Quotation of the Day…

by Don Boudreaux on July 11, 2011

in Civil Society, Complexity & Emergence, Creative destruction, Standard of Living, Work

… is from Matt Ridley’s May 22, 2010, Wall Street Journal article entitled “Humans: Why They Triumphed.” (HT Jim Dorn, editor of the Cato Journal):

The story of the human race has been a gradual spread of specialization and exchange….  Prosperity consists of getting more and more narrow in what you make and more and more diverse in what you buy.  Self-sufficiency – subsistence – is poverty.

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{ 65 comments }

EG July 11, 2011 at 11:11 pm

Yes but we need to be self-sufficient in oil because…hm…because?

vikingvista July 11, 2011 at 11:44 pm

Because higher oil prices are better than lower oil prices?

Chucklehead July 12, 2011 at 12:13 am

No, because it gives me a warm fuzzy feeling.

Greg Webb July 12, 2011 at 12:35 am

Because specialization and trade creates wealth and income disparity that thwarts the political class’s desire to control the rest of us through uniform poverty.

Single Acts Of Tyranny July 12, 2011 at 5:32 am

Gregg, that is a very neat analysis. If we were all free, wealthy and independent, what use would we have for politicos? therefore poverty is their friend and necessary companion despite all claims to the contrary

MarketJohnson July 12, 2011 at 6:39 am

Wow!! I’m really glad there is a site like this on the web where it’s so simple and easy to find the formula for utopia! Can you also tell me whether or not god exists? And the meaning of life? And maybe a few other questions while you’re at it…

HaywoodU July 12, 2011 at 6:59 am

We can tell you that you have nothing to add to the conversation. Dink.

Ken July 12, 2011 at 1:14 pm

MJ,

I can answer your questions.

God does not exist.

The meaning of life is life itself, i.e., survival and perpetuation.

Let me know if you have any more questions. And no one’s claiming that more freedom equals utopia. Libertarians typically claim more freedom equals more happiness, more choices, and greater wealth.

Regards,
Ken

vikingvista July 12, 2011 at 2:03 pm

42

Ken July 12, 2011 at 2:30 pm

VV,

+1!

Regards,
Ken

Greg Webb July 12, 2011 at 7:36 pm

No, MJ, I can’t give you the answers to any of those questions. But, I’m certain that Barak Obama, Al Gore, Jimmy Carter, et al., could and would be very happy to. Be sure to applaud wildly. They love it!

Greg Webb July 12, 2011 at 1:15 pm

Thanks, Single Acts Of Tyranny. And where would we be without all those politico types who tout themselves as “the best and the brightest.”

MarketJohnson July 12, 2011 at 4:29 pm

They aren’t the best and brightest. The best and brightest are all busy posting on this forum.

Ken July 12, 2011 at 5:22 pm

MJ,

You’re probably overstating the case that the commenters here are the “best and brightest”. Nevertheless, many of the commenters here are very good and very bright. Many of the people who post on this website actually have jobs and produce something of value.

Something that cannot be said of almost all politicians.

Regards,
Ken

Paul Brinkley July 12, 2011 at 2:51 pm

We -don’t- have to be self-sufficient in oil. At least, not axiomatically. We just incur a lot of cost as a result of buying it where we currently buy it.

Furthermore, just because we’re destined for greater specialization doesn’t mean we can cut to the chase, become the world’s leader in styrofoam peanuts, buy everything else, and prosper. We have to get there first, and until then, we have to supply some of our own oil. (I happen to think greater specialization is NOT our end state, either as a worthwhile goal to seek, or in actual fact. Diversification is still desirable, since the universe will continue to throw wild cards at us.)

Craig July 12, 2011 at 7:26 pm

“Yes but we need to be self-sufficient in oil because…hm…because?”

Well, we don’t *need* to be self-sufficient in oil, but it does seem a darned shame that with 10 to 15 million people looking for work, we can’t see our way clear to “letting” some of them exploit the oil reserves we know we have.

In addition to creating wealth, we certainly would lessen the political power of the Middle Easterners and make oil cheaper for all of us to boot.

