FIRE as hoarding (part 1)

Is FIRE – Financial Independence, Retire Early – an ethically defensible life plan?

The FIRE approach to life is to radically reduce expenses so that, even with a relatively modest income, you can accelerate retirement by decades. One of its prominent proponents, Mr. Money Moustache (MMM), “retired” at around 30 by earning well and keeping expenses to $20,000 (probably closer to $30,000 in today’s money).

You could ask both if it’s a life well led and if it’s a life that meets our obligations to others. FIRE’s proponents emphasize that you need not stop working, but are free to do so and can choose to perform only work you find meaningful. In that sense, as long as you find meaningful activity post-retirement – paid or unpaid – the answer to the first question is an emphatic “yes”: FIRE allows you to live your life well. It’s the second question that has been puzzling me. Do the FIRE-folk meet their obligations to others? I’m specifically interested in the question of whether they are doing so in “contractarian” terms, where there seem to be two sub-questions: Is the FIRE-lifestyle universalizable – if everybody tried to live it, would it even be possible for anyone to do so? And if it is not universalizable, would we choose a society in which it was possible for only some to live the FIRE dream, if we were in an abstract space “behind a veil of ignorance” as John Rawls puts it, and did not know in what social position we will land once the veil is lifted?

I keep coming back to the first question especially. Is FIRE universalizable? You pay your dues for a few years doing work that has a relatively high portion of “bullshit.” For MMM that includes “commuting, … politics, and the production of inferior products.” Having saved enough money in a high-bullshit job, and invested it in a way such that you have good hope that you can indefinitely extract an inflation-adjusting $30,000, you devote yourself to activities with a low-bullshit proportion, paid or unpaid. The reason that the FIRE dream is within reach for many is that it’s possible to earn a capital return – earning money by having more than you need to survive in the first place – and the ”4% rule.” If it’s true that you can confidently extract 4% of your retirement initial war chest indefinitely (even while keeping pace with inflation), then “all” it takes is $750,000 at time of retirement. MMM has plenty to say on how to achieve that level of savings. Sidestepping the concern that the current distribution of wealth and incomes would not make this universally practicable: Is it practicable in principle? If everyone tried to do it, would anyone succeed?

Superficially, any type of social retirement system looks like a low-ambition FIRE plan. Social security schemes granted financial independence and early retirement, relative to what came before, historically. When your life expectancy is 70, a government-run plan that starts paying out at 67 makes you financially independent of your family and/or allows you to retire “early.” That kind of social security system is premised on the idea that the rest of the working population is productive enough to provision itself and you, without the need to rely on your productive input. Part of that premise is, though, that the average productive contribution of people above the retirement age would not be high to begin with, i.e., that the 67+ age group is collectively a net consumer of society’s bounty. The social security system assures that the provisioning duty is spread across society, and not concentrated in individual families. There is an argument to be made that this may allow society to be more productive overall, allowing 67-year-olds to devote themselves to activities they consider meaningful and manageable, paid or unpaid, rather than forcing them to continue plowing fields or building roads at a lower rate of productivity. Meanwhile, their families can undertake higher-risk, higher (social) reward activities that they might not if they had to assure the survival of their aging parents and grand-parents.

FIRE is different. Its adherents try to leave the “rat race” much earlier than 67, as early as possible, in fact. At what age your productivity is highest is obviously a matter of the type of activities you pursue and your personal situation. Equally obviously, there is a phase, usually decades long, where your skills and knowledge increase, and then a point at which your personal stock of human capital depletes faster than you can restock it, a circumstance of which I’m becoming painfully aware in my mid-forties. So whether you peak in your 30s, 40s, or 50s, FIRE ought to take you out of the labor force before you have a chance to contribute some of your best work.

Does that constitute of a form of hoarding? In a series of earlier posts, I discussed what “hoarding” might mean for financial and tangible assets. I concluded that, whether “hoarding” is the best label for the concept or not – there are implicit or explicit social conventions about how society’s resources are distributed, and that it is possible to individually benefit from the social convention without personally adhering to it: the classic game-theoretical puzzle of cooperation. In the next posts, I will extend that discussion to human capital, and the question of whether or not the FIRE lifestyle constitutes hoarding in the sense I discussed earlier: withholding your resources when the social contract is premised on everyone contributing. If FIRE is a form of hoarding – of human capital – then it is not universalizable and probably not an ethically defensible life plan.