Why Money Sucks

by Benjamin Studebaker

One of the basic underpinnings of our society is the notion that people like money and are good with money. They like making money, they like deciding what to do with their money, the whole business of business is an endless fascination for them. On top of that, we’re good at using our money to get what we want.  But what if it’s not true? What if, in reality, we hate making financial and business decisions and would rather have it all taken care of by other people? What if we’re actually not very good at spending our money wisely, if, in reality, our tendency is to be irrational and flippant with our funds? There is reason to believe the latter, according to a recent study by Daniel McFadden comparing on an interdisciplinary level what we know about human psychology, neurology, biology, and anthropology with what we think we know about economics (the full study is here, go here for an interview with McFadden).

This belief that we like money is foundational to modern economics. You can find it straight from the pen of Adam Smith:

The propensity to truck, barter and exchange one thing for another is common to all men, and to be found in no other race of animals.

Now, if you have ever met an entrepreneur, a businessman, a financier, there could be no doubt that such people do love to “truck and barter”. But our economic thinking extrapolates from the behaviour of these men of money and makes a sweeping generalisation across the entirety of the population. McFadden argues that, for many people, the precise opposite is our instinct:

Neoclassical consumer theory implies that with rational calculation, we cannot be harmed by choice and trade. Then people should relish choice, and welcome all the alternatives offered by markets. Yet, people are challenged by choice. In the words of a Dutch proverb, “He who has choice has trouble”. We find choice uncomfortable, and often use procrastination, rules, pre-commitment, habit, suspicion, and imitation to avoid “rational” decision-making and trade. The psychiatrists even have a word for it – agoraphobia, or fear of the market.

There are two reasons McFadden offers for this:

  1. Making financial decisions is hard–the costs of mistakes can be large, and our rational preferences are often clouded by sentiments and confusion about what we ourselves want.
  2. Market interactions are socially manipulative–when someone is trying to sell you something, you have reason to be suspicious of the “information” you are receiving. Interacting with people whom you cannot trust is not a pleasant activity.

In sum, we are social creatures rather than economic ones. We like to get along with other people, and the free market economic relationship, which demands suspicion, competition, and other non-cooperative behaviours runs against our evolution. We have a strong survival instinct and are adverse to risk-taking, and we don’t like making trades and buying things when there is a risk that we might not be buying what we think we are buying or that we might be taken advantage of.

Most people have absolutely no desire to do their own taxes, to plan their own retirements, to sit down and compare cell phone services, health insurance policies, or utility companies to each other, to do all of the things that self-interested rational utility-maximisers should not only enjoy, but relish. Nonetheless, we have a society that is structured to serve people who do have that impulse at a cost to the rest of us, because the people with the greatest influence within our social structure are the people who do like this stuff–the rich. After all, how does someone become rich in the first place? By both enjoying playing around with money and being good at it. The portion of the population that meets both criteria is in reality very small. Most people do not want to run their own business or spend their lives mucking about in finance or banking. Even many of the people who do engage in these activities do them because they have to in order to do something else–they do not enjoy economic activity in and of itself.

So why do we have to make all of these choices that we don’t even want in the first place? I suggest this is an example of the “false-consensus effect”. People who enjoy playing around with money believe that most people are similar to them, and, since they are in a position to influence the way society is ordered through lobbying, consequently design society to service that desire. To act against this policy is to permit “government takeovers” that remove our “freedom of choice”. It is not freedom of choice that is lost, it is the slavery of having to make choices when one would just rather not bother with the whole mess.

This still strikes many people as an abdication of personal responsibility. But if it’s an abdication of personal responsibility, so is every other facet of life that we do not do for ourselves. Compare the following two arguments:

Argument for managing your own money:

  1. Your retirement, utilities, telecoms, health, and so on are all important.
  2. People should take personal responsibility for things that are important.
  3. Therefore, you should manage your own money and choose your own retirement plan, utilities, telecoms, and insurance schemes.

Argument for growing your own food:

  1. Not starving to death is important.
  2. People should take personal responsibility for things that are important.
  3. Therefore, you should grow your own food.

Why don’t we grow our own food? Because most of us hate farming. It’s not fun. Thankfully, there is a minority of us that likes farming well enough at least to do it as a job, and these people grow food for all of us so we do not have to bother with worrying about growing food.

I submit to the reader that most of us hate managing our money. It’s not fun. There is a minority of us that likes managing money well enough at least to do it as a job, and we should get these people to do it for us where possible so that we don’t have to worry about it. It does not follow from the fact that a thing is important that every single one of us must deal with it on a day to day basis. It is not surrendering personal responsibility to give up tasks we do not enjoy and are not good at, it is really just a further extension of division of labour, of the notion that each should do what he is good at. As it stands, whether you’re good at managing money or not, you still have to do it, and if you happen to be bad at it, your life will not go well. Managing money is not special; it is just another skill, another talent, that a person may or may not have. There should be no penalty for not having it, just as there is no penalty for being a bad farmer. One should simply be permitted to engage in a different occupation that better suits one’s interests and skill set. To subscribe to the notion that any given task is so important that everyone must be made, willingly or unwillingly, to do it for themselves, is to reject the division of labour in its entirety–it is to undermine the very notion that makes modern society so much more efficient than the societies of the past, the notion that people should do what they are good at and leave what they are not good at to others.