Theory of Avoided Costs
New Sources: recently discovered
Medicaid Eligibility and ZCL
Economic Crisis: what can you do?!
Extreme Garage Sale Jaunt
(This article was written for Livingston Parent Journal.)
"Thrift, family, garage sales, and other stuff"
by J. R. Delcamp, resident of Genoa Township and Author of ‘Zero Cost Living – exploring extreme frugality.’
I had no problem living like Thoreau, with frugality, when I lived on my own. But with a family it’s not so easy. Imagine Thoreau with a family. That’s me.
Children and spouses are sometimes unwilling to be thrifty.
Getting the wife to go along is complicated – a subject for another article – or book.
Getting children to be thrifty is somewhat easier. One method: Take them to garage sales. Let them carry their own money (from allowances, Christmas or birthday money, earnings from sale of their items at our own garage sale etc) – money that is burning a hole in their pockets. Spending their own $ at garage sales they quickly learn to discern what they really want or need from what they don’t - regretting the precious $ they spent on of this or that useless toy they never play with. And, they realize how much farther their $ go at garage sales than at retail outlets.
It can be fun and interesting to them - wondering what they might find, searching through stuff, finding unexpected items, bargaining with the seller, taking their new found treasure home.
A big problem with garage sales and flea markets is hitting them with efficiency. Driving around just looking can waste gas and time and costs more than any possible savings. In general I have found that making jaunts just to visit garage sales is just not worth it.
My method: visit garage sales while doing something else, visiting sales along the route I must follow for some non-garage sale task. I leave early, allowing extra time for these stops on the trip.
And I try to do non-garage sale activities like shopping, library visit, hike, etc. on Friday and Saturday (and sometimes Thursday) when garage sales are on.
The ultimate refinement of this method is the “Great cross state garage sales jaunt”:
I plan vacations to northern or western Michigan so that the family can visit garage sales on the way there or back, or both - by leaving on Friday or Saturday and returning on one of these days a week later. In July we spruce up the old reliable Chevy Astro Van and beat up pop up camper, load them with heaps of stuff: snacks, pillows, blankets, suitcases, binoculars, camera, toys, ‘noodle’ floaties, bikes, a microwave oven (one of my camping cheats) and cups full of change for the sales.
TWO JAUNTS:
Jaunt # 1:
We go camping on Lake Michigan in late July early August. We go there by secondary paved roads through small towns - making an average of 10 stops in 150 miles and taking five hours to cross the State. And we visit interesting sites along the way - a different one or two each year: the park and pedestrian bridge in the town of Plainwell, the county courthouse building in Mason, Yankees Springs State Park, Fort Custer Veterans National Cemetery, Kalamazoo Aviation History Museum, and much more. Near Lake Michigan we pick buckets of blueberries, stop at produce stands, top off our food supplies.
Jaunt # 2:
We camp at Black Lake (Southeast of Mackinaw) at the end of August going 250 miles each way. Going there, we take the freeway as far as Bay City, (a boring and tedious drive), then two lane roads through small towns making our garage sale stops in this stretch. We also stop for local produce from roadside stands: vegetables, fruit, preserves, the bounty of late summer Michigan. It is scenic, rolling, back country - birches, pines, old farmhouses, colorful farm fields backed by forests, quaint little towns – some so small you will miss them if you blink.
We meet people at these stops, talk, ask questions, learn interesting things. The kids get to stretch frequently- and paw through stuff looking for toys and treasures while we look for clothes, books, tools, whatever we want need at the moment, or know we’ll need in the future.
At one stop I forage wild apples – picked by no one else - behind a small town grocery store. They are not perfect, but small and marked by occasional worm or insect attack. But they are still sweet and good and the marked areas are easily cut away. And the marks assure me they have not been sprayed with pesticides. (potentially less healthy - I think - than any insect or worm).
On these ‘Great Jaunts’ we take a different route each year, keeping them varied and interesting, discovering new places, people, garage sales, produce stands, scenic vistas and sites, - enjoying the whole panoply of undiscovered and unsung Michigan countryside.
