On Nominal vs. Real & Why Regret is a Luxury Good

Being raised to be an economist, if there is something I brought with me in the world outside the university; it is the concept of the value of things in real terms. While in finance and accounting the nominal or face value of goods takes centre stage, economists care less about the number and determines value by the relative importance of something above anything else to a rationally normal average person.

I, for example, when deciding whether to avail or not of the services of a professional eyebrow technician for $45, my thought process goes like “that’s already half a week’s worth of groceries for our household of 2 persons so that is expensive. That is also exactly 10 bus rides to the office. With that, I can also already buy 45 litres of milk good enough for 22 weeks!” Is a maximum of 2 weeks beautifully arched eyebrows actually worth 22 weeks of fresh Australian milk to me? Let’s also consider other factors contributing to assessing the real value of the service. Is there a good substitute to it? The more and better valued the substitutes are, the lower the value of the proposed service will be. For example, I can just decide to pluck my eyebrows myself instead which has a nominal value of zero and a real cost (i.e. the time I’d spent and the difficulty of the task) that is not significantly high which makes it a better valued substitute and thus drives down the real value of availing the professional services of an eyebrow technician at $45.

A $10,000 luxury bag for example has a high nominal value which may not be justified by the real value if we only think of the basic functions of the good—a bag. In real terms, that costs 1/6 of a decent house and lot property. 6 of those bags is worth a person’s mortgage payable in practically a lifetime, 5 of those will afford you a master’s degree. If you look at it this way, the real value is very low compared to the nominal cost reflected on its price tag. Therefore, it is an irrational purchase to (again see our assumption in paragraph 1) a rationally normal average person. However, if we dig deeper into the real value of this bag to a typical purchaser, its real value to that person might be justified without losing his/her “rational” characteristic. Say, she has a disposable income which is 50x the nominal cost of that bag and has a husband who has an equivalent income, making the bag 1/100th of their annual income. Assuming she buys only 1 luxury bag in a year, it suddenly looks like a negligible part of their household expenses (1%).

Those being said, I’m sure you get the picture of what makes up for rational decision-making in an economist’s point of view. In the second example, to the buyer whose household earns $1,000,000 a year, the bag may not be a luxury. But if you are average or only a little above average, say you earn $85,000 at the most at gross, assuming you retain 40% of your gross income after tax and paying your basics, you will have $34,000 which makes that bag 29% of your annual disposable income. Even if you buy only 1 for that year, it will still be luxurious with a real cost which is way too high for you. That is even higher than the recommended 20% which one should allow for savings. With that kind of purchase, you are less likely going to make any savings at all.

Exactly, what is a luxury then? Google defines it as a state of great comfort or elegance, especially when involving great expense. In economics, it is defined as a good for which demand increases in greater proportion as the increase in one’s income. This is contrary to a basic good or a necessity which increases less in proportion to an increase in income. See how it is always viewed relative to income or to what one can afford. With the limitations that you have, how much can you afford this? Is it way too high a percent of your income? Does it get more tempting to get more of this good as you earn a little more? Does an increase in purchase end up being higher than your salary increase which pushed you to buy more? Then, that is most probably a luxury.

With the nature of a luxury, you are more likely to regret buying it assuming you eventually come back to your rationally normal average self (in simpler terms, once you’re back to your senses). Speaking of regret, do you realize that a lot more people than we imagine ever regrets one thing or more in the span of their lives. Now that doesn’t look very harmful and may probably pass as a normal phase or feeling in a person’s life. That conclusion probably used a nominal cost approach. If looked at from a real perspective though, the following are, in my perspective, the costs of regret not a lot of people can really afford.

