Living Abroad

Hysteresis Effect

Hysteresis is sometimes defined as, "the lagging of an effect behind its cause." Hysteresis exists as a series of very common phenomena. It is often explained in studies of the effects of magnetism. As an example, if you place a bar of iron in a magnetic field, then remove the bar .. some residual magnetism will continue to exist in the iron bar.

Mechanical hysteresis can be observed by studying materials. When a poorly tempered spring is flexed or compressed, it may not returned to its exact original state. The difference can be expressed as hysteresis. In some respects, hysteresis is seen as a "loss". But it may also be accepted as a "transfer" of properties.

So what does hysteresis have to do with expats and retirement? Quite a lot, actually. An Econ 101 term I still remember goes something like, "Wages are sticky on the downside."

Wages are a large component of expat living costs. Food in developing countries is labor intensive. Expat services have labor costs as a significant component. Domestic help is especially labor intensive.

So when market effects such as a boom economy drive wages up, costs of services and food increase. But when the boom ebbs and the economy retracts .. even turns toward recession, do wages fall? If wages do fall, which is very unlikely, they will not return to pre-boom levels. More often than not, wages will simple freeze. So the result is a hysteresis effect

Housing is another example. Property prices and rents will usually rise more easily than they fall.

Hysteresis applies to concepts
Hysteresis can be observed in many aspects of human nature, which can then influence politics. For some reason, politicians will write new laws to modify existing laws when repealing existing laws would be most effective.

The expat may well be the victim to political "experiments" that should be temporary but often become permanent. Factions within a government may wish to instigate xenophobia in order to deflect attention about negative situations. It's easy to blame "the foreigners" for the latest economic woes.

Understanding hysteresis effects may not make you expat life any better or any cheaper. But it may let you see beyond the obvious, and give you something to think about while lounging in a hammock or chatting at the club after a round of golf.