Arnold Kling  

Free Responsibility, Con't

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In response to Jane Galt's post on personal finance, let me add a few words.

1. Living within your means is the key, and it can be done at a fairly low income level. You have to be willing to identify and alter your most wasteful habits. For a while, I bought CD's of music that I used to like when I was in high school. But then I realized that I would listen to such a CD two or three times and that was it. It took me awhile, but now when I am in a music store and I see a CD from the Grateful Dead or Cream or whatever, I know that no matter how much I listened to that music back in the day, it would be a waste to buy the CD now. I think that if you are honest with yourself, you can identify things you could buy less of without suffering any real sense of loss.

2. Your human capital is worth more than your financial capital. Allocate your time accordingly. Certainly, you should not be spending 25 hours a month managing your stock portfolio (including tracking its value) and just 2 hours a month managing what you learn. One of the reasons for investing in index funds is that it takes less mental energy than trying to pick winners.

3. Change jobs more often than feels comfortable. You need to learn on the job, and the longer you stay in a position, the less you learn. Even within the same firm a change can be educational.


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COMMENTS (7 to date)
daveg2 writes:

http://econlog.econlib.org/mt/mt-comments.cgi?entry_id=124

daveg2 writes:

Interesting article on free trade in the Guardian

It goes a long way to make the argument that economists, armed with knowledge equivilent to "brains contol human thoughts", are commiting acts like frontal lobotomies.

"Two countries, one booming, one struggling: which one followed the free-trade route?

A look at Vietnam and Mexico exposes the myth of market liberalisation

Expect much gnashing of teeth in Hong Kong this week. The chances of securing a comprehensive trade deal are non-existent, with the talks now really about damage limitation and the apportionment of blame.

The development charities will say that the selfish behaviour of the developed world has condemned poor nations to further penury. Washington and Brussels will say the negotiations have been stymied by the obduracy of India and Brazil. Economists will have a field day explaining how the world is turning its back on millions of dollars' worth of extra growth, and that the poor countries will be the ones who will really suffer if the global economy lapses back into a new dark age of protectionism.

That's certainly the accepted view. An alternative argument is that the trade talks are pretty much irrelevant to development and that in as much as they do matter, developing countries may be buying a pup.

The Harvard economist Dani Rodrik is one trade sceptic. "Take Mexico and Vietnam," he says. One has a long border with the richest country in the world and has had a free-trade agreement with its neighbour across the Rio Grande. It receives oodles of inward investment and sends its workers across the border in droves. It is fully plugged in to the global economy. The other was the subject of a US trade embargo until 1994 and suffered from trade restrictions for years after that. Unlike Mexico, Vietnam is not even a member of the WTO.

So which of the two has the better recent economic record? The question should be a no-brainer if all the free-trade theories are right - Mexico should be streets ahead of Vietnam. In fact, the opposite is true. Since Mexico signed the Nafta (North American Free Trade Agreement) deal with the US and Canada in 1992, its annual per capita growth rate has barely been above 1%. Vietnam has grown by around 5% a year for the past two decades. Poverty in Vietnam has come down dramatically: real wages in Mexico have fallen."

Everyone should read the whole thing.

Of course, Steve Sailer might argue that Vietnam is Vietnam because Vietnamese people live their. Anyone here willing to concur?

Lord writes:

1. Some live for the thrill of living beyond their means. They believe filling their lives with drama makes them feel more alive.

2. Late in your career though, your financial capital should be worth more, so don't neglect it either. Leaving it for someone else to handle is the fastest route to the poor house.

3. The problem is running out of employers unless you are willing to move anywhere. You will also find that most leave a lot to be desired so it can ticket to hell.

anonymous coward writes:

"the longer you stay in a position..."

... the better you understand what you are doing when you are in a complex environment!

From my European perspective, along with my colleagues, I noticed the following in my american company: as soon as our US colleagues were getting good at their jobs, they moved on.

Good for them.

But for the stream of projects they were involved in, not so good, as it took their successors one to two years to catch up.

Not that they aren't smart, but there are a few things that they have to experience before they "get it".

In the meantime, we look funny to them as we try to "educate" them where they don't see the need. More importantly, the company loses money as sub-optimal or wrong decisions are made.

Paul N writes:

Which has a lower cost in the long run: buying a new car (e.g., '06 Civic) and driving it until it dies, or buying a used car (e.g., '99 Civic, or '02 Escort) and driving it until it dies (presuming I get the same utility from new or used cars, and considering higher insurance costs for new cars)?

Because people prefer new cars, I would think the second strategy is better, but used cars seem very expensive relative to typical business depreciation rates, and you worry about adverse selection. And because not everyone can get a $18k car loan, perhaps there is more demand for cheaper cars.

The Real Bill writes:

Anon. Cow.:

Maybe the employer should reward the improved performance with raises (or more time off or something else of value to the employee) so that the employee will stay. In my experience, too many employers want to get the improved performance for free.

Unfortunately, this will not always work. In my case, once I have mastered something, I tend to become bored with it.

Half Sigma writes:

What if I made more money in the stock market this year than I did working? This means I should spend more time on my stocks and less time with my career.

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