Gifted in Nepal

by Russ Roberts on April 29, 2009

in Trade

In this post, I quoted Robert Frank:

For example, as a Peace Corps volunteer in Nepal long ago, I hired a
cook who had no formal education but was spectacularly intelligent and
resourceful. Beyond preparing excellent meals, he could butcher a goat,
thatch a roof, plaster walls, resole shoes and fix broken alarm clocks.
He was also an able tinsmith and a skilled carpenter. Yet his total
lifetime earnings were less than even a very lazy, untalented American
might earn in a single year.

And that prompted this question:

Why does a spectacularly intelligent and resourceful person in Nepal earn spectacularly less than a lazy untalented American?

My one sentence answer (echoed by a number of folks in different form in the comments to the earlier post) comes from my book, The Choice:

Self-sufficiency is the road to poverty.

The longer answer is that the lazy, unresourceful American of average intelligence has no incentive to learn how to fix a broken alarm clock or butcher a goat or thatch a roof. For the American, these elegant but time-intensive skills have a reward that is far below the cost in foregoing other activities. In Nepal these skills are worthwhile. In America, they are only of any real value relative to the cost if you're working at Plimouth Plantation entertaining tourists. The American is only lazy because he can afford to be. But put that guy on a desert island by himself and he will quickly resemble Tom Hanks in Castaway, a man with no real skills suddenly forced to acquire some and with a very intense incentive to do so.

But that is only part of the story. Why can the American afford so much leisure? The answer is that he has more people to trade with, people who bring more capital and skill to the table. I know nothing about goats, thatched roofs, or alarm clocks. I know a reasonable amount about economics, a skill that is virtually worthless in Nepal. And yet I live like a king relative to the cook in Nepal. I live like a king relative to my great-grandfather who may have been smarter and may have been able to do many things I can never imagine doing. The fundamental reason that is so is because I benefit from the division of labor. By specializing in economics, I am able to leverage the skills of other people who are specializing. It is their specializing, and the opportunity to trade with them, that makes it rational and gloriously pleasant to specialize in economics.

There is much more to say. Specialization and the division of labor is a very complex and subtle idea. I try to untangle some of it here and here. And there is more to say, as some of you noted, about what allows specialization to flourish.

Thanks to everyone who submitted comments.

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Bill Kruse April 29, 2009 at 7:30 pm

Russ, excellent post. You state that "Specialization and the division of labor is a complex and very subtle idea." I agree, but it is also CENTRAL to true understanding of economics. Yet what economics texts give this any more than cursory treatment? I know of one, George Reisman's "Capitalism", which is, of course, waaay outside the mainstream.

You said in an earlier post that Robert Frank, the original poser of the question and himself a mainstream textbook author, gave as an answer:

"Well-paid Americans owe an enormous, if rarely acknowledged, debt to the social investments that supported their success."

By this I assume he means a bunch of government-sponsored things like roads & bridges or deposit insurance. I submit that Frank and hundreds of other "prominent" mainstream economists have only a dim idea of the significance of specilization and division of labor and therefore have a very stunted understanding of economics, which they pass on to their students.

Joe April 29, 2009 at 7:57 pm

All very true and yet, it's still not clear that dealing with people is worth the money.

Speedmaster April 29, 2009 at 8:15 pm

I love posts like these, real eye-openers.

Mathieu Bédard April 29, 2009 at 8:17 pm

I prefer the long answer, the short one could be interpreted as contradicting your powerful "Poverty has no causes; wealth has causes."

Mathieu Bédard April 29, 2009 at 8:18 pm

oops Don posted that.. oh well…

Greg Ransom April 29, 2009 at 8:52 pm

Russ, production goods and a very, very lengthy time structure of production are the things that make specialization and the division of labor both possible and productive.

This is the insight that Hayek & Menger & Bohm-Bawerk brought to the Adam Smith table, and it's the massively important insight that is missing from U. of Chicago & MIT & Princeton & Berkley & George Mason economics.

Ray G April 29, 2009 at 8:57 pm

When a media outlet does some story on an average Joe from anywhere but America, he is always portrayed with a kind of pedestrian nobility because of his simple life.

