Understanding time preference and what it means is essential to being able to understand what enables societies to develop wealth, and what causes societies to swirl into inescapable poverty, crime, and self destruction.
Below is the transcripts to the video:
What Is Time Preference?
Time preference is a measure of how well you can look into the future. It's a measure of how well you can plan. If you can't see very far into the future, you won't make very good decisions.
It's a measure of how much more of something you'd have to have in the future, to forego having it right now. If you'd take $150 a year from now instead of $100 today, then your time preference is 50%.
The aggregate time preference of society is the free market interest rates. The more people plan for the future, the lower the interest rates will be.
Studies have shown that primitive cultures have a very high time preference. For example, in one primitive society, they would rather spend an hour's worth of work digging up roots, rather than planting corn. They know how to do both, it's that planting corn requires them to wait to see the results of their effort.
When digging for roots, they get 500 calories worth of food for every hour they spend. But if they were to plant corn, they'd eventually get 2000 calories for every hour they spend.
So you can see, the lower your time preference, the more likely you'll plan for your future. And the lower the time preference of society is, the more wealth they'll create.
The tribe that doesn't spend a lot of time planting corn won't develop very much wealth. The more any society plans for the future, the more wealth they'll create.
One very interesting thing is that in societies where time preference continues to go down, over several generations, the society becomes a lot more civilized. Murder rates decrease, violent crime rates decrease, interest rates decrease, and society as a whole becomes more morally upright.
Anything that increases time preference, on a wide scale, threatens the stability of society. People think about the future less and less, and make decisions based on the immediate consequences.
Instead of taking the time to think about the result of killing you, for example, in terms of jury trial, prison sentences, the loss of ability to create wealth, somebody with a very high time preference will simply look around and make sure there's no police. They'll only be thinking five or ten minutes into the future.
Anything that decreases time preference is good for society. Wealth goes up, and crimes go down.
Anything that increases time preference is bad for society. Wealth goes down, and crime goes up.
What decreases time preference? Free markets. Anything that trains people to be responsible for their actions.
What increases time preference? Governments. Anything that convinces people that they aren't responsible for their actions.
Governments, therefore, are the enemy of society.