly enter into financial slavery. As the writer of the Proverb warns, "The rich rules over the poor, and the borrower is the slave of the lender. (Proverbs 22:7, ESV).