Woao, this is a hell of a title for a small post, isn’t it? Maybe a bit too big shoes to walk in? Maybe, but however, I just had no other idea to introduce what I am trying to write:
What the hell are the important things in life?
Well, lets start out with a bit of economic theory.
Background: I turned to economics some years ago to learn better how to live a good life. I learned a lot there, and certainly improved massively in handling my money and better understand economic affairs (happy to share this if anyone requests), but no, they could not help me with the way to live your life.
What does economic theory say?
The part of economic theory that’s dealing with the individual is called Microeconomics, in contrast to Macroeconomics. Classical (more that 100 year old) Microeconomics measure everything you do in so called “utility” (=well being or “Nutzen” in German), meaning the “utility” you derive from certain actions or consumption. Basic utility theory comprises things like decreasing marginal utility (e.g. the first burger gives you a lot of utility if you are hungry, the second a bit less, and the 5th probably no more additional utility at all…well, probably – I don’t know your eating habits though…).
This is a fairly vague concept but it makes a lot of sense and is worth studying.
Problem is that it’s difficult to measure utility. But as economic mainstream since the 90s is very eager to measure everything, very often utility is set equal to money.
This is the first mistake:
Many people (and politicians and consultants and managers) think that maximizing money equals having a good life.
This is incorrect. Correct would be:
Happiness is key…
…and the amount of happy (or contentment (=”Zufriedenheit”), as always happy seems unrealistic) time that you spend in your life. No matter where the happiness or contentment comes from, be it consumption, hanging out, listening to good music, having sex, travelling or just starring at a wall…whatever you like.
The second mistake is that most people, and surprisingly many economists as well, forget about the above mentioned law of decreasing marginal utility.
Thus they incorrectly assume that a lot more money will give them a much better life.
Correct would be:
Money is not bad, but it comes with a cost. Thus is depends if more money (and the associated costs) is better or not.
Let’s discuss this in post #6.