I agree with you that the self-sufficiency argument is poor economics, but let’s not throw the baby out with the bath water, either.

DG Lesvic July 12, 2011 at 12:37 am

This appears to be a continuation of the discussion below following from Will Durant’s observation that

“Every cultural flowering finds root and nourishment in an expansion of commerce and industry.”

Now Matt Ridley attributes Humanity’s Triumph to the division of labor, or “specialization and exchange.”

Commerce, industry, specialization and exchange.

But the question is why so much more commerce and exchange at some times and places than at others, why so much more especially in the Western World in the 19th Century than at any other times and places?

What was different about the Western World in the 19th Century from the rest of the world, including our own today?

Economics? Yes, but more than that. It was amateur economics, logical and literary economics, without the curves and equations.

And it was adventuresome, pioneering economics, a young, dynamic, living, growing science.

Where is that today? Where spirit of intellectual adventure, the new frontiers, the challenging new ideas, and the real economists rising to the challenge?

Where today?

Tell me, and I’m on my way.

Chucklehead July 12, 2011 at 1:38 am

Asia

DG Lesvic July 12, 2011 at 5:04 am

Where is there any discussion of new ideas, anything more than the endless recycling of primordial wisdom and always hailed as the discovery of the light bulb?

yet another Dave July 12, 2011 at 6:57 pm

Oh the irony of you asking such a question.

vidyohs July 12, 2011 at 6:49 am

“Where is that today? Where spirit of intellectual adventure, the new frontiers, the challenging new ideas, and the real economists rising to the challenge?

Where today?

Tell me, and I’m on my way.”

DGL,

There is a question I have asked myself for a couple of decades and the answer I see is not physical. Humans have managed to put government over every piece of land we can think of.

The place you’re looking for exists, but it is all intellectual.

DG Lesvic July 12, 2011 at 12:05 pm

Not in your mind, it doesn’t.

When have you ever expressed any interest in new ideas?

vidyohs July 12, 2011 at 4:16 pm

Cholla, are you shitting me, or are you just obtuse?

vikingvista July 12, 2011 at 5:03 pm

“are you just obtuse?”

Is that a rhetorical question?

vidyohs July 12, 2011 at 5:32 pm

Not rhetorical. Though I can see how it could be assumed.

DG Lesvic July 12, 2011 at 5:40 pm

When?

DG Lesvic July 12, 2011 at 5:40 pm

When anything but fanatical hatred of new ideas?

vidyohs July 12, 2011 at 6:57 pm

So Cholla, you’re just obtuse. I won’t even waste any more time with your foolishness.

DG Lesvic July 12, 2011 at 7:06 pm

So far as Vid himself is concerned, I may have done him an injustice, for which I apologize. But the fact remains that new ideas have no currency here or anywhere else in the Austrian School, too busy lighting candles to its past to ever move ahead.

Dan J July 12, 2011 at 6:05 pm

If the ‘new idea’ involves govt coercion, mandates, or theft… It is not a new idea but a repackaging of a thousand-yr-old idea.

DG Lesvic July 12, 2011 at 7:07 pm

That’s an idiotic statement.

Dan J July 12, 2011 at 7:28 pm

Since you bring govt as the ‘new idea’, it is ‘idiotic’? Thanx, Muirgeo.

Govt to do X,Y, and/or Z is nothing new. Not matter how you package it. It is the same old, tired ideal. And in the govt benevolence, we get the same……. coerced/compulsed adherence.
Legislators convinced that a law for reporting a disappearance of a child within 48 hours (Casey Anthony)
No smoking in private establishments (private is the key word.. as in owned by the operator)
Soon to be a suggestion of govt banning the tossing of sports equipment to fans……… (apologies to individuals who are associated with the incident, being that is so soon afterwards)
etc.,……etc.,…..etc.,…..etc.,……etc,……..etc.,……….
Govt involvement with the housing boom and bust if absolute proof in its malfeasance and inability to account for the dynamics or for the realities.

