Nelson Nash’s Becoming Your Own Banker: PART II Lesson 1 Understanding Parkinson’s Law

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Content: Page 28, Becoming Your Own Banker Fifth Edition

We have completed the easy part of learning how to be your own banker through the use of dividend-paying life insurance. Now, we must face the difficult part – overcoming the human problems. To do so, it all seems to start with understanding “Parkinson’s Law.”

C. Northcote Parkinson was a British essayist, lecturer, and economist who left us with some valuable writings of his observations. One of the best is his little book entitled Parkinson’s Law. In it he brilliantly isolates some of the limitations of us all, particularly the behavior of individuals within a group. He makes one painfully aware of the futility of expecting good results from committees! He reminds me of a marquee at a church that read, “God so loved the world that He did not send a committee.”

Yet, our behavior is so unduly influenced by peer pressure. What are they doing to solve their financial concerns? What does The Wall Street Journal say about this? What does Money magazine recommend? What is the Federal Reserve going to do about interest rates? How will the stock market react to this? All these knee-jerk reactions are examples of what Parkinson is describing in his little book.

For further study in this vein I recommend that you read Extraordinary Popular Delusions and The Madness of Crowds by Charles Mackay. In the preface to the second edition written in 1852 Mackay says, “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”

Also, study Eat the Rich by P.J. O’Rourke; Inventing Money by Nicholas Dunbar; and F.I.A.S.C.O. by Frank Partnoy. Hopefully, by the time you have read these books you will understand the meaning of my observation that “the world” has never been right about anything!

Why look to such folks for guidance. It appears to me that a contrarian approach would serve one much better.

Parkinson’s Law has many ramifications, such as, work expands to meet the time envelope allowed. Give a person a job to do and give a time limit of three days to complete it. You can rest assured that it won’t get done until late on the third day. Now, assign the same job and set a time frame of thirty days for completion. You should not be surprised when it is finished late on the 30th day.

Another ramification – a luxury, once enjoyed, becomes a necessity. Can you remember when we did not have air-conditioned automobiles? Would you think of buying one without it today? Not me! It gets hot and humid in Alabama.

The most important one, as it relates to financial matters is, expenses rise to meet income. Is this true? Income is limited for all of us, but our wants far exceed our ability to fund them. When a pay raise comes along it is very quickly absorbed by a new definition of necessities. I have even heard people say, “No, expenses don’t rise to meet income – they rise to exceed income!” A pay raise becomes a curse to many in America.

It doesn’t have to be this way – but it is! Parkinson’s Law must be overcome daily – sometimes even hourly – if any financial progress is to be made. If you can’t do it then just give up! Dig a hole, crawl in and get someone to cover you up. You are hopeless! This sounds a bit cruel, doesn’t it? But there is another side to this coin. Isn’t it obvious that, if you can whip Parkinson’s Law, you will win by default in comparison with those who can’t? Remember, everything you do in the financial world is compared with what others are doing.

In all our efforts at establishing priorities we should begin with a thorough consideration of the truth of Parkinson’s Law. Pondering this over an extended period of time will help you to develop a new and very rewarding paradigm for your life. Today is a good day to start.