The Welfare Paradox

Trips like this eat away lots of the work efficiency gains made since 50 years ago. On the other side, they can be great fun. You might try the middle way: Live general frugally but allow for occasional punctual luxury (whatever is luxury for you) every now or then within pre-set budget planning. (picture taken on the isle of Teneriffe, Spain).

When thinking about downshifting, saving and frugal living, one often encounters what I call the „welfare paradox”:

Whereas there is ample proof that your relative earnings are much higher today than that of your ancestors, meaning it will take you much less time of work to earn the money for almost any given good  (see here), average working hours do not decrease that significantly.

Why the hell are we still working minimum 40 hours a week, 46 weeks a year and 40 years in a lifetime, when obviously our relative earnings increased by several 100% over the last 50 years? Why do we not simply work only 20-30% of the time of our grandparents and have 5 idle good days to live a week, or 35 weeks of vacation a year? Hang out and feel free like in good old student times, or even more so?

Some potential answers spontaneously cross my mind:

1. Hidden Inflation

Very often one hears the argument that things you buy today are simply crap, they don’t last and thus you have to renew them all the time at high costs.
We look back at the “good old times” when things were built to last, were repaired and all lasted forever and beyond.
That might be true in some cases but I don’t think it is correct in general, especially if you compare costs. Maybe a tool you bought 50 years ago really lasted for a lifetime, but then you can buy that kind of quality tools still today, at a relative cost probably still lower than in the old days. Problem is that next to than tool there will be an offer of a budget (or normal) brand for the same tool at half the price. But if you take the cheap one, don’t complain if it breaks.

Same holds for clothing or shoes, yes, you still can get hand-made shoes, and yes, they will probably last a lifetime, but: They cost 500 EUR (or USD)! WTF, you might think, but hold a second, given your income today this is probably still relatively cheap compared to what your grandparents paid. That’s the reason why they had only 4 or 5 pairs of shoes, and you have…how many?!

Well, you might say, in the old times things were repaired.But then you still can get things repaired today, but given the cheap budget offers for new items, it often seems less worthwhile to do so.

So even if you factor in lower quality – if any – I guess almost all products today are way cheaper relatively than in former times. This is the simple logic of highly automated and perfectionised production methods.

So you might conclude to go for long living items only but then you have to stand firm, because here comes our real wealth-killer:

2. Product Cycle, Modes and Advertising

Imagine you bought yourself a TV ten years ago in 2002. It was a great modern thing, a plasma TV (or how were these bulky things named?!), picture 30’’ (wow!) and for ony 1000 EUR. Great deal. And it even continues to work these days, still sucks its 3kw of electric power per hour,  and is not broken or anything.
Problem was: In 2007, you looked like a dinosaur (…and thanks to advertising you also felt like one). So you sold the damn old chunk for 50 bucks and went out to buy a brand-new state-of-the-art LCD TV, great, only 600 EUR this time, a bit smaller (24’’), but so modern, and so slim! Cool. But guess how you look today, only 5 years later?! Well, your guess is right, if you want to stay at the front, its time to go shopping again.

…Well, that is what you call a product cycle.
You see it most heavy in electronics and other fields with innovation. And if there is no innovation, advertising creates a product cycle and calls it fashion.

Potential recommendation:

Stay away or at least stay behind,

i.e. buy models that are outdated by at least a year or so and thus cost half as current models. If you really want to be the frontrunner, you as the consumer will pay a lot for your “first mover disadvantage”.

3. More consumption

A big driver obviously is that we simply consume much more and own much more stuff than our grandparents.

Start with transport:

I’m too lazy right now to look for a source but my guess would be that average mileage done per person and year increased by more than 200% in the last 50 years, even if you ignore holiday or business trips.

Same for housing:

Average square meters per household about tripled in Germany within 60 years (14 sqm 1959 to 41 sqm today). Along with than goes more roads, more infrastructure, more gardens etc. needed per person.

Continue with travelling:

We all travel much more today, and if you are German and go for a summer vacation to our neighbor Austria these days you will be much more considered an exotic than if you announce you are going to Thailand a continent away – as in the sketch from Gerhard Polt, Bavarian comedian 😉 .
However I have to admit, for Woodpecker, being a travel maniac, today’s possibilities are simply great! …OK, that’s worth some more working hours a week, but not too many, please… 😉

…and finish with household items:

I would love to see the development of average items per household over time but found nothing on the internet. Still I would bet that today everybody owns just much more crap than in the past, for one reason because the things seems so “cheap” or because they are available or maybe even because it became out of fashion to lend out things from your neighbor (Or why has everybody in our street a full own set of the following: Drilling machine, electric saw, electric hedge cutter and lawnmower, full camping gear, full gardening equipment, raclette machine etc… – each being items you use only 1-10 days a year max.)

To summarize:

I don’t say all those things that changed are bad, especially when it comes to higher consumption of travelling I’d find it quite hard to abstain.

But be aware what drains your budget and there might again be a middle-way: Maybe not working only 20 weeks a year (as relative income suggests) but also not 46 weeks as is the status quo but let’s say 35 weeks a year (sounds like a good goal for me).

So you might want to maintain a health life-work-balance, save some money where it doesn’t hurt you, and still allow for one sin every now and then (like travelling for Woodpeckers, or e.g. being a front-runner on one product type for others).
Or you go the early retirement way, work full steam, allow for no sins but stash way substantially and reduce you total working life-span from 40 years to 20 or so.

The choice is yours!

Go for it!

Cheers,

Woodpecker

The travalling budget for Woodpeckers family is as high as a stagering 20% of available income. This is quite much, but on the other hand family spendings are quite efficient on petrol consumption, insurance costs, food costs and on going out etc. So it’s a conscious decision for a well defined annual budget.
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2 comments on “The Welfare Paradox

  1. Dan says:

    Song I made about the welfare paradox

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