On Interest Rates and Mortality

A limited time on this earth makes time precious.

TJ Palanca https://www.twitter.com/tjpalanca
04-20-2012
A limited time on this earth makes time precious.

Figure 1: A limited time on this earth makes time precious.

I’ve always been puzzled by interest rates. They say it’s the price that relates future goods to present goods. Simply put, it’s a price tag on the ability to consume goods now rather than later (for example, a saver who defers the purchase of his marshmallows will get an interest on his savings for more marshmallows in the future.)

Opportunity cost is something we encounter early in our transformation into zombies economics majors. Another thing that we learn is that there is no such thing as a free lunch. Every minute spent not doing anything is a minute not spent gorging ourselves on marshmallows (or some other worthwhile activity; although there is nothing more fulfilling than marshmallows). Most activities incur time as an opportunity cost. This is why we prize present consumption; it’s because we have a limited time on this earth to allocate efficiently among activities.

Now that leaves me thinking: what if everyone turned immortal? What if someone found the elixir of life? Would interest rates disappear (meaning no one would care about consuming right then and there), or would something else in the human psyche still make us yearn for present consumption?

Envy, perhaps?

Corrections

If you see mistakes or want to suggest changes, please create an issue on the source repository.

Reuse

Text and figures are licensed under Creative Commons Attribution CC BY-NC-SA 4.0. Source code is available at https://www.github.com/tjpalanca/tjpalanca.github.io, unless otherwise noted. The figures that have been reused from other sources don't fall under this license and can be recognized by a note in their caption: "Figure from ...".

Citation

For attribution, please cite this work as

Palanca (2012, April 20). TJ Palanca: On Interest Rates and Mortality. Retrieved from https://www.tjpalanca.com/posts/2012-04-20-on-interest-rates-and-mortality/

BibTeX citation

@misc{palanca2012on,
  author = {Palanca, TJ},
  title = {TJ Palanca: On Interest Rates and Mortality},
  url = {https://www.tjpalanca.com/posts/2012-04-20-on-interest-rates-and-mortality/},
  year = {2012}
}