  1. It slows you down. Looking at time as our currency (the most trivial of all resources as we can never earn more of it), we’ll all have the same income. Therefore, in this time-currency world, the name of the game is speed and quality of spending. Regret makes you weary and though it may not be very obvious to people around you, you (1) begin to decide slowly, (2) invest your time more sceptically at worthwhile time-investments until the night falls and you end up doing nothing, and (3) accomplish your daily tasks with a lot more time than you should have. When you carry some regrets in your life, it weighs down on you. When your speed and quality of spending time for other life activities are affected, you’ll probably lose in this game. You are already at a great disadvantage too early on in the match. This is basically the same as saying, even if all people begin with the same daily wage of 24 hours, the moment you wake up in the morning, yours will always seem less as most are spent non-productively staring into nothing, with lonely thoughts while refusing to believe and trust in people and situations. Either way, you end up relatively poorer than all the other people in the world who are not regretting.
  1. It deflates your self-esteem, your sense of self. Your sense of self-worth is of relatively high value. In real terms, letting go of this as an expense of regret is a very a high cost in real terms. Let’s look at its real value. With a full self-esteem, you can get your dream job, you’ll have enough courage to ask your beloved woman to marry you (or if you are a woman, say yes to a proposal), you can join and win a competition, you can change jobs, change career, start a blog, take up a new hobby and post a selfie! These are a few, I can go on and on enumerating the real value of a full self-esteem. With these, it just seems too expensive a cost for regret.
  1. You become risk-averse to the point of not investing at all. Because you are focused on past investments that never gained you a return or worse, left you with a negative profit (too much wasted time on your portfolio with little remaining years of youth). Whether the investment is intellectually, physically or emotionally (as is often the case for regret), you will always end up not earning, if not deteriorating your total net-worth because you keep on consuming and burning what you have to fuel the regrets you carry.
  1. Whatever the cause of your regret is, you incur the opportunity cost of not seeing the beauty of that chapter in your life. A work of art is beautiful regardless whether the subject is happy or sad. That it makes you feel something makes an art worthy. Moreover, you are highly likely to miss the lessons you would have gained. The value of that experience is far more than regret, so it is a very bad investment you are holding on to.
  1. A human being has no nominal value, unless you are a slave in the olden days for which a price is named for a master to own your services for a lifetime. In the modern world, no man or woman has a corresponding nominal value. But each of us has our own value in real terms—and to know yours, one has to see your own beautiful and grateful soul. Every person was created by God for the sole purpose of worship and thanksgiving in awe of his unending love and grace freely provided to us. Regret hinders our beautiful and grateful self to shine so that others may see in us the reflection of our creator. Thus if one regrets, his value as a creature is so far decreased that the devaluation is reflected in his own view of the world. And that begins a cycle of unending regrets in life.

Regret is rather a vice and a high-cost luxury with no significant benefits afforded to the one who avails. It is a con, a fraud, a run for one’s money. The truth is we are relatively too poor to afford regretting anything or anyone at all in this lifetime. Though, not many people see it as in a nominal price tag, the person who carries it pays for how much it truly costs, and the real cost is far too high for what little value it brings to one’s life. So the next time it comes knocking on your door, offering free taste, no matter how tempting it could be, just say no immediately and turn it down right to its face. It is not worth it, and it will never be.

The most powerful antidote to regret known to man is faith—that all things happen for a reason and that all things work together for good to those who love God, who make and allow for all things that happen. He is the designer of our stories and so knows very well how things will turn out to be. Faith in God has no nominal value, it is truly given for free. The peace that God grants us through faith (which also came from him to begin with) is the only one of its kind which has infinity as its real value—eternity and a well of true joy that never runs dry.

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sassycare

Sailing with the wind, fighting my way out of loneliness and into life, I seek the face of God day by day as I walk in the light of His daily sufficient grace.

3 thoughts on “On Nominal vs. Real & Why Regret is a Luxury Good”

  1. In theological parlance, faith has no value at all unless the object of faith has infinite value. Faith in the true God therefore has infinite value not because of faith per se, but because of God who is the object of faith. 🙂

    Keep on posting!!! Love your articles…

    Like

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