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After publishing my post on Polymathic Skill Acquisition, I realized that 'skills' and 'polymathy' and 'postconsumer praxis' are concepts so intricately interwoven that the only way I can hope to sort it all out is by a series of posts, taking a nugget of an idea at a time.
In this post I'm going to take a crack at comparative advantage. I'd heard this referred to in the EREsphere - Jacob wrote about it here, and it comes up from time to time on the forum - but I never fully grokked it.
What is Comparative Advantage?
First: absolute advantage means you're more efficient at producing a good than your competitors. I can stack a cord of wood an hour, and Frank can only stack a half cord an hour. I have an absolute advantage over Frank. Simple.
Comparative advantage is an economic model involving agents with multiple domains of potential production. The classic example is Ricardo's:
England can make one unit of cloth in 100hrs and one unit of wine in 120 hours.
Portugal can make one unit of cloth in 90hrs and one unit of wine in 80 hours.
So Portugal has an absolute advantage over England in both cloth making and wine making.
If Portugal acts based on absolute advantage, it will make all its own cloth and all its own wine for a total cost of 170 hours of work. England will have no other option than to make all it's own cloth and wine, at a total cost of 220 hours of work. England produces one unit each of cloth and wine for 220hrs, and Portugal produces one unit each of cloth and wine for 170hrs. No trade happens.
But what happens if England doubles down on cloth, Portugal doubles down on wine, and they trade with each other? England will produce 2.2 units of cloth for 220hrs of work, and Portugal will produce 2.125 units of wine for 170hrs of labor. The same amount of work is performed, but more goods are produced.
If you zoned out for the last few paragraphs of heavy duty math, the tl;dr is this: economic systems are more productive if everyone does whatever they’re best at, even if other agents are better at those things than they are. It’s counterintuitive but the idea checks out.
I confess that I never understood there was a difference between absolute and comparative advantage. That's because I was thinking only from the perspective of the singular agent, i.e. myself. The simple takeaway from comparative advantage, all other things being equal, is that agents should engage in comparative advantage, trade with each other, and this will increase productivity of the system.
What’s that got to do with postconsumer praxis?
Okay, now we understand comparative advantage at a very basic level. Lets put aside Continental trade relations and bring it down do the level of advice for people. The principle of comparative advantage is used to argue that everyone should find whatever they are most efficient at, double down on that, and 'trade' (aka pay) for everything else. Theoretically this maximizes economic production/output.
No doubt.
The interesting gotcha is right in the first sentence of the Wikipedia article: "In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, ..." (italics mine).
'Autarky' is a fancy word for self-sufficiency. When used in economics it refers to closed-economy states, which is generally considered a bad thing. In other words, the definition of comparative advantage acknowledges the existence of other potential economic goals such as self-sufficiency and dependence on other actors / the international trade system writ large.
And ‘opportunity cost’ means all the other stuff you could have been doing that you didn’t do because you did whatever you decided to do. Typically ‘opportunity cost’ means don’t spend an hour earning $20 if you could spend an hour earning $50. The opportunity cost is $30. But for people who care about more things than money (aka everyone), opportunity cost includes things like “watching the sunset”, “spending time with family”, “learning how to cook healthy food”, “getting laid”, or “reading a good book.”
This is important! When I sat down to write this post I thought I'd have a line in here like "What the doctrine of comparative advantage fails to consider is the vulnerabilities to disruption inherent in specialization and dependence and also having a broad life" but it's right there in the Wikipedia article!
If you ignore the opportunity and self-sufficiency costs of skill development, you will miss out on a bunch of cool stuff and you’ll be dependent on The System (and thus vulnerable to disruptions).
In other words, the thing I have to say is not "Disregard comparative advantage analysis" like I thought I was going to, it is "Make sure you don't neglect non-fiscal opportunity costs and self-sufficiency costs in your comparative advantage analysis." Yes - do comparative advantage analysis. But don’t ignore important factors like self sufficiency and having a dope life!
Even more generally: Don’t Simplistically Follow ‘Rules’ That You Don’t Even Understand Because You Didn’t Bother To Even Read the Wikipedia Article. That’s just good life advice.
If your personal goal is to maximize the productivity of the economy, then yeah, just find whatever you're most efficient at and do that, and pay for everything else.
But if your goals have a little more nuance to them and include things like increasing your household resilience, being a well rounded person, having interesting experiences, doing polymath stuff just because it's fun, and other goals that won't show up on any spreadsheet, then you need to be more cautious about going all in on one productive specialty.
Don’t Get Carried Away
That said, if you never develop any specialty it will take you a long time to buy freedom. I talk a lot of crap about hyperspecialization, but I don't think it's any better to be a complete jack of all trades and master of none. As always, I think the best approach is to be wise and apply discernment. When it comes to postconsumer skill acquisition in the modern economy, I think a multi-pronged approach is best.
One prong is to develop a specialty (or a specialty cluster, aka a combination of multiple specialties to produce a rare synthesis) to an optimum amount so that you can buy as much freedom as possible as quickly as possible, without sacrificing too much freedom or health in the pursuit of that freedom. This is how you accumulate your Stash.
The other prong is to develop high-leverage skills that reduce your cost of living.
Simplistically, economic freedom is how much money you have divided by how much money you burn per year. If you have 100k and burn 50k/hr, you have two years of economic freedom. If you have 100k and burn 5k a year, you have 20 years of freedom.
Optimizing a specialty to increase earning potential increases the numerator of freedom, which is a good thing.
Developing high-leverage skills that reduce your cost of living decreases the denominator of freedom, which is a good thing.
I had a skill cluster of mechanical engineering, building information modeling, and 3d visualization that I developed over twelve years. But for ten of those twelve years, my broad skills were so lacking that I spent all of what I earned. My numerator never was a larger number than my denominator, which is a bad thing.
Then I found ERE and began focusing on high leverage skills. This dropped my denominator and the numerator began to grow. My economic freedom increased.
Then I got laid off and my numerator went static. But I kept working on the denominator, on high leverage skills, so even though I wasn't earning any money my economic freedom continued to increase.
This is magic! This is why I say very low cost of living is magic. It’s magical freedom.