DG Lesvic July 12, 2011 at 11:53 pm

Dan J

There may be a disconnect here. If you think that I am advocating socialism or interventionism, you don’t know me.

But let me just assure you that I am not, that the “new ideas” I want are not socialism or interventionism, but the arguments against them, which have a lot of room for improvement, which is available, but unitilized by a stagnant libertarianism.

Dan J July 13, 2011 at 12:25 am

Ok.

‘new idea’ = better Public Relations for getting public to understand the dangers of interventions.

Ok.

DG Lesvic July 13, 2011 at 5:12 am

Dan,

You wrote,

“‘new idea’ = better Public Relations for getting public to understand the dangers of interventions.”

And better PR = better economics, doesn’t it.

Unfortunately, new ideas are only for the young, for they rebuke the old.

You’ll make friends aplenty reassuring one group of fossils or another, but precious few challenging them all. For there is an endless market for sectarian cant and flattery, but little for the whole truth.

How do you know when a new idea is right?

When no one will talk about it.

DG Lesvic July 13, 2011 at 10:45 am

And how do you know when a professor has nothing original to say?

When the other professors lavish praise upon him.

Gil July 12, 2011 at 4:02 am

So why do the Amish take a vow of poverty?

Single Acts Of Tyranny July 12, 2011 at 5:33 am

I’m guessing they think God wants ‘em poor (and thus dependent on his benificent wisdom and largesse, just like the political class)

HaywoodU July 12, 2011 at 7:02 am

You mean other than when using cell phones and cash registers?

vidyohs July 12, 2011 at 7:04 am

Do they? Seems to me that the Amish I have seen work pretty damn hard at accumulating wealth and comfort, and are routinely quite successful at doing so.

Shunning modern conveniences does not equate to a vow of poverty.

ArrowSmith July 12, 2011 at 4:32 pm

Are you kidding? If I didn’t have my iPad I’d be in destitution!

vidyohs July 12, 2011 at 8:24 pm

And I would feel really really really really sorry for you. Bwa ha ha ha ha! No I wouldn’t.

:-)

Ken July 12, 2011 at 1:21 pm

You mean a group of people who VOLUNTARILY don’t use many modern technologies? And you think that’s a good comparison for people who forcibly have choices removed from their lives by the all knowing, omnipotent politicians we have?

Regards,
Ken

Adrian Tschoegl July 12, 2011 at 7:01 am

Gil: The Amish have not taken a vow of poverty. If you want to see prosperous farmers, go to Amish country. The Amish sect is a club religion – membership in the club has many benefits in the form of mutual support – and so entry requirements are high to keep out potential free-riders. What the Amish have given up is status competition in consumption. I bet there is still some status competition – the “I am more devout in my practice than thou” sort of thing, and in tractors, cows, etc., but one major avenue is closed.

jjoxman July 12, 2011 at 8:53 am

That’s probably about right:

“Think you’re really righteous? Think you’re pure in heart?
Well, I know, I’m a million times as humble as thou art

I’m the pioust guy the little Amletts want to be like
On my knees day and night scoring points for the afterlife”

- ‘Weird’ Al Yankovic, “Amish Paradise”

Adrian Tschoegl July 12, 2011 at 7:10 am

Back to RIdley’s original point: it is correct, and the phenomenon creates a great problem. Our consumption basket is well-diversified but our production portfolio is highly concentrated. Changes in relative prices within the consumption basket don’t leave the real price of the basket much changed. However, changes in the price of what we produce relative to changes in the price of what we consume can be massive. This means we have a big risk problem – a mismatch (poor correlation) between changes in the price risk of our consumption and the price we receive for what we produce. (Our human capital is becoming ever riskier.) We therefore seek, through the political system, to insure the stability of the price of what we produce. And the demand for this insurance is growing as we became more specialized in our production, and hence more exposed.

Josh S July 12, 2011 at 8:26 am

The division of labor reduces risk rather than increases it. When’s the last time a bout of bad weather caused regional starvation in America?