Theory of Avoided Costs
Here is the core idea of my 'manifesto of thrift':
AVOIDED COSTS: “A penny saved is a penny earned,” wrote Ben Franklin in Poor Richards Almanac. But in modern economic thought, avoided costs are not even counted in the economy. That is, money not spent is not counted as part of GNP.
Consider a mind experiment. Over a year, assume everything else in the economy is stable and stays the same except energy conservation cuts 10% from costs. Then, the Gross National Product would be lower, less stuff will have been bought or sold, and the economy will appear to have contracted because of the avoided costs, or savings resulting from energy conservation. Perhaps Ben Franklin’s saying should be modified, in the modern world to “a penny saved is a contracting economy”.
Of course in reality, having saved dollars by conserving energy, folks have bigger bank accounts, or spend more on consumer goods, or take more days off from work, or take longer or more expensive vacations. Of course the bank accounts, consumer spending, etc. of folks in the energy industry go down.
ECONOMICS OF AVOIDED COSTS: The Hunza of Pakistan have a healthy bracing climate and a stable and sustainable organic agricultural system. They live on farms and own their land and houses. They have good health into their 90s, no tooth decay , perfect vision; (from the book Healthy at 100 by John Robbins)
Other societies in odd corners of the world have similar circumstances. Writes Robbins, “Certainly part of the secret to the exceptionally healthy aging found in Aabkhasia, Vilcabamba, Hunza, and Okinawa is the extraordinary amount of regular exercise built into the routines of daily life.”
Consider all the costs theses societies have avoided: medical costs, rents, mortgages, real estate, store bought food, automobiles, etc.
Until 1965 the Hunza did not use money, had no roads, electricity or modern conveniences. Since the introduction of all of these their health has deteriorated. Many a seemingly primitive, backward or stagnant economy (as seen by Americans) may be wealthier than they seem. The Hunza of Pakistan have no cars and no need for them. They live well without them, and avoid the cost. They stay healthy, and have very low health care costs. By the criteria of conventional economics the Hunza would be considered among the poorest people on Earth. But in reality, they may be among the wealthiest people in the world They have an attitude of ease, well-being and happiness according to Robbins. Recently they have had to endure the introduction of a money economy, western food, roads, cars, and dependency on imports. These harbingers of progress are in the process of impoverishing them.
In the poor villages of India the income per person per day may average only $1. They live low cost by necessity. But, like the Hunza, their real standard of living could be higher than conventional economics would calculate if avoided costs are added in.
There are no cars but they are able to get everywhere on foot.
They have no heating cost, living in a warm climate, and no air conditioning cost. Their buildings, with mud brick walls, stay cool naturally.
Many residents may have no rent or mortgage costs: They own their own land free and clear. Their houses are built out sun dried mud bricks, material obtained free from their property and naturally fireproof and not insured thus avoiding insurance cost. Homes may be owner built and easily repairable by the owner.
They have compost toilets, no piped plumbing system, no plumbers and no need for them.
We may not be not much richer than prehistoric or aboriginal folks if the value of avoided costs are added back in. Is a man richer who works in a factory all day rather than hunts? Who will be healthier? Who will live a more interesting life?
Does sitting at a computer all day make you richer than a subsistence farmer? Who will be healthier?
THEORY OF AVOIDED COSTS (TOAC): TOAC is the theory that in counting up the real wealth and income of people the costs and expenditures that are avoided must be added in. (With the caveat that though the cost is avoided, the real need - whether for food shelter, clothing etc. is being met).
Dollars that you do not have to spend because of the way you live equals income. If you own your house free and clear and pay no mortgage or rent the dollars you save are not recorded or reflected in the economy or in your income, under ordinary GNP and income accounting. If you pay rent or mortgage you must earn the dollars to pay these costs and these dollars are included in your income. In fact, owning your home saves you $10,000 or more a year in interest payments. Your real income is higher by that amount according to the theory of avoided costs.
Similarly, if you can walk everywhere or bike and own no car you can save the $2,000 a year a used car you fix yourself might cost you, or the $5,000 cost of a new car per year. Again the economy and your income reflect no evidence of this under ordinary economics. But under TOAC accounting your income would reflect this savings.
