Wealth Cannot Be Created by Economies Without Patience and Long-Term Perspectives

''In a paper entitled ‘Patience and the Wealth of Nations,’ economists conclude that patience explains ‘a substantial fraction of development differences across countries.’''

In a groundbreaking study, psychologist Walter Mischel showed that putting off getting what you want as a child led to success as an adult. For the experiment, toddlers were put in a room with treats and given the choice of eating them right away or waiting fifteen minutes to get another treat. Follow-up studies showed that participants did better in adolescence if they were able to wait fifteen minutes before eating treats.

It's not controversial to say that self-control is linked to personal success, but the link between self-control and national success isn't studied as much. To build a civilization, you have to give up short-term wants for long-term gains. People need to save, invest, and plan in order for society to do well. When planning for the future, people will automatically put investments ahead of buying luxuries, which shows that they don't value time very much.

Low time preference always leads to capital accumulation, and people with low time preference are more likely to give up current wants for future success because they are future oriented. When an entrepreneur puts money back into his business, he is thinking about the future. Since he is a long-term thinker, the entrepreneur knows that investments in capital create value and, in the long run, make the business more competitive.

Even thinking about starting a business is a sign of long-term thinking, given how many problems entrepreneurs often face. Most people aren't likely to start their own business, but for progress to continue, people need to have traits like patience and a focus on the long term that entrepreneurs have. In the end, outlier performers are important to a country's success, but the average quality of the population is what keeps things going well.

Many countries have talented entrepreneurs and smart people, but they are still poor because the average quality of the population is too low to make the economy grow. In a 2019 paper, economists say that the spread of middle-class traits like investing in human capital and planning for the long term may have been a key factor in the rise of industrialized England:

We find that the middle class had the highest reproductive success during England's early industrial development…Hence, the prosperity of England over this period can be attributed to the increase in the prevalence of middle-class traits rather than those of the upper (or lower) class.

Today, elite status is shown by saving and investing in human capital, but in the past, aristocratic elites liked to show off how much money they had and didn't care much about growing their family's wealth through business. So, it seems reasonable to think that the rise of England was helped by the rise of people with bourgeois traits. There is evidence that patience, which is a stand-in for long-term thinking, affects a country's wealth.

In a paper called "Patience and the Wealth of Nations," economists say that patience explains "a large part" of the differences in how different countries develop.

Countries where people are more patient tend to have higher incomes, more human and physical capital, and better institutions. People who are patient and think about the future can explain why these things happen. People who care about the next 10 years will save money and work hard now so that they can have a better life in the next 10 years.

Also, newer research says that a country's external wealth is linked to how patient its people are. Mika Nieminen says that people who live in countries with a positive net foreign asset position are patient, while people who live in countries with a negative net foreign asset position are impatient. In the same way, economics literature says that thinking about the long term is also important for development.

A 2021 study by European economists says that the benefits of economic freedom grow when people think about the long term. Using a panel analysis of 67 countries from 1970 to 2019, Johan Graafland and Eelke de Jong found that economic freedom has the most effect in countries where people are highly long-term oriented. When they talk about these results, they write:

Economic freedom appears to be particularly effective in raising income per capita in countries in Asia (China, Hong Kong, Singapore, South Korea, Vietnam), because these countries combine low Uncertainty Avoidance with Long Term Orientation…In addition, South American countries and countries in the Middle East and Africa hardly benefit from more economic freedom, because of the combination of a relatively high Uncertainty Avoidance and short-time orientation.

Countries that do well on long-term thinking are also more likely to come up with new ideas. This isn't surprising, since inventing is a process of trial and error that includes failure. People who are patient and think long-term are more likely to succeed because they didn't give up.

In conclusion, the latest findings in economics should show policymakers that making policies without taking into account people's ability to think long-term won't lead to the best results. When people don't understand the effects of your ideas, there's no point in putting them forward.

Contact Lipton Matthews

Lipton Matthews is a researcher, business analyst, and contributor to Merion West, The Federalist, American Thinker, Intellectual Takeout, mises.org, and Imaginative Conservative. Visit his YouTube channel, with numerous interviews with a variety of scholars, here. He may be contacted at [email protected] or on Twitter (@matthewslipton).

Follow us on Google News