Things I Wish They'd Taught Me When I Was Younger: Why Money Is Awesome

by ChrisHallquist 6y16th Jan 2014234 comments

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There are some things money can't buy. They are the exceptions that prove the rule.

For the pedants, to say something is an exception that proves the rule is to say that when you look at the exceptions, they're so unusual that it reinforces the point that the rule is generally valid even though it isn't universally valid. In the case of money, there's a reason people don't say things like "there are some things hand-knit scarves can't be bartered for" or "Hand-knit scarves can't be bartered for happiness."

Eliezer once described the sequences as the letter he wishes he could have written to his former self. When I think of the letter I wish I could write to my former self, the value of money is at the top of the list of things I'd include. 

You can give a cynical, Hansonian explanation of why we don't tell young people enough about the awesomeness of money, and I suppose there'd be some truth to it. But I'm not sure that was my main problem. Growing up, my dad spent a lot of time urging me to go into a high-paying career, to the point giving me advice on what medical specialty to go into. He just didn't do a great job of selling me on it. It wasn't until I learned some economics that I really came to understand why money is so awesome.

(Disclaimer: I don't actually know that much economics, and in fact have never taken an economics course. I just know more than my former self.)

The first thing to understand about money is that the range of things you can get for it is really incredibly huge. Econ bloggers Tyler Cowen and Alex Tabarrok periodically do posts called "markets in everything" where they highlight some of the weirder examples of this, but the weird examples matter less than the obvious examples people just don't think about much.  There's a tendency to associate money with a narrow range of things rich people stereotypically spend their money on. Or, in my case growing up in an upper middle-class family, there were the family vacations and boats that my dad seemed to mainly spend his money on, which were nice but didn't seem particularly worth planning my career around.

Yet not only is the range of things you can get with money huge, even with things you can get without money, spending money on them is often a better way of acquiring them. The reason for this is comparative advantage, a concept that gets discussed a lot in the context of nation-states and why free trade is a good idea, but which also works on an individual level. For example, say you're a lawyer who makes $300 an hour, and you're trying to solve the problem of how to keep your house clean. You could spend a couple hours a week doing it yourself—or you could work slightly longer hours and hire someone else to do it for $30 an hour.

The reason this is an example of comparative advantage is it doesn't matter if the people you're paying to clean your house are any better at house-cleaning than you. In fact, it works even if they're slightly worse, as long as the difference in house-cleaning ability is overshadowed by the difference in lawyering ability. In econ jargon, you can have an absolute advantage at both lawyering and house-cleaning, and it will still make sense to pay other people to clean your house if they have a comparative advantage there. Many people who aren't rich probably assume that when rich people hire other people to do basic tasks for them, it's a frivolous expense, but under the right circumstances it can a matter of economic efficiency.

This point about comparative advantage, when applied to charity, is one of the central insights of the effective altruism movement ("earning to give"). Suppose instead of talking about a lawyer who wants to keep his house clean, we're instead talking about a lawyer who wants to help the local soup kitchen. He could volunteer to help out there in his spare time, but he could also work a little longer hours, donate the money, and enable the soup kitchen to hire more person-hours of work there. Choosing to volunteer rather than give would suggest the lawyer isn't mainly concerned about helping the soup kitchen, but perhaps with warm fuzzies or being seen doing good.

And this doesn't just to small-scale decisions about donating some money vs. volunteering a few hours. It also applies to someone trying to decide between, saying, going into a career in medicine and eventually joining Doctors Without Borders vs. going into a career in finance and using the money you make to pay people to distribute bed nets to stricken regions of the world. (That person was me when I was younger, except the second option wasn't even on my radar.)

Note that while I personally think earning to give is an especially important example of how you can exploit comparative advantage to achieve you're goals, it's also worth emphasizing that it's just a special case of a general principle which can be extremely powerful even if you don't care about making the world a better place.

Given all this, what of the saying "if you want something done right do it yourself"? The answer is that, yes, the difficulty of figuring out who's competent and trustworthy does impose transaction costs on hiring people to do stuff for you, but it's important to remember the costs are finite. When the difference in comparative advantage is large enough, they'll often be worth paying.

