There is something very right about Felix Salmon’s recent post In praise of invisible payments :
In a world where people want to maximize their own happiness and minimize their own pain, it makes sense to automate and otherwise anesthetize as much as possible things like tax collection. If I’m happier paying more taxes less visibly, then isn’t that Pareto-optimal for all concerned?
Felten says that he would rather scrounge for change at a parking meter and at tollbooths, rather than pay painlessly with a cellphone or EZ-Pass, precisely because he wants to feel frustration and annoyance at paying those fees: “those are just the emotions I want to cultivate toward the entire enterprise,” he writes. Which, I suppose, is his right. But most of us — those of us who tend towards the sensible — are much more likely to want to minimize the frustration and annoyance in our lives.
And yet, I wonder about self-control. Making it easier to spend money means that when we impulsively do so that is easier as well. When we are capable of making fully consistent budget plans facilitating transactions is great. Lower a transaction cost makes us better off even if we end up spending more now rather than later. But not all transaction facilitation is good if self control is limited. Imagine a machine that delivered cigarettes to your home office. Under perfect self control this only makes people better off. Smokers can buy their cigarettes without having to head out into the snow and they would always be fresh. But for the smoker with limited self control trying to quite he can’t just dump the packs he has. Every time he moves his mouse he sees the delivery device and is reminded of how much he could use a smoke. It would be far harder to quit and one would imagine the total amount of cigarettes consumed would increase.
The same thing could be occurring here. If you were reminded of how expensive tolls were, if you you had to actually shell out the cash for Kindle books many people would spend less. Not just because of the hassle but because the prompting would reinforce their self-control rather than facilitating impulsive behavior. Megan McArdle in her Atlantic piece Lead Us Not Into Debt shows this in action:
Most things sound a lot crazier from the outside, and so once I’d decided to write about the friendly, slightly bombastic man on the television screen, I thought I should try his program, as outlined in his book The Total Money Makeover. At the beginning of August, I had dutifully sat down with Peter, my fiancé, to draft a budget. Once we’d given every dollar a name (as the book puts it), I drove to the bank and withdrew 1,800 of them. Huddled over the wheel to hide this stupendous wad of cash from prying eyes, I doled out the money among various envelopes for groceries, parking, entertainment, clothing, and so on, as recommended by Ramsey—and, funnily enough, by my grandmother, who invented a nearly identical system to manage my grandfather’s meager earnings from delivering groceries during the Great Depression.
When you pay for something with a credit card, or even a debit card, you can easily spend a few extra dollars here and there. But as Ramsey explained—while waving a handful of hundred-dollar bills to illustrate the point—if you have to actually hand over some of your dwindling cash supply, you tend to ponder every purchase. That impulsive latte buy becomes a little less enjoyable when every time you haul out your wallet, a quavering voice inside your head asks, “You want to send Uncle Abe away?” And sure enough, though we thought we’d budgeted conservatively for just the necessities, we nonetheless finished the month with extra money in every envelope.
…
I have never felt as serenely in control of my finances as I have during these months of knowing that every single dollar is where it is supposed to be: either in the bank, or on a well-chaperoned date with our envelope organizer. The process has been surprisingly painless but, even more surprisingly, pleasant.
So even smart, high earning, relatively prudent people can struggle with self-control, and a proceedure that makes it harder to spend money impulsively can actually make you happier in the long run. I’m not making a point that all transaction facilitation tools are bad. There is no need to use Rai stones as money. But Felten’s point, that transaction facilitation comes with costs and benefits is not a ridiculous one. Some people, especially those with poor financial impulse control, may want to avoid availing themselves of the latest and greatest ways to make spending money easier.
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