MK Chen’s amazing paper about the effect of language features on economic behaviour has been making the rounds. In a nutshell, by doing some kind of regression of savings rate and other similar metrics of economic prudence, from surveys and various data sources, against whether the mother tongue (or group thereof) of the groups surveyed expresses the future tense weakly or strongly, he finds that there is a fairly convincing correlation. And it seems to resist controls for incidental factors. It’s not a definite proof, but within the limits of statistical methods it seems fairly solid — many studies in finance or medicine get publicity with much weaker statistical significance.
While such effects have been long thought about — see the Sapir Whorf hypothesis — this instance, if further confirmed, is particularly striking in its amplitude and simplicity.
The correlation is, at least for my sense of intuition, inverted: that is speakers of languages with a strong future tense, such as English, make for poor savers unlike those of languages with a weak future, where you can use the present tense plus context or markers for future actions. But it can make sense: it’s easier to delay things to tomorrow when you have the linguistic tools to do so, although that explanation sounds possibly a bit too simple to be the only truth.
If you take it to policy it may mean, among other things, that some countries may be natural deficit countries and other natural bankers. So in the end lamenting trade imbalances may be totally pointless, and we should just accept them as cultural differences and try to make them manageable.
It made me reflect on the nature credit. The American literature and folklore often takes credit for granted, and you read things like that people “cannot” buy a car or a house, or go to university, when credit is tight or not available. This is a trivial fallacy. You can save for a car, and buy it outright when you get enough cash to pay for it. And same for everything else someone can afford within the limits of their lifetime income and the choices they make. An absence of credit just delays consumption. In a steady state where everybody is delayed by the same and relatively constant amount, this shouldn’t have much interesting impact. Some would still argue that this delay means less consumption, but even that is, basically, false.
Let’s for a moment assume that we have a perfect credit model, where credit is available and where everybody repays within their lifetime according to the agreed conditions. If we compare the total consumption on the lifetime of otherwise identical individuals, with the same income, who both plan their affairs wisely so as to end up with exactly zero net assets on the day they die; basically the borrower can consume his income less interest, while the saver can consume more plus interest if he saves early in an interest bearing vehicle, with the proviso that they must stop saving later in life to achieve the zero ending asset condition.
If this world was a village with just this 2 people, we’d have the accounting identity:
- C(saver) = W + I
- C(borrower) = W – I
where C is lifetime consumption of each party, W is wages which we assumed equal for both parties, and I is the interest which the borrower pays to the saver given this is a two-person world.
So basically the saver is 2I ahead in the amount he actually consumes. It’s just an intertemporal choice for both of them. To what level it is a good idea is another question but economically it is both possible, and sustainable.
Does the model fall down if we introduce more than two people and default? Not particularly, if the savers set I, of which they are price makers, at the right value to include the default rate of the borrowers, we can still have a fully stable and sustainable system, which caters for varying intertemporal choices.
I’m a bit more fuzzy on if and how this generalizes to a full blown world, but the intuition is that it will be naturally stable. Basically if savers want to save too much, the value of I will become temporarily unsustainable and become below the default rate, and the imbalance corrected with default sooner or later. In other words, there might not be much to do about this problem from a policy perspective, beyond trying to smooth out volatility induced by temporary mispricing of credit produced by imbalanced preferences between saver and borrower groups.
The other, unrelated, point it brings to me is that most of what we understand as national character may just be due to language artefacts. This could explain consistency of some traits of characters — Roman writers were already finding Germans dour and fiscally prudent two thousand years ago — in a much more convincing way than the classic explanations like fizzy blood theories, which fall down in any region with loose borders and lots of population mix along them and through economic or wartime population movements, or the quasi-mystical appeal to the nation state, basically a nineteenth century invention, where somehow random events like place of birth and passport are supposed to have way more influence on identity than their minimal factual relevance warrants.
This opens a myriad of questions: could we find other factors that explain this or other things with greater precision than this single factor? For instance do languages that requires you to construct most of your sentence before you can start it, or require the listener to wait for the end of the message to have it complete (like German again) imply something on behaviour? Do some more obscure constructs that are not so easy to acknowledge also have an impact?
And what happens if you teach multiple languages early enough? Will the next generation of Chinese, if they are taught English early enough, will rush to their credit cards once adults, settle on running a well balanced book, or keep on saving? (and inversely if American kids learned Chinese or German.)