ERE indicator

[jacob]

We become what we measure. National economies measure GDP and thus tend to ignore anything that doesn't involve an economic transaction (e.g. resource extraction, pollution, public health, ...) or positively count what should be counted negatively (e.g. treating lifestyle diseases, fixing broken buildings, car crashes, ...) Several new indicators have been suggested, e.g. the Gross National Happiness index, etc.

Here we seem to track SWR almost exclusively when it comes to quantitative data. Very little else is tracked and I suspect this could and does implicitly lead to the impression that SWR is the most important aspect or maybe the only important one.

I'm looking for suggestions to create an ERE index that somehow incorporates multiple kinds of capital + web-of-goal + fishbone planning.

Any economists with an idea of how to go about this? Pitfalls?

PS: Before anyone starts suggesting that this is just yet another ranking competition, consider that the same doesn't seem to be the case with SWR.

[jennypenny]

What do you mean, like how often we shop or how much we consume each month? Energy usage? Stuff like that?

[cmonkey]

You could include an indicator for how leveraged your spending is ( 1x for consumer rates, 2x for coupon clipper, 4x for craiglist, etc... ). Dovetailed with that could be spending level. I think you'd also want to include some kind of 'well being' indicator, since one could spend only 3K annually and look really good on the spending indicators, but be absolutely miserable. ERE is really about minimizing waste while maximizing happiness at the same time, so that can't be excluded.

For web of goals/fishbone, it gets more complicated but a simple way might measure maximum positive side affects per goal.

I also think having a 'production to consumption' indicator would be good. So what's the ratio of the value of what you personally produce (garden, woodworking, metalworking, crafting, etc... {less inputs}) to what you consume (purchase straight up). This could be increased further by increasing your dollar leverage.

1. Expense Indicator
2. Expense Leverage Factor
3. Happiness Indicator
4. SWR
5. Positives/Goal
6. Production/Consumption ratio

[George the original one]

Freedom Goals...
How long can you last without a supermarket visit?
How few areas of your life are critically affected if energy is no longer available (or severely restricted)?
How much of your weekly time is externally allocated vs. self-directed?

Community Goals...
How many resources do you share rather than duplicate?
How many contacts can you rely on if you need physical assistance (work party, healthcare assistance, transportation, etc.)?

[BRUTE]

web-of-goal-ness, though not sure how to measure. the worst would be if all activities an individual does are completely orthogonal, and there are no synergies. i.e. paying for gym to acquire fitness, driving car to work, working for money only (no satisfaction), buying everything (no crafts, no home repair), only eating at restaurant.

as these areas start to overlap (walk/bike to work for a bit of exercise, repair own plumbing, build own furniture, cook own meals), synergies increase.

the 100% case would probably be some kind of almost self sufficient monk who works in the garden for fun, exercise, fulfillment, with friends (community), to feed himself.

[wood]

Why monk?

[Ego]

I think it has got to revolve around how you are spending your time and, more importantly, your attention.

[ebast]

I immediately thought this was a doomed challenge that I would absolutely refuse if assigned... and promptly started writing a post about it... yep. what's that say for time & attention?

One potentially useful analogy is to think of it like corporate bond analysis. Just like SWR, there are universally agreed upon and well-defined simple solvency ratios, however like SWR, those do not capture the full story and are subject to over-optimization and gaming. In ERE, talking about considering the robustness and synergies of different input streams starts to sound a little like judging earnings quality for a company (which itself has different inputs, 'synergies', etc.) Of course there's no agreed-upon way to measure that, competing interpretations in terms of what factors to consider and how to aggregate them into a final score, and just general squishiness...

(and given the disagreements you get in a market, this is where I began throwing it into the too-hard pile...)

But then consider that there are ratings agencies who despite those issues, pretty systematically generate ratings combining those core solvency ratios along with other factors and although arbitrary and sometimes quite wrong, statistically speaking the ratings are informative. Of course, ratings may not agree between ratings agencies, but hey, ERE's yours; it's good to be the king. So, Jacob & Poors assigns you a BBB ERE-rating, hey, sounds good to me.