To the typical service economy wage that is a lot of hours of labor: car and house savings together = $12,000 or about 12 months work after taxes. Therefore, if your service economy job pays you $12,000 a year, and you own your house without a mortgage and need no car then your income really is $12,000 plus $12,000 = $24,000 a year or effectively doubled.
Other expenditures, most expenditures in fact can be cut, or even eliminated by various methods discussed in detail in the book.
Effects and Consequences of TOAC: By TOAC accounting prehistoric men may be seen as fabulously wealthy by modern standards, avoiding every cost (and living in vast pristine wilderness). Avoided costs are not even considered in modern economic theory, and that fact reveals the nonsense that is modern economics.
Consider modern men living a primitive prehistoric-man-like existence: The Kalahari bushman: By ordinary economic accounting Bushmen are distressingly poor. But by TOAC accounting they are reasonably well off: Consider the costs they avoid: no houses, mortgages, cars, food costs health care. Under conventional economics the per capita income of a bushman vs. an American cannot easily be compared. But using avoided cost analysis the income of a bushman can be estimated at around $30,000 per year.
The bushmen may suffer from lack of a secure food supply and from lack of modern medical care. But they have compensations: They hunt. Hunting with primitive weapons is a recreation in American society. The way they gets his food is a healthy challenging pleasure. Compare this to workers stuck in a factory.
Can a bushman really be considered poor? Not by TOAC accounting. He can be made poor by taking him out of his environment, or by destruction of the environment he lives in. (A bushman or Native American living in a environment he cannot defend is a man about to lose his fortune though very little value would be placed upon it by conventional economic accounting).
A bushman moved to a city is made instantly poor. His skills are useless; he cannot hunt but must buy food. He is vulnerable to a host of new diseases and must have modern health care. He may need a car to get around. He has no property and cannot legally sleep in a public place in many cities.
A teenager leaving home is like a bushman leaving his environment going from an environment where he has no expenses to one where they are likely to be larger than his income; from well off to instantly poor. Unless he can live with low or no expenses (ZCL). In our society he must somehow then work his way back to well off.
Real Poverty: The poorest man is the one who must work long hours at the most miserable job in society - a job he hates that requires no skills and has no future prospects - to cover his expenses regardless of his wealth in dollar terms. Another words: Adams Smith’s pin factory workers. A poor man is one who lives in the suburbs and must have a car house and mortgage and has to buy everything - and has a low paying job and therefore must work long hours or go into debt to pay for constantly consumed kinds of expenses such as food, gasoline, electricity, medical costs, taxes, etc. This is the situation of many working Americans.
And poor in the extreme is a man suddenly unemployed with high expenses and no ways to cut down his expenses. (But there are always ways to save).
Avoided costs are not counted as part of the equation of the GNP of an economy under conventional economic accounting. These costs can add a considerable boost to the GNP of a nation. They may even be much larger than the dollar amounts reflected in ordinary GNP accounting. Like the dark matter in the universe that affects gravity, they might hugely skew the real circumstance of an economy, the real GNP, the real wealth. For example, consider a society where everyone owns their home free and clear and pay no mortgage vs. a society where everyone is fully mortgaged. By conventional economics the GNP of fully mortgaged society will be higher. But by the TOAC the society where everyone owns their home will be higher. Most real societies fall somewhere between these hypothetical extremes. Where some homes are mortgaged and some are not, the avoided expenditure must be added to the GNP.
Application of the Theory:
Avoided cost analysis:
Applying the theory of avoided costs to economic and social situations I call avoided cost analysis. Using avoided cost analysis we may calculate the full cost of an economic change to the individual, family, society and the environment. As a result of economic growth, new factories and other businesses costs that were previously avoided now might have to be paid.
Applying TOAC to a real case: Adam Smith’s pin factory again.
According to conventional economic accounting the pin factory mass produces pins making cheaper pins than ever before, society can buy cheaper pins, the company undersells the competition, sells many and makes a profit. Everybody benefits
But what costs that were previously avoided now must be paid:
Small scale locally made pin makers are wiped out. These pin workers are now unemployed. Their lost income is a cost of the pin factory that must be determined.