This Global Village man is content to live in his little corner of the world, and doesn't get too excited about much outside of his daily cares. He's not too enthused about multiculturalism or saving the planet, but hey, he's a simple guy. He's to be admired.

The American equivalent is the NASCAR dad, and is roundly vilified for not caring about those same things, but hey, he's an American.

Colin Keesee April 29, 2009 at 9:52 pm

I was going to cite specialization and exchange as the one of two major reasons why this Napalese man makes less than a much less talented American.

The other reason has got to be capital or a lack thereof. We Americans have a rich capital stock and Nepal does not. American workers produce more and get paid more and then they can turn around and spend their income on goods that take increasingly less and less labor and other resources to produce.

Methinks April 29, 2009 at 10:09 pm

Ray G, this is off topic but reminds me of a story about my husband's high school friend. Upon obtaining a Ph.D. in epidemiology and marrying a woman from a tiny Southern redneck town, he returned to an remote part of Bangladesh where people were even more backward than in Dhaka, where he had grown up (dad was in the dip core). Every backward act of these remote Bangladeshis – including the insistence that women not only wear loose clothing but also a scarf draped across their chests to cover their "bumps" – was perfectly acceptable and deserving of patience and understanding. But, he absolutely lost his mind when every time he saw a shirtless, shoeless redneck wandering around the Winn-Dixie in his wife's hometown.

This pedestrian nobility lives a life of worry, fear, subsistence and deficit. Worrying about making sacrifices to ward of the boogie man of global warming or whether we should rename fish "sea kittens" is a luxury they can't afford. There's a reason this pedestrian nobility gives up the idyllic "simple life" to become cab drivers in NYC. The simple life is just never that simple.

indiana jim April 29, 2009 at 11:12 pm

The noble savage? Bah Humbug!

kebko April 29, 2009 at 11:18 pm

The last paragraph of the Frank article is especially infuriating:
"Financially successful tax protesters seem blissfully unaware of how incredibly fortunate they are. To borrow from the late Ann Richards and her description of the first President Bush, they were born on third base and thought they’d hit a triple."

On the contrary, they appear to have a much more clear understanding of how they got to 3rd base than Mr. Frank does.

On the subject of specialization, taxation frequently blunts specialization. For instance, I installed my wood floors, even though my own labor fetches more than what the wood installation laborers' does, because if I had hired them to do it, the taxation on all the incomes & transactions involved would have added up to more than their net wages.

In effect overtaxation is likely the worker's problem in Nepal, too. Either official government taxes, unofficial corruption taxes, or cultural taxes imposed by his family or community.

It's really a miracle of history that we kept the Mr. Franks of the world at bay long enough to get to 3rd base ourselves.

Is there any doubt that if the founding fathers could have known that Washington would ever be extracting $3 trillion a year from us and demanding more, that they would have re-written the Constitution with more constraints?

indiana jim April 29, 2009 at 11:52 pm

Bill Kruse wrote: "I submit that Frank and hundreds of other "prominent" mainstream economists have only a dim idea of the significance of specilization and division of labor and therefore have a very stunted understanding of economics, which they pass on to their students."

I agree; there has long been a blindness of "'prominent' mainstream economists" to the pervasiveness of basic principles.

Coase has a great paper entitled "The Lighthouse in Economics" that calls some very prominent economists back in the day for highlighting "lighthouses" as a clear example of market failure (due to positive externality) that just had to be overcome via government intervention. Not true according to the history that Coase unearthed regarding lighthouses in Great Britian. Another example of an asserted market failure due to presence of a positive externaitly was a paper that Steve Cheung wrote entitled "The Fable of the Bees"; again, the "prominent" prognosticators were wrong because beekeepers were shuttling hives about in pickups on contract. (BTW, even long after Cheung's paper was published, some "prominent" economists were writing into their textbooks contra Cheung)

muirgeo April 30, 2009 at 12:25 am

"Self-sufficiency is the road to poverty."