Now there are still things money can't buy, at least not literally. But money tends to make them easier to acquire. Take the classic example of happiness: there's a traditional idea (which I've heard attributed to the Greek philosopher Epicurus, though I can't find the source now) that more money makes you happier up to a certain point since it's hard to be happy if you're starving, but beyond that more money doesn't help. It turns out that it's not clear this is actually true—some studies have found more money leads to greater happiness up through the highest income levels examined.

But suppose, in spite of this, that you're an income satisficer, meaning you want to make a certain amount of money and don't care about additional money beyond that. Suppose as long as you have that certain amount of money, you care more about being able to do what you love. And suppose you don't care about being able to make the world a better place through donating to charity. Should you then pursue whatever career you think you'll enjoy the most out of those that pay enough money?

Not necessarily. The way to think about this is to realize that time spent  is, in an important sense, an expensive luxury. In economics, there's a concept called opportunity cost, which is closely related to comparative advantage. Opportunity cost asks: by choosing to do something, what's the next-best alternative you're giving up? So for example, by this standard the biggest cost of college for many people will be not tuition, but the time they spent in college that could've been spent working. Even if you didn't go to summer classes, didn't study all that much, and were only qualified for minimum wage jobs, it still easily adds up to more than the cost of a state school in the US.

A lot of things turn out to be like this: when you translate the cost in time into a monetary value, time is the biggest component of the cost. Once you start thinking in those terms, it becomes easier to see that just as there are two ways to convert time into a clean house (clean it yourself, or work at a job where you have the comparative advantage and pay someone else to clean it), there are two ways to maximize the amount of time you spend doing things you enjoy: find a job you mostly enjoy, or else find a high paying job you hate and work part-time / take frequent long sabbaticals / work hard when you're young, then retire early.

People tend not to even consider the second set of options because they've been sold a model of "work nine to five for fifty weeks a year from college graduation until you qualify for Social Security," and you are nudged towards that model somewhat by employers assuming it. But it's not mandatory, and if you acquire in-demands skills that can translate into greater flexibility. I have a friend who's a dev consultant who recently took a month sabbatical from her job and then quit entirely without having another one lined up because (1) she makes enough money she doesn't need to work year-round and (2) her skills are sufficiently in-demand that she's not worried about her ability to get another job when she wants one.

On the flip side, to understand one of the main problems with the "get a job you love" strategy, consider the extreme case: a job you'd do for free. The problem with such jobs is that they tend to be jobs other people are willing to do them for free too. That makes it hard for anyone to get paid. For example, I love writing, and I'm doing it for free right now. But it turns out lots of other people feel the same way, and the internet has made it really easy for all of us to distribute our writing for free, and now it's even harder to get paid as a writer than it was during the age of print.

This is just one example, but I suspect there's a systematic reason why the "get a job you love" strategy tends to produce outcomes you didn't really want: it can make it harder to see what tradeoffs you're really making between money and time spent doing things you want to do for their own sake. In the worst case, you end up getting the worst of both worlds: you become a college professor because you think it will pay okay (if not great), and you'll get to devote all your time to the life of the mind. But you end up adjuncting for what's effectively minimum wage while spending most of your time dealing with undergrads who are just taking the course for the elective and only care about getting an A with as little effort as possible.

I'm not saying everyone should optimize solely for money in choosing their career. But at the very least, it's worth putting considerable effort into finding out how much you could (perhaps not immediately, but after but in a year or several) if you did optimize for money. That way, you'll at least know the tradeoff you're making when you chose a different career.

And by the way, if you're reading LessWrong, odds are you're fairly smart, and may be underestimating how monetizable your intelligence is. I'd like to repeat the advice given by other people in the online rationalist community to look into programming as a career choice. I'm currently doing App Academy and highly recommend it, if you do apply tell them I sent you. You may also be able to get good information on choosing a career from 80,000 Hours.

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