Factory pin workers are unskilled and low paid; they require little training and anyone can do it. Unskilled work means children may be employed with cost to their health and psychological well-being, and the social costs may result because they have an incomplete education. Also, mothers may be employed so childcare must be paid.
All the pin workers do is make pins. They have no time or skills to do anything else. Plus workers must live near the factories in cities where they have small homes with small yards and therefore no space or facilities to make or grow anything themselves. Therefore, they must buy everything and their living costs go up.
One or a few centralized pin factories increase transportation costs because distances to raw material and markets are greater. More roads, railroads, ships may be needed along with associated costs.
Pollution and trash from the pin factory formerly dispersed in home workshops or small factories and perhaps once recycled and reused may now be concentrated and not used. So there are increased costs to dispose of and clean up (or as industry usually does leave toxic messes that have health costs).
A cost should be assigned to the loss of freedom and independence workers suffer when they become a small cog in a large-scale army-like industrial organization.
A cost should be assigned to the loss of economic security workers suffer when placed in a situation of constant intense competition against fellow workers, against other factories and against factories in other countries. Living with increased stress, the health of these workers may decline.
And, because large numbers of workers are employed in close proximity for long hours, diseases may be more easily spread, exacting another cost to workers which should be determined.
So the supposed savings of the pin factory are much less than imagined by conventional economics, and could in fact be negative.
The problem of more accurately determining the wealth of a society (other than the Bhutan style GNH) might be solved by applying the TOAC and therefore by adding avoided costs into the total. The median family income in the United States was about $48,000 in 2007.
Consider the Hunza, by conventional economics they are distressingly poor. Because they rarely use money in transactions and money flow cannot be counted, conventional economics might calculate their per capita income at a few hundred dollars a year by assigning a value to the crops they grow, farm animals raised, firewood gathered, etcetera.
Applying the TOAC and adding up avoided costs per year and assigning a cost for each category that an American family of 4 might expect to pay.
Category: Avoided cost:
Staying healthy into their 90s: avoided medical costs = $10,000
Perfect teeth and vision = $2,000
Growing almost all of their own organic food = $5,000
No social security tax and no need for it = $2,000
Almost no other taxes = $5,000
Remaining productive all their lives = value of their work: $1,000
Owning their own farms no mortgage costs = $10,000
Building their own house = $5,000
Owning no cars; going everywhere on foot = $5,000
No utility bills: compost toilets, hand pumped wells = $2,000
No electric bills: natural light, oil lamps, firelight = $1,000
Homemade clothes using wool from their own sheep = $1,000
Free recreations: family and community games and sports = $1,000
Vacations visiting relatives (rather than Disneyland) = $3,000
TOTAL: $53,000
So I estimate their family income at over $50,000 per year. They don’t have all of the junk owned by a typical American family. But some of what they have is priceless: peace and quiet, low stress, close families, a pristine environment, pesticide free organic food. Using the accounting of the TOAC the Hunza may be considered well off, not poor.
The thrifty society will thrive. The wasteful society will decline. Once America was thrifty, perhaps the thriftiest society on Earth, and they thrived. Once, in America, there were no wealthy folks wasting resources, no masses of poor living day to day and thus unable to realize the 'bigger' kinds of thrift. (no mortgage, preventive health care, etc.). Today, the Chinese are probably the world masters at thrift. They produce much, buy little, save 43% of their income. American savings is negative. But the Chinese will change as more and more workers become dependent on their single task all day jobs, have no time to practice thrift, and must buy for convenience, must buy everything and make nothing on their own.
So is it all so simple? Just be thrifty and we’re home free (funny expression). Unfortunately practicing thrift is not so easy to do. Many practices that on the surface may seem thrifty are not. They turn out to be expensive, in time or money or both or require great skill, and years of training, education or experience. “Expensive thrift”, now there’s an oxymoron, so in this book I’ll just use the terms “false thrift”, and "inefficient thrift".
New Sources: recently discovered As a result of ongoing research and study here are new sources applicable to Zero Cost Living.