One of my first interactions with Cafe Hayek was hearing Don basically proclaim this to Russ on an Econtalk show about buying local (4/16/2007). My jaw dropped. I would have thought of a libertarian as one who would hold up a self made independent man as the sine qua non of personal liberty. But such a person is a total failure.

To hear a libertarian proclaim a self sufficient man a poor man and by inference a dependent man a wealthy man was to me a tell-tale of a fatal flaw in a philosophy that holds such disdain for socialism and puts liberty above all else.

We are indeed social beings and that is where our success comes from. But apparently the holders of liberal philosophy see no conflict with their proclamations and definitions of liberty, wealth and dependence.

Sam Grove April 30, 2009 at 12:44 am

We are indeed social beings and that is where our success comes from. But apparently the holders of liberal philosophy see no conflict with their proclamations and definitions of liberty, wealth and dependence.

How can you persist in being so clueless.

Of course man is social, of course markets thrive on cooperation.

The key distinction is that the benefits of markets are so great that people do not need to be coerced into appropriate participation.

OTH, the benefits provided via government are so poor that man must be threatened with imprisonment and death in order coax his participation.

YASAFI

Sam Grove April 30, 2009 at 12:45 am

in order to coax his participation.

Lee Kelly April 30, 2009 at 12:46 am

muirgeo,

Liberty is not about self-sufficiency, but self-determination. A man who is the former must toil each day to merely survive, whereas a man who is the latter can expand his wealth through trade.

Our wealth is unavoidably dependent on the division of labour and trade. But free co-operation between self-determining individuals is not to be regretted by someone who values liberty. It is nothing less than civilisation itself, and should be carefully protected from its enemies.

Sam Grove April 30, 2009 at 12:50 am

It is about the relationship between sapient beings. Shall it be based upon mutual respect or shall every transaction between such beings be overshadowed by fear of government guns.

Lee Kelly April 30, 2009 at 12:51 am

That you, muirgeo, might somehow have failed to understand the above is revealing. Either you cannot, or will not, comprehend the comments of Don, Russ, and many of the regular contributors here.

Lee Kelly April 30, 2009 at 1:04 am

I should also add that nobody here thinks that the Nepalese cook is a total failure, no more than they think that their ancestors were all total failures.

The Nepalese cook is merely poor (at least materially). And there is nothing wrong with being poor in that sense; (it is even be a lifestyle choice for some people). For libertarians, how much money you have or earn does not determine your success as an individual. Such is a crass preoccupation of modern liberals like yourself.

brotio April 30, 2009 at 1:55 am

YASAFI

I think "Yasafi" is a wonderful, new name for Mierduck. I shall endeavor to use it often.

When the comment-count reached 100 on the original Nepal thread, and Yasafi hadn't commented, I was wondering if it was because he understood that the conversation was way over his head – or if he was on another of his junkets to taxpayer-subsidized locales. Well, it was certainly not because he realized his ignorance.

K Ackermann April 30, 2009 at 1:57 am

So why can the French be more useless, and have more leasure time than Americans?

MWG April 30, 2009 at 2:08 am

""Self-sufficiency is the road to poverty."

To hear a libertarian proclaim a self sufficient man a poor man and by inference a dependent man a wealthy man was to me a tell-tale of a fatal flaw in a philosophy that holds such disdain for socialism and puts liberty above all else."
-Muirdog

The fact that you so misunderstand such a BASIC economic concept show how truly unstudied you are in ALL things economics. The idea that "Self-sufficiency is the road to poverty" isn't part of some extreme libertarian ideology, but is taught in the most BASIC high school economic class. It's call COMPARATIVE ADVANTAGE you moron. Google it.

Lee Kelly April 30, 2009 at 2:14 am

K Ackerman,

The French can have more leisure time than Americans because they are more useless.

French workers, on average, have more leisure time than American workers. But the unemployed in either France or America have even more leisure time, right? Well, sure, but the quality of their leisure time might not be so enviable. Most unemployed people want to work, because more leisure time is not a categorically good thing–there's this thing called a "trade off".