Adrian Tschoegl July 12, 2011 at 3:05 pm

Josh, you are right on consumption, which is what I said. But the issue is production, or perhaps another way to put it is “human capital”. The more specialized my skills, the great the risk to me of changes in the value of those skills. If I have invested for years in my ability to make buggy whips, when cars come along I am SOL.By contrast, if I am a jack of many trades, if the price for one of my skills falls, I can shift effort to my other skills.

ILikeBumblebees July 12, 2011 at 7:18 pm

The division of labor aggregates risk rather than reducing it. Risk aggregation merely provides a tradeoff between probability of impact and severity of impact, as the recent financial crisis demonstrates in abundance.

In your example, bad weather might have, in the past, caused starvation in highly localized areas, having little impact on the vast majority of people. Today, disruption in commodity markets or distribution networks – much more unlikely, though not impossible – would result in widespread, epidemic starvation.

Real reduction of risk can only be accomplished by mitigating the fundamental factors that cause the risk; for example, developing food production techniques that are immune to weather effects.

Dan S July 12, 2011 at 9:59 am

This was a recurring theme in grad school for me–specialization leads to properity, whether it be attacking niches in strategic marketing or throughput optimization in operations management. Plus, when you read books like, “The Rational Optimist,” “Good to Great,” “Outliers,” and “Bounce” this message comes through loud and clear. Why do people fight this truth?

Adrian Tschoegl July 12, 2011 at 3:18 pm

See my rejoinder to Josh above. The issue is not the things I consume. The problem is the demand for the skills I sell in the marketplace. If I am highly specialized in producing something a machine can now do, what do I when the machines start producing it? If I am a 60-year old, what is the risk-adjusted NPV of learning a new skill?

See Arnold Kling’s thoughts on PSST – Patterns of Sustainable Specialization and Trade, and the speed of movement of resources into expanding sectors and the difficulty of moving resources (people) out of declining sectors (Cowan’s Zero Marginal Product work.)

Zero Marginal Product.)

ILikeBumblebees July 12, 2011 at 7:08 pm

Up to a point, this is true. Specialization enables comparative advantage, increasing total aggregate utility; it enables intense focus on a particular specialty, yielding improvements and innovation in the good being produced.

However, specialization has its limits. Others have already made the point that excessive specialization puts the specialist at an evolutionary disadvantage, weakening their ability to adapt to change, but there’s also the consideration that if there’s an upper bound to the utility that highly specialized goods and services provide to consumers, then there will be a point of declining marginal returns on specialization, which will eventually culminate in a point at which the acquisition of more highly-specialized skills or investment in highly-specialized capital will exceed the potential return.

In parallel, increasingly-adaptable technology is beginning to encapsulate more and more specialized disciplines, yielding the same utility at lower costs.

At some point, the two trends will cross, and it will become preferable for individuals to apply technology to achieve “self-sufficiency” in lieu of obtaining equivalent value via trade. Actually, this will probably happen slightly before the point at which the utility of self-produced goods is equivalent to those of exchange-acquired goods, because there’s also direct utility in insulating oneself from external volatility.

I think this directly relates to the earlier “replicators” discussion. But there will still be specialization in design if not in production in this scenario.

Dan J July 12, 2011 at 7:13 pm

Govt should do something about it…….. snicker, snicker

ILikeBumblebees July 12, 2011 at 7:28 pm

That’s actually an interesting point. A lot of libertarian/conservative types, by focusing on the macroeconomic benefits of free trade, are unwittingly making an argument that, to the statist mindset, will someday be used justify intervention to preserve the antecedents of large-scale trade, despite their natural obsolescence, at the expense of individual liberty.

Dan J July 12, 2011 at 7:59 pm

To the statist mind? To the statist mind, almost any issue has an argument for govt intervention. How many time have you heard “govt should do something about it” in regards to College sports and all of the hoopla around the money made by colleges/. Or the call of govt to do something about the BCS? How govt should be involved with MLB, NFL, NHL and their distribution of wealth (not fair for NY Yankees to have the money and buy all of the best players)?
The Statist, VV would likely still classify myself as, since I am not wholly in Libertarian camp, will call out for govt intervention for most issues.
Large scale trade to become obsolete, naturally? interesting.

