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Parkinson’s Law and what it teaches us about time and money (Part 2)

If you will recall, I explained Parkinson’s Law and what the dangers thereof would be for all spheres in life in my previous blog. Click here

Now, let us continue.

It is not only in time management and productivity that Parkinson’s Law has applications. It can be generalised to many aspects in life. In fact, the law can be generalised as: The demand upon a resource tends to expand to match the supply of the resource, especially if the price of that resource approaches zero. This generalisation is an outflow (resembles) what economists regard as the law of demand: the lower the price of a service or commodity, the greater the quantity demanded.

There are many corollaries to Parkinson’s Law. Here are a few:

• Work will become as complicated as necessary to fill the available time (this is known as the Stock–Sanford corollary to Parkinson’s Law);
• Quantity in the wardrobe will expand to fill the cupboard;
• Scope contracts to fit the time we give it (the Horstman’s corollary);
• If you have twice the time in a day, you have time to fall twice as far behind your commitments as when you only have had half the hours in a day (the cynical Asimov corollary);
• Data expands to fill the space available for storage (which means that Moore’s law in computers do not help much, the demand for data storage and band width keep outpacing supply);
• The cars on a new road or lane, built to lower congestion, will fill it to capacity; and
• Expenses will rise to meet income (also known as Parkinson’s Second Law).

Let us briefly pause and investigate the last corollary above, expenses and income. It has very important implications in personal finance. What it says is that, if you want to save for the future and typically for retirement, if you want to open that vital gap between what comes in and what goes out, do not focus on what comes in. It is a fallacy to think that “I shall start saving when I earn more”. Parkinson says that you are fooling yourself, that saving is never going to happen. Because your lifestyle will merely evolve until expenses meet (or, sadly for many of us, exceed) income. No, it is not an attack game. The focus should be on the defense side, on what is leaving your pocket. First, put that savings away. Pay yourself first. Reduce the income to a new level. And then, by Parkinson’s Second Law, expenses will rise to meet (that new, reduced) income. It is the only way to financial independence. And it does not depend on (higher) income. It is all about budgeting, and budgeting for savings first. It is one of the first principles of personal finance and budgeting. A corollary to this is that you also should not fool yourself by paying off your debt before you start saving. That start date might never arrive. Too many have paid off ever more debt their whole life and arrived in their fifties with almost nothing in the tank in terms of savings for the future. They are doomed to a miserable future. Again, Parkinson’s Second Law says pay yourself first, put away those savings first. Then, by all means, pay off that debt with what is left, as fast as you can. Because expenses will rise to meet the income that is available after the savings and the extra debt repayments (if any).

Similar to personal finance, this Second Law also has an important implication for public finances, as the great Parkinson himself pointed out in the early 1960s. Because, and governments are obviously reluctant to recognise this, what is true of individuals is also true of governments. Whatever the revenue may be, there will always be the pressing need to spend it. But between governments and individuals there is a vital difference, and that is that governments often approach the issue from the other angle, rarely pausing to consider what the income should be. Here it is often a case of income needs to rise to meet expenditure. And usually that (tax) income is not enough, and the difference then needs to be borrowed, leaving the next generation with the problem to repay it. Parkinson wrote: “Were any of us to adopt the methods of public finance in our private affairs, we should ignore the total of our income and consider only what we should like to spend”. And sadly, many individuals do exactly this and end up in a debt trap and ultimately in financial ruin. Parkinson continued: “A government which applied the methods of individual finance to public expenditure would begin by attempting to estimate what its actual revenue should be. The first question to decide is the ratio between the revenue and the gross national product. What proportion of the national income should the government demand? What proportion of the individual’s income can the government safely take? Then, given so much to spend, how much should be allocated to what? A government which decided upon this novel approach to the subject would be responsible for a revolution in public finance.”

Well, since the early 1960s the world has moved on and, indeed, there are examples these days of caps on what governments can spend, due to caps on borrowing requirements, such as in the European Union. But Parkinson went one step further. It is not only about the total amount available for spending, but how effectively and efficiently it is done. Could civil servants not be incentivised and rewarded to reducing needless expenditure? “A minor revolution would date from the day when officials came to realise that reputation is more readily to be won by saving money than by spending it.”

Back to Parkinson’s hypothetical little old lady writing the letters. If she had given herself a tighter deadline, she would have probably finished more quickly. But with nothing else to do all day, she finished just in time. How blessed is she not to have no other competing priorities, other things to worry about! But then, for our little old lady the deadline might still have been stressful. Perhaps a final corollary is: “The worry, stress and angst in our lives will always remain at more or less the same level, irrespective of the task at hand!”