I suspect that many French workers have the same problem as the unemployed, i.e. they would prefer fewer hours of "leisure", and more hours of work. Unfortunately, France's labour regulations prevent this. So be under no illusion, having more leisure time does not necessarily translate into greater prosperity. This is all quite aside from the simple fact that many people enjoy working. Some find satisfaction and purpose in their work. Human beings, we are continually reminded, are social animals, and working in the service of others for mutual gain is one such way of socialising.

MWG April 30, 2009 at 2:14 am

"So why can the French be more useless, and have more leasure time than Americans?"
-K Ackermann

Though I would love to take a cheap shot at the French, I'll hold back and simply say… Though it may be true that the French have more "leisure time" than the average American, there average incomes are also lower than those in the US. They've essentially traded income (amongst other things) for leisure time. This answer is somewhat simplistic, but I'm sure others here at the Cafe could add to it.

K Ackermann April 30, 2009 at 2:16 am

Someone said to me a while ago that the jobs in the auto industry should go away, because spinning a nut can be done by machine.

He claimed productivity was killing jobs, and that manufacturing offered no hope for the middle class anymore.

He forgot that someone had to design and build that robot spinning the nut. In fact, the sale of that robot set off a huge rush of money into a new industry which required a greater skill set, and, for a time, employs more people than it's products offset because now it has an entire market to serve, and that requires a whole new factory.

That is a healthy was to improve efficiency. The other way is to have people in Nepal spin the nuts.

MWG April 30, 2009 at 2:18 am

Damn… Scratch my response to K Ackermann. I like Lee's more… Though I think my point is still valid.

Lee Kelly April 30, 2009 at 2:30 am

K Ackermann,

Do you have something against Nepalese people?

If Nepalese people want to spin nuts and an American businessman wants to pay them to do it, what is the problem? Should the Nepalese be denied this opportunity for the sake of an arbitrary political boundary? Before the nut-spinning robot was invented, was there something wrong with hiring American workers to spin nuts, or is it only when the Nepalese spin nuts that you have a problem with it?

Just because there may exist some technology capable of performing a task, does not mean it is the most cost-effective method. Denying labour in poor nations the opportunity to earn money does neither them, nor the end consumer, any favours.

abhi gupta April 30, 2009 at 5:31 am

ur answer makes sense but to put it in right perspective it is essential to answer the question that why Americans have lower payoff to self sufficiency than Nepalese and why modern day US is more affluent than modern day Nepal:

To me the answer lies between the events that happened between 1630-1780 : Indentured slaves or bonded slaves who did all the menial tasks for 140 hours at ver low cost leaving sufficient leisure for rest of the people to think of ways to effectively and efficiently utilize the resources lefft by the displaced Indian. This division of labor in those 150 years of history empowered innovation…credit to the American wealthy of 17th-18th centuary who at that point of time was more inclined towards production and investment rather than consumption which most of the wealthy families did in europe and asia when founding themselves in similar situation- this in my opinion is why a useless american more wealthy today than a skilled nepalese…

abhi gupta April 30, 2009 at 5:33 am

typo:

1. read 140 hours as 140 years…u need to enslave ppl for a long period of time to prosper :)

vidyohs April 30, 2009 at 6:23 am

"suspect that many French workers have the same problem as the unemployed, i.e. they would prefer fewer hours of "leisure", and more hours of work. Posted by: Lee Kelly | Apr 30, 2009 2:14:36 AM"

Lee Kelly,

Let me reveal my very well hidden cynical side.

I think that the French worker, the French unemployed, and the American unemployed, in the main, do not seek more work. What they seek, and would be entirely happy with, is simply more money for the little work they do, or more money in their welfare checks.

I suspect it is dreaming to believe that most people of any nationality actually seek more work, much less to work harder and longer at what they do.

The whole goal of humanity from Lucy to vidyohs has been to get more for less.

vidyohs April 30, 2009 at 7:28 am

As I pointed, in an admittedly long winding way, in the first post on this subject, being gifted, skilled, or competent on a very broad scope of things has never translated into large increases of income for me.

What it has meant is that I spend a lot less money, than the majority of my fellow man, to keep things I have running or usable, virtually all the solutions to any problems encountered are generated out of my own head, and generally in a timely basis.

