Discover more from A User's Guide to History
I'll gladly pay you Tuesday . . .
For a hamburger today*
Suppose you and I are dairy farmers. I have ambitions to expand my business, so I ask to borrow one of your cows. I promise to give it back to you at the end of a year.
“Okay,” you say. “But it’s going to cost you.”
“Why?” I ask. “I'm going to give you back the same cow, in the same condition.”
“Yes, but you’re going to get the cow's milk during that year. I would have got it if I’d kept the cow. So you need to pay me for it.”
“All right,” I say. “I’ll give you back your cow and the value of a year's worth of milk.” And the deal is done.
This is the basis of interest on loans. If you lend me a dollar for a year, I should pay you back that dollar plus what that dollar would have earned you in the meantime.
There might also be a risk premium, to insure you against the possibility that I won't pay you back. In the cow case, it might get sick and die while under my care.
The idea of interest and risk premium lie at the heart of a fundamental principle in human affairs: that the short term matters more to most people than the long term. Deferring gratification is about the hardest thing individuals and societies can get themselves to do.
There is good evolutionary reason for this. If I defer the enjoyment of something, then I lose the enjoyment during the time of deferral and I run the risk I might not get to enjoy it at all. Should I save money toward my retirement? If I do, I forgo the use of that money in the meantime, and I run the risk I’ll get hit by a bus and die before I reach retirement age.
But this evolutionarily sound principle doesn’t always serve us well. These days we live a lot longer than our hominid ancestors did. They didn’t worry about retirement because they died before they got there. (This is also why the human body fails with age even absent specific infection or other illness. There was no selective advantage from evolving a body that lasted many decades, when predators and accidents killed nearly everyone long before then.)
But even in the much shorter term, the emphasis on immediate gratification can have pernicious consequences. I get angry and do rash things which I regret before long. The advice to take a deep breath and count to 10 reflects the recognition that even a little delay can be a good thing. Benjamin Franklin and Abraham Lincoln habitually wrote harsh letters to people who had wronged them, only to put the letters in a drawer, review them the next day, and decide not to send them.
Modern practices and institutions aggravate the problem of short-termism. Before credit cards, people generally had to save up to buy many of the things they wanted. They had time to consider how much they really needed those things. Today, slap down plastic and the items are yours—along with the responsibility to pay for them, with daunting interest, often far into the future.
Democratic governments fall into the short-term trap all the time. As long as they can find someone to lend them the money, they spend today and leave repayment till later. This is all the more tempting because the people enjoying the short-term benefits are typically not the people who will have to make the long-term payments. Those suckers will be members of later generations.
Governments get away with this until they don't. The American national debt is $31 trillion and, under current Democratic leadership, rising fast. Yet people and institutions still lend money to the U.S. Treasury. One day they’ll change their minds, and the bill will come due.
Britain just experienced the limits of this approach. The government of Liz Truss promised big tax cuts and new deficits, only to be summarily informed by financial markets that the money wouldn’t be forthcoming. The tax cuts were tossed, and so was Liz Truss.
Short-termism is not simply a financial problem for democracies. Candidates and office holders rationalize bending principles and the truth in order to get elected, on grounds that if they don't get elected they won't be able to do all the wonderful things they intend.
This kind of rationalization is most striking at the moment in the Republican party. Most Republicans know full well that Joe Biden won the 2020 election fairly. But few Republican candidates are willing to say so openly and risk the wrath of Donald Trump. They would rather imperil American democracy in the long term than lose their chance at office now.
Overcoming short-termism is hard enough for individuals. I’ll study for tomorrow’s test . . . after tonight’s party. I’ll quit smoking . . . next month. I’ll get that colonoscopy . . . next year.
It’s still harder for societies and nations, in which the short-term beneficiaries are often not the long-term bearers of the costs. But it’s even more important, for the stakes are much higher.
* For younger readers: This was the stock phrase of Wimpy, a perpetually hungry character in the Popeye cartoon.