Being altruistic towards ourselves
Marshall: So when Lily and I get married… who’s gonna get the apartment?
Ted: Wow… that’s a tough one. Y’know who I think could handle a problem like that?
Ted: Future Ted & Future Marshall.
Marshall: Totally! Let’s let those guys handle it.
Ted: Dammit, Past Ted!
It’s a basic fact of human nature that we discount the future benefits and costs in our decisions. If you offer me the choice between £1000 today and £1010 in a year, I’ll take the £1000 today even though the £1010 is straightforwardly more money (assuming away inflation, for the moment and interest on the £1000 you give me today). I want to think about this in a different way to the way we normally do. For the moment, imagine that rather than being the same person with inconsistent preferences (Richard in 1 years time would have rather waited for the extra tenner), but as two completely different people. Future Richard is a different person to Richard – he’s just a person I care about a lot more than other people.
Like most people (I hope), I think we ought to be altruistic. There may be practical reasons for saying that it is either acceptable or indeed morally required to value yourself or your family over others, but these reasons are in service to the fact that it would be good for all if we did this*. One way of formalising altruism is that instead of simply acting to satisfy our own needs/desires/preferences, we ought to give everyone’s needs/desires/preferences equal weight in our decision making. But this is exactly what we fail to do towards our own future selves. We fail to give them appropriate weighting in our considerations, and it generates all kinds of deleterious effects on their welfare (hence why I’m writing a blog post rather than kicking off my CFA studies, or getting into the utter mountain of work that I need to get done in the next 7 days, for example). I guess I want to suggest that we are morally required to value the pains, pleasures, aspirations and hopes of our future selves to the same extent as today.
This is especially important if we think about the benefits of public policy from the standpoint of Net Present Value. This is because one of the factors that determines the discount rate is our preferences about future consumption – we have to be paid interest in order to induce us to save for the future, and contrariwise we have to pay others to lend us money to spend now rather than later. But we shouldn’t (from an altruistic standpoint) be looking to maximise value for current persons, but for all persons across time. The discount rate reflected in NPV calculations is morally prejudiced against future persons, because we don’t care about them as much.
That’s not to say at that interest rates and discounting shouldn’t exist – far from it! Take, for example, the preference for consumption smoothing over a lifetime – the interest rate co-ordinates the desires of those below their long term average wage to borrow to maintain consumption, and those who are above it to save for the point where they are below it. Interest rates do not necessarily reflect a failure of treating all persons equally. But our failure to be altruistic towards ourselves means that the interest rate is higher than it otherwise would and ought to be. The discount factor does not in and of itself drown out the future voices of Future Ted and Future Marshall (because remember: the discount factor represents opportunity cost), but using NPV calculations gives the wrong result in public policy – which ought to be conducted towards the promotion of the common good - by using a discount rate that partially reflects our failure to be altruistic towards our future selves.
Indeed, one might even make the argument that altruism towards our future selves is a much more achievable target than getting us to be altruistic towards each other. It would mean we would do less bad and stupid things towards ourselves, and less bad and stupid things towards each other (as we would be more concerned with future consequences of that on our relationships). Punishment would be a bigger deterrent, and as such we would have to punish less people.
All it would take is for us to care more about the person we already care about the most.
*Yes, yes I know it’s a lot more complicated than this but it doesn’t affect the argument