What it all means to me is greater freedom than the majority of my fellow man, because I am not tied to specific things or people to keep my life chugging on down the road. And, in general, I enjoy the time spent doing and don't see it as a waste of time that could be spent on something more rewarding. "Rewarding" is interpreted the way I want it to be, and not by others.

This is not to say that I do not recognize that there are many who specialize in such a way, and in highly profitable efforts, that doing what I do would make no sense to them. Therefore, I certainly do not denigrate them or their choices.

All of this brings me to another point that was not mentioned at all by anyone; there was no measure or statement as to how the Nepal cook viewed his own life in his own context. Did he view his own life as rewarding?

Comparing incomes or skills between such vastly different cultures as the USA and Nepal seems to me to be the least effective measure of how people in either country view their own life.

Christopher Renner April 30, 2009 at 7:35 am

abhi gupta,

You're wrong. Slavery and indentured servitude and their alleged profits to the economy as a whole don't explain one bit of the US economic growth from 1865 to 2009, since those institutions haven't existed in that time.

You're also ignoring the fact that the Southern U.S. in 1865 was far behind the North both economically and culturally.

Whereas if your statement was true the "profits" from slavery and the great "efficiencies" thought up by the leisured plantation owners should have led to massive growth in the South relative to the North.

John April 30, 2009 at 7:48 am

"Is there any doubt that if the founding fathers could have known that Washington would ever be extracting $3 trillion a year from us and demanding more, that they would have re-written the Constitution with more constraints?"

They did.
In the Constitution, as originally written, taxes levied on income needed to be distributed back according to census, not the whim of federal blackmailers.
In addition the Senate was chosen by the States, not the people, so the States actually had representation in Washington.
If those two things had been kept in place the feds would have been unable to blackmail the States as they do, and the State governments tasked with implementing all these mandates would have had a voice.

abhi gupta April 30, 2009 at 8:47 am

Dear vid,

I am reerring to the period pre 1776, by 19th centuary the economic structure was already in place…

before 1776, north was little different from south..

diference in growth from north to south after 1776 can be explained by the more industry led growth in north as compared to south..but pre-american revolution the contribution of slaves in creating economic structure that can then florish to modern US can not be denied…

abhi gupta April 30, 2009 at 8:58 am

to add…thr is no doubt tht slavery was prevalent in most parts of the world but its not only about the contribution of slave but also that of "master" and in US..the "masters" utilized their resouces in a manner that was more efficient than anywhere else in the world

True_Liberal April 30, 2009 at 9:26 am

One need only look around the world today to see the correlation between slavery and a strong economy. In countries with significant slavery elements, there is significant-to-extreme poverty.

To claim the converse for the antebellum US is most curious.

Martin Brock April 30, 2009 at 9:46 am

To hear a libertarian proclaim a self sufficient man a poor man and by inference a dependent man a wealthy man was to me a tell-tale of a fatal flaw in a philosophy that holds such disdain for socialism and puts liberty above all else.

I couldn't disagree more. Maybe "libertarian" is a poor title, but nominally "libertarian" rhetoric typically emphasizes virtues of market organization, and markets are all about interdependence.

Personally, I prefer "mutualism" to "libertarianism", but I don't expect to craft any "mutualist" movement here, and I don't want to craft one, because political movements invariably morph into something ugly that I don't want to endorse.

I much prefer "mutualism" to "capitalism", but I don't expect folks here to eschew "capitalism" either; however, I will make the distinction when objectionable tenets of "capitalist" ideology appear.

In ironic reality, the modern "libertarian" movement (personified by Rothbard and others) is rooted in nineteenth century movements inspired by men like Proudhon and Tucker, then called "socialism" and opposed to "capitalism".

Rothbard himself understood this fact. That's just the way political rhetoric evolves. Words reverse meaning, because politicians always speak from both sides of their mouths.

We are indeed social beings and that is where our success comes from. But apparently the holders of liberal philosophy see no conflict with their proclamations and definitions of liberty, wealth and dependence.

