In many business decisions there are conflicts between short-term objectives and longer-term goals. Life is probably no different. The clichés are innumerable. No doubt you’ve heard a version of the much maligned “have bread today and you’ll be able to enjoy jam tomorrow.” Or, “it won’t happen overnight, but it will happen”.

And then there’s one from dad (and, no doubt many other dads and mums everywhere). “You have the choice of enjoying 4 or so years of earning dollars now but then it will be 40 years of hard slog later, or 4 or so more years of hard work now will set you up for a more comfortable 40 years or more of life later.” Despite these exhortations, the lure of the dollar-earning jobs remains immediate to many teens, while the benefits of further education seem remote and distant. Yes, despite the pursuit of our noble long-term goals, short term considerations inevitably muddy the waters.

The long and short of it is the issue of time. The common theme throughout is the need for some sacrifice now - but there is always the promise of a reward sometime in the near, or not-so-near, future. For economists it boils down to the core issue of savings. Through savings we individually, or collectively, transfer some of our wellbeing from today to tomorrow.

Rest assured, I’m not about to ear-bash all with yet another lecture as to how allegedly bad New Zealanders savings record is, was and/or continues to be. Rather, I wish to explore some of the alleged motivations that underlie savings behaviour and its role in helping us towards that quantum leap in wellbeing that we so desire.

The problem, in a nutshell, is that tomorrow (and thereafter) is uncertain. And this is where economists feel vulnerable. Because tomorrow, the future, uncertainty and the passage of time are not only the bane of all those seeking eternal youth, they are the Achilles Heel of much economic analysis.

Economic theory is sound when comparing equilibrium situations.  Such comparisons are, by definition, a measure of the outcome after the impact of a change (or event) has been felt in its entirety. All players have responded to the change, adjusted their behaviour and reached a new position of stability. Yes, economic theory can describe the short-term implications of a change. But when it comes to conclusions, it is on far more comfortable grounds focussing on the longer perspective.

However, when economists talk about the long run we are often skewered by our own sword. “In the long run we are all dead” haunts many economists, even though it was stated by one of our own, as a reflection of our weaknesses in explaining the world beyond static supply-demand equilibrium comparisons. Perhaps even more scathing is the not-so-famous sentence that followed the more illustrious quote just mentioned. In an equally wonderful turn of words, Keynes continued “Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”

So what can be said about the longer perspective, without falling victim to the In the long run we are all dead conundrum? If, as I asserted earlier, it's all to do with savings then perhaps we can make progress by asking, “why would we save?”. That is, why would people voluntarily transfer some of this year’s income, wealth and well-being to some time in the longer run?

Presumably, the answer lies in the promised rewards to savings. I would suggest that such rewards are sufficiently attractive for (some of) us to defer a portion of today’s wellbeing in the hope of a better life later. The key words here are promised and hope. If the promise is subsequently broken then savings behaviour thereafter will be more circumspect. Those whose hopes have previously been dashed are likely to be increasingly averse to savings. So, what is the hope of these promised rewards?

Usually the promised reward takes the form of some interest and/or capital return. Where the interest rate is pre-specified, there are few problems with the promise being met. However, where the hoped-for reward is some capital prize, the promise may not be as clear cut. Uncertainty can combine to undermine, and thereafter break, the promise. In such a case, later savings behaviour is likely to be more circumspect. The propensity to part with some wellbeing today in the hope of improved wellbeing tomorrow will decline if that promise has previously been broken.

In this way, I argue, the short term implications of any change or event can (and do) have far wider longer-term consequences. Lamenting the nation’s short-term sights or myopic outlook may not be warranted. Rather, such an outlook may just be a rational (and I use that word advisedly) response to previous experiences. Having had their savings hopes vanish in the late-80s and early-90s it should be no surprise that many, collectively and individually, set their sights on wellbeing over a much shorter time horizon.

If so, it begs the question: how can our individual and collective sights be lifted to a more longer perspective? This discussion points squarely at the importance of the promises made being kept. Through building up a history of fulfilled promises, hope can be strengthened and, thereafter, retained. This is a story of gradual but sustained improvements in wellbeing, rewards for productivity and investment in on-going maintenance and improvement of human and physical resources. The key words here are: sustained, rewards, productivity, investment and resources.

Sustained, because intermittent growth invites uncertainty and does not bode well for promised rewards. Rewards, because the pursuit of improved wellbeing needs to reinforce investment in resources and gains in productivity. Productivity, because improvements here are enable a heightening of the emphasis on investment. Investment, because without devoting some of our effort to this end tomorrow’s NZ will be left with inferior resources. Resources, because these are central to the chances of wellbeing improvements becoming sustainable. Thus, the circle is complete. For, without sustainable and sustained improvements in wellbeing, the promised rewards become increasingly uncertain and susceptible to default.

Yes, there is no glib answer. A longer perspective requires the incorporation of the accumulated experiences over many periods. We should not be surprised that short term rewards encourage behaviour to have similarly short horizons. Longer-term goals will only ever outweigh short-term objectives if the promised rewards in the longer term are believable. Such believability will only ever be instilled if accumulated experiences over many periods reinforce such belief.