ILikeBumblebees July 12, 2011 at 9:11 pm

I agree that it’s a bit of a tautology to say that any given statement might sound like an argument for government intervention to someone of a statist mindset; but I do think that the narrowly macroeconomic focus of many libertarian/conservative arguments might actually bolster statists’ inevitable pro-intervention position when people start moving toward technology-backed self-sufficiency.

And I do think that time will come, sooner rather than later. The developments in cheap, even open-source 3D printing are certainly leading us in that direction. Another example that seems to be advancing rapidly is aquaponic gardening – the combination of aquaculture and hydroponic agriculture in a semi-closed-loop system. If you can invest a few hundred dollars and a couple of weekends’ worth of work in setting up a system in your backyard that provides fresh fish and vegetables throughout the year, with minimal maintenance and cost, why would you buy produce at the supermarket, and subject yourself to the volatility of food prices?

I think technology will soon make something like traditional homesteading viable as a means of sustaining a modern high-tech lifestyle, and people who value leisure and independence more than whatever difference remains between store-bought and home-made goods will be the early adopters.

Dan J July 12, 2011 at 9:22 pm

But, other areas for commerce would open up. The place to purchase the materials needed for your garden, books on the garden, professional help for those not willing or not inclined to their own construction projects, the ‘seedling fish’ market, etc.,….
Also, this will open up other facets of the economy for greater spending if much of our income is no longer needed to supply food.
It would be one helluva a transition. Also, we are far from wanting of the easy fast-food and oh-so tasty like of pizza or hamburgers.
I would not worry, too much.

Dan J July 12, 2011 at 9:27 pm

Even the 3D printing will require materials used in production of the objects….. and a local merchant will sell that material. When the printer malfunctions, a person will service it. The economy will continue to turn round and round, less an authority stepping over its bounds looks to intervene and distort and/or restrict its activities. The intervention on Housing has been the epitomy of govt malfeasance and restricting free market economic activity.

ILikeBumblebees July 12, 2011 at 10:11 pm

I agree completely, especially with regard for viewing this trend as a net gain, not a loss, for economic liberty, as it renders intervention and distortion far more difficult.

However, this trend will almost certainly cause macro-level measures such as GDP to decline. Even if healthy and robust markets emerge in raw materials and services, it’s important to note that (a) raw materials, by definition, are worth less than finished products; much of the value-added activity will no longer be captured by trade, and (b) information- and services-oriented auxiliary industries such as you mentioned will supply non-rival, non-commodity goods, and will have a to reach a very high threshold of quality to offer more value than blogs, wikis, and your friend down the street.

If macroeconomic metrics appear to decline, you can bet there will be a statist call for intervention to solve the ‘problem’, despite the fact that the aggregate utility of society will have actually increased (and, indeed, the currently worst-off will likely benefit the most).

Maybe the way to fight intervention is to challenge the metrics themselves – self-sufficiency renders GDP irrelevant; Bhutan’s “gross national happiness” sounds absurd on its surface, but I’m not so sure that an individualistically-oriented analogue couldn’t become a useful tool to challenge Keynesianism.

ILikeBumblebees July 12, 2011 at 10:25 pm

Also, you’re right respecting pizza and fast-food, but even there, technology will catch up eventually. We already have automatic bread makers: dump a bunch of ingredients into a machine, push a button, come back hours later, and there’s a loaf of bread waiting for you. Why not an automatic pizza maker, especially if all of the ingredients are ready to harvest in your backyard?

And maybe you’ll download open-source plans for an automatic pizza maker off the internet, click a button, and wait for your 3D printer to finish assembling it.

The threshold here, too, will probably arrive before we reach that point: if you’ve got the backyard garden and you’ve got the 3D printer, you’ve probably also got enough leisure time to spend some of it cooking a fresh pizza yourself.