Of course, not. Where did you get the idea that (classical) liberals oppose interdependence?

Catherine April 30, 2009 at 11:38 am

I value specialization and division of labor but I do not think we should consider them as radically antithetical to self-sufficiency. Such an approach leads too much in the mind of many people to the easy conclusion that we need all the specialized government bureaucrats to run the country and regulate the markets.
It is hard to freely negotiate and engage in trade when you are totally dependent. I believe that it is one of the reasons we have been able to observe such a growth in popularity of government and the regulatory state.

Healthy Markup April 30, 2009 at 12:26 pm

to add…thr is no doubt tht slavery was prevalent in most parts of the world but its not only about the contribution of slave but also that of "master" and in US..the "masters" utilized their resouces in a manner that was more efficient than anywhere else in the world

You say that slaves were common world-wide, but their masters did something different in the US. Is it because of these different market behaviors that everyone here has mentioned that the US used their slave (and other) resources more efficiently than in other countries?

Carl April 30, 2009 at 12:36 pm

When does a slavish adherence to the principle of comparative advantage lead to a suboptimal solution? In other words when does over specialization lead to extinction? Finally, can economist ever have a discussion that does not assume that all people engage only in the pursuit of a blind “hill-climbing” strategy that finally results with summiting on a small local mound?

Martin Brock April 30, 2009 at 12:49 pm

Finally, can economist ever have a discussion that does not assume that all people engage only in the pursuit of a blind “hill-climbing” strategy that finally results with summiting on a small local mound?

Assuming the truth seems a reasonable strategy.

Daniel Kuehn April 30, 2009 at 12:52 pm

muirgeo -
RE: "To hear a libertarian proclaim a self sufficient man a poor man and by inference a dependent man a wealthy man was to me a tell-tale of a fatal flaw in a philosophy that holds such disdain for socialism and puts liberty above all else."

I'm comforted that Russ's answer was exactly my answer – the division of labor, plain and simple.

However – you bring up a VERY good point that I've observed here too. For some reason, Russ and Don always seem confused on this point. They say "self-sufficiency is the road to poverty".

Absolutely not true.

What they SHOULD be saying, and what SHOULD be obvious to them as libertarians is "forced self-sufficiency is the road to poverty".

If you choose to be self-sufficient, clearly it has some value to you – it can't be impoverishing.

So go ahead and shop at the farmer's markets and the mom and pop shops! Don't let Russ and Don tell you not to! I promise you, it's not the road to poverty (unless some hippie is making you do it by force… which seems somewhat unlikely, doesn't it?).

Lee Kelly April 30, 2009 at 1:25 pm

Daniel,

You are continually confused on this issue. It matters not only what people want to do, but why they want to do it.

If people shop at "Mom and Pop" stores, or advocate self-sufficiency, while understanding the trade-offs involved, then Don and Russ would likely remain quiet. What they object to are the illusory benefits such advocates suppose shopping at "Mom and Pop" stores, or more self-sufficiency, would bring. In other words, Don and Russ are merely trying to point out what trade-offs such decisions entail, because with full recognition of the costs few people, they believe, would continue to advocate such positions.

A man is completely within his rights to try and make it rain by dancing around a fire. A meteorologist, however, while respecting the man's liberty, might nonetheless object that dancing around the fire will not cause his desired end, and suggest others not to emulate his example unless they just like dancing around fires.

Lee Kelly April 30, 2009 at 1:33 pm

Another example, Daniel, is when Marxists advocate complete government control of the means of production, and other such hogwash. Obviously, such events would have some value to Marxists, because they think them the road to freedom and prosperity. And, perhaps, for a short time, they really would derive some benefit. However, in the long run, when reality runs into their false assumptions, they are not likely to be as happy.

So what is your advice to the Marxists? "Go ahead, bring about the Communist revolution, don't let Russ and Don tell you that it will not work, it's not the road to poverty becuase you think otherwise". Respecting another's right to believe as they choose, is not to think they should believe what they do.

MnM April 30, 2009 at 1:53 pm

However – you bring up a VERY good point that I've observed here too. For some reason, Russ and Don always seem confused on this point. They say "self-sufficiency is the road to poverty".