Finishing up with the analogy then, I have no special insight into ratings agency formulas but for a public strawman consider something classic like Altman Z-score which is just a linear combination of a number of simple financial ratios. In an ERE version, SWR, measurements of various capital stores, web of goals graph density, free attention hours, potato crop yields, etc. could go into there.

The really pertinent note here is that you need to then come up with weights for the various dimensions, and Altman fit his using discriminant techniques over data with companies that went bankrupt and those that didn't, meaning you need positive and negative examples.... and while I have no idea where you'd ever get enough quantitative data to actually do such a thing, at least it highlights that it could help to talk as much about the empirical negative examples as we do the positive ones: who has a low SWR but was then demonstrably shown to be not ERE?

[Tyler9000]

Yeah, the problem with pure SWR talk from an ERE perspective is that you can meet that number in two ways. Around these parts we spend less. In other retirement circles they talk about saving more while accounting for the boat, vacation home, and private schooling.

It seems like the distinguishing feature is how much one truly needs to be happy and what percentage of that actually requires money to acquire.

[BRUTE]

It seems like the distinguishing feature is how much one truly needs to be happy and what percentage of that actually requires money to acquire.

to brute it feels like it's more lateral thinking than pure frugality. most humans here seem to live a somewhat middle class lifestyle at least, and aren't obsessed with typical frugality activities like coupon clipping or hunting for deals 24/7. so it's about shifting resource use from money to other resources, preferable ones that align with one's web of goals.

[Did]

Agree focus on SWR for ERE is a fools errand. Working for extra cash for years because you want to be top of the tops here should mark you down rather than up. What's ERE about chasing more cash in the mines? Nothing.

Age of retirement should be a factor if you really want to measure the E part of ERE. And some sort of negative score if your SWR is too low due to you sacrificing too much time or health or the like to hoard a fortune.

Really there is no ERE prize for fabulously wealthy old guy who sits and home and spends little in dotage after fifty years of miserably hard labour.

Also can there be some recognition given to wonderfully interesting lifestyles. Maybe that's the optional X factor for bonus points.

[Seppia]

to brute it feels like it's more lateral thinking than pure frugality. most humans here seem to live a somewhat middle class lifestyle at least, and aren't obsessed with typical frugality activities like coupon clipping or hunting for deals 24/7. so it's about shifting resource use from money to other resources, preferable ones that align with one's web of goals.

My impression is that those who obsess over coupon clipping or hunting for deals are, generally, just bad at math or value their time very, very little (which is just another way of saying they're bad at math).
Same reason why some people would think they're "saving money" buying the cheap $15 chefs knife instead of the German forged $100 one.
Seems to me that one of the clearest characteristics of the ERE (but also MMM and similar) community is an above average comfort level with numbers and calculations.

I also think having a 'production to consumption' indicator would be good. So what's the ratio of the value of what you personally produce (garden, woodworking, metalworking, crafting, etc... {less inputs}) to what you consume (purchase straight up).

That's the same I was thinking. How much value in equivalent purchased goods you produce?
After a very short and superficial calculation, you realize bizarre things, like the fact that the ROI of cutting your own hair is insanely high, for example.

[1taskaday]

I agree with Ego,how you are spending your time.

The measurement of how you "can" spend your time is a great indicator of your ranking on the ERE index.

[Ego]

One of the a-ha moments I got from Jacob was the vine-to-vine strategy. Tarzan retirement. Sadly, many older retirees cling tightly to the vine they were holding when they retired, never trying to swing or lookout for the next vine. Younger retirees see their working years as one of many vines and never stopped the swinging that comes so naturally to those in school who are constantly changing vines.

So, retirement age would be one factor. But it would be good to measure vines or swing speed. I'm not sure how.

[Isabel]

I would keep it simple. I assume you would like to build an index measuring the population on the ERE scale and you would like to find some real data to actually measure it.

Then, for the US I would take.

1. Absolute value of expenses per month per person in US Dollar (or maybe better relative to the agglomeration size; in order to capture the differences between NewYork and some rural areas). You could make intervalls on a scale: for example value 1 - 0-600 USD per month, value 2 - 700-1000 USD per month etc.

2. Value of expenses per month relative to income per month (Income per month must include not only income from job but also from the net worth).

