My commute home from work usually takes a little more than an hour. Helped along by squinting because the sun is often in my eyes, I can sometimes start feeling sleepy. This is not exactly an ideal situation while you’re sitting in a hunk of metal zipping down an interstate highway.
I found myself in this situation just the other day. To combat my tiredness, I pulled off the road and stopped at a local convenience store to buy some coffee to give me a boost to complete my commute with adequate alertness. I chose the smallest cup available and filled it with a little more cream than I normally would so I wouldn’t have to wait for it to be cool enough to drink.
It worked, just like it has before, but it came with consequences. When it was time for bed that night, I laid down and noticed that I wasn’t ready to fall asleep. I thought to myself, “You had a cup of coffee six hours ago and the caffeine is still working its magic. Good job.” I eventually fell asleep, but by the time I did, I only got about four hours of sleep.
When I was buying the coffee, I was aware that it could keep me up that night. It’s happened before. But I cared more about waking myself up and driving home than I did about being able to get a good night’s sleep. I’m not suggesting that it wasn’t good for me to make sure I didn’t fall asleep behind the wheel and end up in a car accident, but that doesn’t excuse my decisions that led up to me being sleepy when I had to drive home from work. Afterall, my commute home is a perfectly predictable event, so it’s not like the world threw me a curveball!
It is a good lesson on time preference. Time preference is the measure (although not a discrete one) of a person’s choice on whether to delay gratification in the present for gratification in the future. The higher the time preference, the more present-oriented a person is. A person with a lower time preference will forgo satisfying a current want in order to get more in the future. Think about a spender with a lot of debt versus a saver who lives below his means. The spender has the higher time preference compared to that saver.
My actions leading up to and including my decision to drink the cup of coffee demonstrated a bit of a higher time preference than I would like to have. But give me some credit, there was room for a higher time preference: taking the risk of crashing because I valued getting home as fast as possible versus taking steps to make sure I wouldn’t get hurt or even die (likewise, starving yourself to death because you don’t want to spend money to feed yourself might be the ultimate high time preference behavior).
By drinking the coffee, I picked the easiest option at that present time without regard to the consequences. I could have taken a nap in the parking lot of the convenience store instead of going in and buying the coffee or even gotten out of my car to walk around. I could have chosen a different drink. Instead, I said phooey to my sleep that night and chose the lazy option of coffee.
The consequences of drinking that cup of coffee won’t necessarily stop with a poor night’s sleep. It has the potential to create a nasty cycle. Think about that spender with a lot of debt. Those debt payments accrue interest and pile up. It takes more and more money to service that debt, making it more difficult to use his money for the things he actually needs to live his day to day life and prepare for his future. He can soon find himself taking on more and more debt as an increasing amount of his income has to go towards making debt payments. The debt payments suck away resources that could be otherwise used to make sure his life is better down the road.
So what do you think is likely to happen when it was time to drive home from work the day after I only got four hours of sleep? Chances are I’m going to be a bit sleepy again. What would be the quick and easy way to solve that present problem? Buying a cup of coffee, of course. What happens when it’s time to get to bed that night?
It’s obvious that high time preference behavior leads to even higher time preferences. Fortunately, the opposite is also true. If I were to change my behavior, and I chose a better option like taking a nap instead buying the coffee, my present wants and desires of getting home from work as soon as possible would suffer, but it would lead to a better future outcome. By getting enough sleep that night, I’d probably be more awake driving home from work the next day. After some time, with a solid bank of nights of good sleep, I would be more productive throughout my entire day and be sleepy when appropriate.
Consider time preference and the cycles it creates when observing the world around you. It is an especially important concept when considering the effects of easy versus hard money. Inflation and banking with ever decreasing reserves might appear to solve some short-term problems, but its consequences on an economy and society at large are devastating as the illusion of wealth leads people to act on the belief that there are more resources than there actually are. A hard money economy, on the other hand, rewards those with low time preferences (savers) with appreciation of their money to be used to compound their economic output. This creates a better life for everyone in society.