“Lost in the Meritocracy” by Kirn: The reality of the ruling class - the new aristocracy of wealth in America is revealed by this book - as a 'poor boy' tries through brains and high SAT scores to make his way into the aristocracy and his difficulties as he alternately sucks up and defies at college (Princeton) the folks destined to be our national (and world) rulers. Actually this aristocracy is not so new since his story concerns the 1970s.
“An Edible History of Humanity by Tom Standage: Food through history with plenty of interesting insights - such as how hunter gatherers thousands of years ago were healthier than farmers - and lived better lives with more leisure -(and more fun - hunting rather than grubbing the earth). See pages 16-17 and 34-37.
www.thesimpledollar.com: Great web site dedicated to thrift with a great section - very popular on how to make cheap laundry soap.
“Theory of the Leisure Class” by Thorsten Velben: A classic sociological study of the upper class in America at the end of the 19th century. A hard read with many big words, long sentences, and broad concepts. Velben invented the term 'conspicuous consumption'. Velben who sounds foreign grow up on a Wisconsin farm His family was Norwegian. He did not think much of the lifestyles of wealthy folks of his era. They undermined the earlier American culture Velben grew up in 'modernizing' America and reducing many folks to dependents, servants, employees who had previously been independent farmers.
“The Engine 2 Diet” by Rip Esselstyn: a triathlete and professional firefighter (in engine house number 2) in Texas. He advocates a vegetarian diet. The virtues are considerable including reversing or preventing heart disease, many cancers, diabetes, obesity, and host of other illnesses as described in the book. The foods he advocates are simple, cheap and you can grow most of them yourself, perhaps on the solar farm on a half acre that I advocate in my book.
Medicaid Eligibility and ZCL
Correction to my book: after review of medicaid rules it appears that your assets are not limited to $3,000 to be eligible for medicaid. Your home is not counted in the asset calculation. You could own a mansion, I suppose and not have it counted as an asset as far as medicaid is concerned - although any income derived from your mansions such as a tenant paying rent for a room will affect your eligibility depending on the income limits for medicaid.
This is a great advantage for a ZCL practitioner in that you might have your homestead built up to produce most or all of the food, energy, etc. you need to live, and as components of your home these might not be considered assets for medicaid eligibility. Since they produce no income, you are not selling anything, they might not be counted as income by medicaid. For example, solar cells on your roof could reduce your electricity costs to zero, real income to you according to the theory of avoided costs (savings = earnings or income), but not income as far as medicaid is concerned because you are not paid any money.
Therefore you are protected from losing your carefully built up homestead if you are facing catastrophic medical costs and- having used up most of your money for medical costs - by making yourself eligible for medicaid by getting rid of, using up, giving away all of your assets over $3,000. You might, for example, build some hydroponic solar greenhouse systems to produce your food, and solar cell arrays on your roof for electricity - using up your cash, and as long as these systems are not considered assets by medicaid because they are part of your 'home', you could still get medicaid.
From a pure ZCL perspective, relying on medicaid is not a ZCL practice as you are getting something without paying for it - namely free government health care. Someone else - the taxpayer is saving you. But faced with financial catastrophe and homeless destitution because of medical costs - take what the government will give you and try to preserve your homestead and a degree of independence. At some future date, healed and solvent again you might think about how you can re-pay all of the good citizens whose taxes saved you through medicaid.
Economic Crisis – What Can You Do?!
What can you do when despite your years of education and experience your professional job is outsourced, when the only job you can get is a dead end low wage service industry job, when illegal immigrant labor takes you job at half your wage, when your job in manufacturing is outsourced to nations where children, inmates and workers with no rights do the work you once did at a tiny fraction of the wage you once got, when a flood of cheap imports produced by these workers put your business into bankruptcy.
What can you do when your art is not selling, when no one will publish your novel, when you can’t get a paying acting job, when you business has failed, when technology has made your job obsolete, when you didn’t win the lottery, when your parents have disowned you, when have no prospects, no economic future, no money, perhaps even no home?
What can you do when you don’t fit into clock ruled timetables, routines, schedules, and agendas; when you can’t stand to be directed, managed, supervised and administered by layers of bosses above you.
There is one thing you can do: Live Zero Cost.