Absolutely not true.

You miss their meaning. What Russ means (if I've read him correctly) is that "abstinence from trade is the road to poverty." He's using "self-sufficient" in the literal sense (i.e. a person who, quite literally doesn't rely on anyone for anything: he makes his own food, clothes, shelter, etc).

Because of this self-sufficiency he/she misses out on gains from trade.

Daniel Kuehn April 30, 2009 at 2:04 pm

Lee Kelly -
RE: "Another example, Daniel, is when Marxists advocate complete government control of the means of production, and other such hogwash"

HUH???? How does the fact that a Marxist gets utility from stealing private property have anything to do with the fact that I like to buy tomatoes at a farmer's market?

MnM -
RE: "You miss their meaning. What Russ means (if I've read him correctly) is that "abstinence from trade is the road to poverty." He's using "self-sufficient" in the literal sense (i.e. a person who, quite literally doesn't rely on anyone for anything: he makes his own food, clothes, shelter, etc). "

I don't actually think Russ and Don think that these personal decisions hurt people. I'm hoping they don't actually think that at least. I think Russ really does mean "forced self-sufficiency is the road to poverty". I like to do my own taxes and I like to cook my own meals because I like that kind of control, and at least in the case of cooking, I get enjoyment out of it. Do I "lose the gains from trade" by choosing to be self-sufficient? I like to do my own home repair too. Do I lose the "gains from trade" by not hiring a plumber? Of course not. I would lose the possibility of those gains from trade only if someone forced me not to consult an accountant, told me I could never go to a restaurant, and told me that I could never hire a plumber. THAT is the road to poverty. And I think ultimately that's all Russ means.

But sometimes this blog gets side-tracked into thinking that self-sufficiency in and of itself is somehow dangerous. It's not.

MnM April 30, 2009 at 2:35 pm

I like to do my own taxes and I like to cook my own meals because I like that kind of control, and at least in the case of cooking, I get enjoyment out of it. Do I "lose the gains from trade" by choosing to be self-sufficient?

You may if you grow/hunt your own food.

I like to do my own home repair too. Do I lose the "gains from trade" by not hiring a plumber? Of course not.

Depends on how valuable your time is. If you could generate higher returns with your time than the cost of hiring a plumber, then yes, you've missed on a possible gain. That might be your preference, I don't have a problem with that, and I don't think that Russ has a problem with that. However, that preference is not the same as missing on a gain from trade.

I'm with you on home repair. I'm a DIY'er. I'm relatively certain that some of the repairs I've made could have been done more cheaply by a professional. I chose the loss because I prefer the activity. But that preference doesn't mean that it isn't a (monetary) loss.

But sometimes this blog gets side-tracked into thinking that self-sufficiency in and of itself is somehow dangerous. It's not.

I think that might be a bit of an overstatement. All Russ is talking about is the specialization and division of labor. He's just doing it tangentially. A person who does everything (in the literal sense) for himself won't be able to specialize and profit from that specialization.

Daniel Kuehn April 30, 2009 at 2:40 pm

MnM -

RE: "I chose the loss because I prefer the activity. But that preference doesn't mean that it isn't a (monetary) loss."

Just reread that sentence for me!

This is why I have serious doubts about comments on this blog sometimes. Maybe this comment has some place in a personal finance discussion – but in an economics discussion it is either a non sequitor (if we pay heed to your parenthetical) or it's a contradiction (if we ignore it).

Daniel Kuehn April 30, 2009 at 2:42 pm

MnM -
I want to apologize for that last statement. I'm sure it sounded very rude, and I'm sorry about that.

But I really take strong issue on this subject. I think fundamentally Russ and Don agree with what I'm saying about the difference between forced autarky and voluntary autarky… but it really makes me scratch my head the way they present it sometimes.

MnM April 30, 2009 at 3:20 pm

but in an economics discussion it is either a non sequitor (if we pay heed to your parenthetical) or it's a contradiction (if we ignore it).

You'd have to explain that one to me. I draw a distinction between preferences and gains from trade. You don't?

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