Being Cheap Is Not Being Economical

Some life lessons that usually get learned after the fact:

If you get a cheap lawyer, you have to pay him, then you have to get an expensive lawyer to fix the original problem and the even bigger one that the cheap lawyer created.
If you visit a cheap tax consultant, you pay a lot of tax.
If you sign up for a cheap insurance, you’re probably not covered for very much. And, certainly, nothing that you claim for.
If you use cheap paint from China, be vigilant for lead poisoning.
If you get treated by a cheap doctor, you die sooner than expected.

So maybe you can’t really learn from number 5. But, silver lining, maybe your children will learn from your agonising death – agonising because you continued to save money by insisting on using Panado.

So here’s an old adage: “No free lunches”

Good Deals and The Market

Exercising cheapness means belonging to the “I win when you lose” school of thought. You’re looking for that point where you clearly get the best end of the deal, and the other guy is the unwitting mug that walks away with that sensation of having just been robbed.

Which is fine – I mean, good for you if you manage to do it.

But that’s never a long term strategy.

Allow me to explain it using some old-school demand and supply graphs.

The principle of demand: as the price goes up, so I’ll want less of it.
The principle of supply: as the price goes up, so I want to sell you more of it.

And when you put it all together, you end up with the following graph:

That’s basic economic theory, right? Where my demand spectrum and your supply preferences intersect, we’ll settle on a price and a quantity to be supplied.

You’ll notice that I’m only talking about quantity (the number of items, or the number of hours of time, or whatever). The above graphs don’t say anything explicit about quality. The reason for that: if the quality goes up, I’ll actually want more than I originally wanted at every price. So something like the orange line below:

But let’s put that aside for the moment, and spend some time reflecting on el Cheapo in the corner with the tight-sphincter expression. What does he/she/ze want? They want the same things as everyone else, just for less than what everyone else is paying. And they want to do that at every single price.

What they’re actually saying: they want more than everyone else at any given price.

In fact, if we say that most people (ie. the market) has the purple demand curve, then the demand curve for the misers amongst us is the orange one. Which seems a little counter-intuitive (don’t they want to pay less than everyone else?), but let me try and make this an example:

I hire a labourer for $100 – and I expect him to work 20 hours for me (ie. I pay him $5 per hour).
If I were cheap, I might still hire a labourer for $100 – but I’ll expect him to work 30 hours for me (ie. $3.33 per hour).
What this looks like:

Isn’t that the definition of a good deal: more bang for your buck?

The problem, in the long run, is that one or more of the following ends up happening:

The person I hired leaves me just as soon as they can for someone paying a more reasonable rate.
The person I hired is only willing to work for 30 hours if they get paid, say, $175 (ie. $5.83 per hour). So they’ll work for 30 hours, as long as they can somehow steal and/or cost you the difference.
The person I hired takes about a third of their time on sick leave. Or on facebook. Or having coffee on your credit card.

Here’s the scary fourth alternative: the person I hired is actually willing to work 30 hours for $100. Why? Well, you can hope that it’s because they’re altruistic.

But generally speaking, it’s because they’re the worker that no one else wants at the market rate. And/or they’re the cheap man’s opposite on the supply-side of the economic equation. In which case, you’re now hedging off against an unknown to see who’s getting the best end of the deal.