Dan J July 13, 2011 at 1:01 am

Bhutan is fascinating, indeed. But, the measure of anything by the authority (read govt) of a region is relative.
I would love to have one hundred people from Bhutan travel abroad in Europe or America for 2yrs and then return to their native land. How happy shall they be then. The mountains provide them with much of their protections for hundreds, if not thousands, of years.
Was it two years ago, when the monarch agreed to move into a republic of sorts, phasing out the monarchy over time?
I have already forgotten some of the report I did on Bhutan for a case study in a Political Identities class. Chinas encroachment, India labor trade, the mundane clothing warn by all. Friend of mine is due for a visit soon. Personal escort at all times. Govt watching your every move.
Measure of happiness. Always thought of that as baloney.

As for bread makers……. Cheaper to just by bread prepared by another. I have a bread maker for sale.
Restaurants will be around for a long time. They go back a long way…. Pre-made foods for sale, that is. I suspect they will be around for a long time to come.

The information related market will be based on credibility. Those who gain the most respect and credibility will profit. Also, entertainment will be the other big venue for economic activity.
Just as commercials drive the ‘news’ or information providing networks, a subscription to your favorite information website with the most credibility and entertainment value will prosper.
MSNBC, FOX, WSJ, NYT, or Al Jazeera?
Fox and WSJ for me, but I often visit Al Jazeera to read and see what millions of others, especially near the Mediterranean and Arabian Penninsula see.
CATO, AEI, Hoover Institute, etc.,… May ask for donations or a small fee to keep in operations.
It is all evolving rapidly. So long as govt interventions are minimal, be it for self-interest of corruption or altruism, the results are the same, a distortion that hampers economic activity that will find it’s proper equillibrium, whether by slowered growth or misallocation and implosion.

Not to mention, there are many innovations to come that will spur new opportunities. Maybe a vehicle capable of efficient transport to the moon or beyond. Then, the opportunities explode. Ha!….. Space vehicle… Explode…. That’s not right.

I am sure someone will create something that I simply could not live without………. Again.

Dan J July 12, 2011 at 8:31 pm

I found Muirgeo’s news source….. Al Jazeera. Articles can be found, today, that speak of the horrors of Capitalism and equate The Obama admin. transference of money from the US treasury to the financial industry, auto industry, etc.,… on par with Ronald Reagan’s tax cuts. The US involvment of Afghanistan is more about the Asian pipeline to go through Afghan than it is about Al Qaeda or anything else. Al Jazeera contributor relates the debt burden, directly to the war, leaving readers to assume that no war equals no debt.

rhhardin July 12, 2011 at 8:36 pm

The economy runs on disagreement. An exchange only happens when the two parties disagree about the values of the things they exchange.

The amount of the disagreement is the profit of the transaction.

Add up the disagreements over the nation, and the standard of living rises by that amount.

Specialization and division of labor is the most spectacular producer of disagreement. The specializer values his product much, much less than his customers.

Self-sufficiency produces absolute agreement and abject poverty.

Dan J July 13, 2011 at 1:13 am

@Bumblebees

Ever use a bread maker?

They are fine…. But, ye olde bread maker, Mr. Yeastman, can’t be beat?

I guess, a re-hydrator, brought to you by ‘back to the future II’ would simplify and reduce labor needs, but still Pizza Hut would make the de-hydrated prepared pizza for you to consume.
The great thing about a little more self sufficiency would be a little more leisure, maybe, and people making things for you to use or consume during that leisure. What would you do with extra leisure? Sleep? I suspect that is the one thing, after a bed purchase, that you don’t get bored of for the up to 8 hours of time dedicated to it daily and look for different produced goods or services in association with.

ILikeBumblebees July 14, 2011 at 7:54 am

Let’s not judge possible future technology by modern standards. In hindsight, we can see the potential for today’s mobile phones in a 1980s “brick”, but if we’d extrapolated the brick’s limitations, we wouldn’t have seen it back then.

Leisure time is, in fact, the source of much innovation. Even if only a small fraction of people use their free time to do anything productive, the value of the non-rival knowledge goods they create will propagate quite quickly, and add to everyone’s total utility. You or I might sleep for an extra eight hours; but someone will spend the time inventing an automatic pizza maker.

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