Balance? Don't ask an economist

Ross Gittins
March 7, 2007
SMH

In all the interviews I've done to publicise my new book, Gittinomics, only one interviewer has come close to saying the obvious: you have to be pretty egotistical to name an -omics after yourself. So what's so special about my version of economics?

All capitalist economics seeks to explain how the capitalist system works. I guess what's different about my take on the subject is its emphasis on making sure you're a master of the system, not a victim. Making it work for you, not you for it. To that end, the first thing to understand is the need to keep economics in perspective and economists in their place.

Economists are experts in one important but limited aspect of life: the material. No one knows better than they do how best to maximise our production and consumption of goods and services. When a community follows their advice - as we pretty much have been for the past 25 years - it gets rich.

Trouble is, sensible people don't maximise the material aspect of life, they optimise it. That is, they balance it against other, non-material objectives.

For instance, most economists know little about the question of fairness and, for the most part, ignore it. Press them and they'll tell you frankly that it's outside their area of competence.

Likewise, they're largely oblivious to the social and spiritual aspects of life. Will the policies they advocate damage family life, for instance? Sorry, never given it any thought. Why don't you consult a social worker or a priest?

Why not, indeed. Economists' advice is one-dimensional. When we give that advice primacy and fail to meld it with the advice of experts in other areas, we risk becoming a richer but more socially dysfunctional society. And what applies at the national political level also applies in our everyday lives.

Most of the things capitalism has to offer us are good - provided we don't overdo them. Trouble is, the system is usually pressing us to overdo them.

Take the ready availability of credit. Thanks to financial deregulation and our return to low inflation, interest rates are lower and the banks are anxious to lend.

When we use that credit to buy our own home, we're generally better off. But when we use credit cards or home equity loans to buy consumer goods we can't afford, we risk becoming victims.

Credit cards don't remove the need to save for the things we buy. Since debts have to be repaid, they merely allow us to do the saving after we've acquired the item rather than before.

The trick is that you also have to pay a lot of interest. So when we allow our impatience to get the better of us, we end up devoting much of our income not to buying things but merely to paying interest.

And if carrying a lot of debt on top of our mortgage makes us feel continuously weighed down - I owe, I owe, it's off to work I go - that's another strike against our being masters, not victims.

It's great to live in such a successful capitalist economy, where not all but most of us enjoy a fair degree of comfort. But when we take the advertising too seriously and start deluding ourselves that buying more stuff will make us happy, we risk becoming victims.

Our politicians venerate the "aspirational voter", but when our aspirations run exclusively to the material we're setting ourselves up for a state of recurring dissatisfaction.

To be masters of the system we need to control our aspirations, learning to be more content with what we've got and aspiring to be better gardeners, better golfers, better at our jobs, better partners, better parents, better human beings.

The capitalist system has ways of taking money from the poor, but also of doing down the comfortably off. Really? How? By selling the illusion of social status - and it doesn't come cheap.

The middle class spends an enormous amount of money keeping up with the Joneses and trying to demonstrate how well we're doing by the clothes we wear, the cars we drive, the homes and suburbs we live in, the schools we send our kids to and much else.

Almost by definition, the possessions that most impress people are the ones that cost the most. There are too many cases where, provided they get their image and market positioning right, firms can defy the laws of demand and supply and sell more of their product by putting up their price.

What makes this game an illusion is that it's like an arms race. People are always catching up and passing you, requiring you to earn more and spend more to regain your place.

But if you've got the money, what's wrong with spending it on big boys' toys? Nothing - provided keeping your place in the status race doesn't lead you to money stress, overwork, a feeling of being trapped or neglect of relationships that matter most. If it does, you're a victim.

And here's a good test of whether you are: how much do you enjoy your job?

If you're just doing it for the money, and feel constrained by your financial commitments from moving to a lesser-paid but more satisfying job … well, you don't need me to tell you you're not master of your destiny. But your cage is of your own making.

How can you escape to a better job or cut back the long hours you're working? By reducing your financial commitments. How? By controlling your material aspirations and stopping trying to buy status. Is that too tall an order? Then don't complain about being trapped by the system.

But wouldn't the capitalist system collapse if we all cut our spending and did less work so we could spend more time enjoying our relationships? No, of course it wouldn't.

The economy would just grow at a slower rate. And that would be a cheap price to pay for lives that were less harried and where our relationships were more rewarding.

I guess that's what Gittinomics is driving at.

Gittinomics, by Ross Gittins, is published by Allen & Unwin, RRP $26.95