Time preference is confusing, at least to me. It plainly describes a pretty general human behaviour. But is it right? Should we prize present satisfactions more than future ones?
Generalised time preference looks like a recipe for destroying the planet. Both classical utilitarianism and the Golden Rule seem to tell us that all generations deserve equal consideration, so the pure rate of time preference (delta) should be zero. If you want an expert view, start with John Quiggin here. You need to allow for the declining marginal utility of income, inherent uncertainty, and technical progress, so there are plenty of ways in which discounting can become sensible in practice. But you have to take an overall view. This generation will pass on to its children a world with a bigger fixed capital stock, and more free and embedded knowledge, but an impoverished environment with fewer extractible resources, less biodiversity, and above all dangerously hotter. It does not go without saying that overall the package is an improvement – and if it isn’t we should use a negative discount rate.
For individuals, discounting makes sense because in the long, and often the shorter run too, we are all dead. If we don’t care for our heirs, our personal mortality alone, according to Quiggin, would generate a discount rate of about 1.5%. Not an awful lot. Morally, we ought to care for our heirs somewhat, and most people do, which would lower the rate. Death is no way of justifying the thriftlessness of the last decade in the USA and Britain.
So should we go back to Puritan or Chinese thrift? Always deferring present satisfaction? “Nütze die Jugend nicht / Denn sie vergeht”, as in the ironical Brecht/Weill Seven Deadly Sins?
Not quite. A while back my wife gave me a bottle of Dom Pérignon champagne as a birthday present. The years passed, with their anniversaries and celebrations, and somehow we never got around to sharing it. Now she’s gone.
Yesterday was my 63d birthday. The bottle was opened. On occasions, the right time – not the selfish time – is now.