3. Obesity This should probably be a binary variable. (1- Normal & Overweight, 5- Obese) Obesity would be a measurable proxy for the web of goals. Obesity correlates strongly with income and ability. If you are poor (your expenses are low) but not obese it shows that you have the skills to provide and cook good quality food. This probably correates with other skills like thinking critically etc. It would however be important to differentiate between overweight and obese.

(In similar fashion the number 2 is a proxy for the "rich" who have the skills to live only on a fraction of their income)

[GandK]

As others are suggesting above, I think the construction of such an indicator, particularly a complex one, implies the existence of another set of explicit rankings: specifically, which aspects of ERE are most important.

[Lucky C]

There are lots of sustainability development indicators but I don't think there's one that would be good for people to apply to what we are trying to do here.
https://en.wikipedia.org/wiki/Sustainab ... nd_indices

There are so many variables to think about and everybody has different goals, so it would be difficult to find a solution that the majority can agree upon, let alone want to calculate. But here's my thinking of an economic value metric to motivate people to keep being productive beyond FIRE, where the math is easy - at the expense of allowing for subjectivity (and other flaws I'm sure).

Ratio of: Useful value that you provide to the system : Value that you take from the system
= Useful Production / Useless Consumption
= (Total Income - Non-Productive Income* + Unpaid Economic Value) / (Total Expenditures - Productive Investment Expenditures**)

*Non-productive is subjective and depends on what your goals are and what you think the goals of the planet should be. If you make all your money selling things you know people don't need, you might say all your income is non-productive. If you work at a recycling facility, maybe all your income is productive. Of course many people will consider their work in a gray area - to what extent is your job really needed by society right now?

**Maybe this can include some tax expenses to the extent that you think your tax money is being put to good use?

As an example: Family member 1 brings in $50k at a job advertising As Seen On TV consumer junk. Family member 2 brings in $5k from their modest farm stand, plus adds $10k of value by being a stay at home parent and eliminating child care costs. Family member 3 brings in $0 doing unskilled volunteer work, which would be about $10k if it was unskilled paid labor. The family spends $40k over the year, but $15k of that was used to get solar panels.

($55k total income - $50k non-productive [useless consumer junk] income + $20k unpaid economic value) / ($40k total expenditures - $15k productive investment)
= $25k / $25k
= an economic value ratio of 1

So a typical consumer with a bullshit job would have a ratio close to zero, but so would a retiree if they're just getting their income passively and spending their days watching TV, going on vacations, and not doing anything productive.

To get a ratio of 1 you have to produce what you deem to be useful up to an economic equivalent of what you're consuming. A completely isolated hermit or a nomadic tribe has a ratio of 1, assuming they're not running out of or stocking up on food and supplies.

Someone with a net positive impact job looking to FIRE with a high savings rate can easily have a ratio above 1 during their working years, but to keep it up after early retirement, they'll have to find new ways of being productive. Even if you achieve a super low withdrawal rate, your work's not done here.

[SilverElephant]

Happiness tends to be hard to measure. Perhaps measuring what proportion of your time you are MADE to devote to something you would otherwise not do would be helpful here.

E.g. someone who's stuck in the office 40 hours per week plus the additional 10 hours of commute would rate lower than someone who is fully retired and thus only has to put up with some annoying paperwork a few times a year (DMV, doing their taxes, ...).

This would rate a newly retired middle-classian pretty high, as it would a spendthrift heir to a large fortune, obviously, so the value'd probably have to be integrated over one's whole (working?) life and combined with some other value, perhaps total money spent (that would exclude people who live in $2000 a year but are miserable because they feel like they can't go skydiving or simply rent out a book because of their limited budget. Also the aforementioned heir).

I'm basing this upon the insight that what's hardest for me is the feeling that I'd much rather be doing something else right now, but I have to be at work/fill out this form/go to the SO's family dinner. I'm happiest when I can simply use my day as I see fit.

Time is the one resource everyone has a truly equal amount of (unless they're going really fast or live near a massiv object).

[OTCW]

Also can there be some recognition given to wonderfully interesting lifestyles. Maybe that's the optional X factor for bonus points.

Interesting to you may not be so interesting to others. And vice versa.

[Did]

@OTCW Yeah that's true. I guess to me, doing nothing and waiting for death on passive income deserves a few negative points.