Thursday, August 26, 2021

Am I Irrational

 A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyse a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects.

— Robert Heinlein, Time Enough for Love

In a number of ways my views and acts are difficult to explain as rational. I will list them:

1. As an economist, I believe in division of labor and the benefits of specialization and yet I find Heinlein’s ideal, quoted above, persuasive. I would like to be that sort of person. To the extent that I am — I think I can claim at least thirteen items on his list — I am proud of it.

2. I recently attended a social event, a dinner for forty or fifty people in the host’s home, with catered food. That felt wrong to me. When we host such events, as we occasionally do, almost all of the food, aside from any nibbles brought by the guests, is cooked by me and my family.

3. At this point in my life I am comfortably well off, yet I still make an effort to save money in small ways. We buy flour from Costco in 25 pound bags, pay attention to prices in the grocery store. I look at the right side of the menu as well as the left when deciding what to order. If we eat out, it is usually at relatively inexpensive ethnic restaurants. Looking for a new one, we ignore anything whose online description is $$$. I could afford to fly business class but never do, save for a few times when someone else was paying for it.

4. We do a lot of things in-house that it would arguably make more sense to do through the market. I build our bookcases in my basement workshop. If a button comes off a shirt or a pants seam comes out or the knee of my jeans wears through, my wife fixes it. At any reasonable per hour value for her time, it would usually be cheaper to hire the work out, perhaps to replace the jeans — I get mine from Haband, not L L Bean. But we don’t.

Arguably this is all irrational behavior, perhaps behavior that made sense at an earlier and poorer stage of life, retained through habit.

But perhaps not.

I am comfortably well off at present, but my income reaches me through an elaborate set of social, legal, and political mechanisms and the world is an uncertain place. Quite a lot of Americans who were comfortably well off in 1928 were no longer so in 1930. The same was true a fortiori for French aristocrats in the late 18th century, Russian in the early 20th. Even short of stock market collapse or revolution, there are multiple ways in which I could suddenly find myself in a much worse situation, such as a fraud at my broker’s that emptied my portfolio. Any money saved today through habits of thrift would vanish along with everything else, but the habits would not. Even if I am safe through my lifetime, my children extend my concern decades further, and their pattern of life will be in part modeled on mine.

In the world as it now is, most things I want done can be done better and cheaper by someone else, hence it pays to specialize, earn money doing what I am good at, use that money to get other things through the market. That mechanism makes possible for modern-day people a standard of living enormously higher than a self-sufficient homesteading household could produce with its own labor.

The world is an uncertain place. As long as I am alive and without serious injury I have my mind, my hands, my skills. In an uncertain future, there might come a time when I had no access to a market — perhaps not for a day, a month, or, in an extreme case of societal collapse, a lifetime. Modern Americans have lived in a safe world for a very long time, but past performance, as they say, is no guarantee of future returns. There might come a time when I could no longer support myself by teaching, writing, speaking, perhaps a time when I would need to flee my country and find other ways of making a living. Safer not to be a one trick pony.

I conclude that while it makes sense to do most things through the market — I do not grow my own wheat and grind it for flour or spin and weave my own cloth — there is much to be said for maintaining a range of skills, the sort of range Heinlein describes if not his exact list. Just in case.

Insofar as being to some degree a generalist is prudent, it is admirable. Insofar as it is admirable, it is something one feels good about, wishes to demonstrate.  By, for example, feeding forty people out of your kitchen or building your own bookcases.

 

14 Comments:

At 7:38 PM, August 26, 2021, Blogger Ahmed Fares said...

This article reminded me of an article by Steve Randy Waldman (interfluidity.com) about saving for insurance after we have saved enough for a lifetime of consumption. A quote from the article:

Wealth is about insurance much more than it is about consumption. As consumers, our requirements are limited. But the curve balls the universe might throw at us are infinite. If you are very wealthy, there is real value in purchasing yet another apartment in yet another country through yet another hopefully-but-not-certainly-trustworthy native intermediary. There is value in squirreling funds away in yet another undocumented account, and not just from avoiding taxes. Revolutions, expropriations, pogroms, these things do happen. These are real risks. Even putting aside such dramatic events, the greater the level of consumption to which you have grown accustomed, the greater the threat of reversion to the mean, unless you plan and squirrel very carefully. Extreme levels of consumption are either the tip of an iceberg or a transient condition. Most of what it means to be wealthy is having insured yourself well.

source: Trade-offs between inequality, productivity, and employment

 
At 8:26 PM, August 26, 2021, Blogger SB said...

I remember that Heinlein quote well, but have been more influenced by Lloyd Alexander's fantasy series The Chronicles of Prydain, in particular the fourth book, Taran Wanderer. The adopted protagonist goes on a quest to find his birth parents; along the way he apprentices to a potter, eventually producing a few pots good enough to fire rather than just reconstitute into the clay-bin, and he goes on his way with one such pot for his own use. It's not a particularly good pot, but it's adequate, and it's his because he made it himself. He apprentices to a weaver, and goes away with a blanket -- not particularly good, but adequate, and he made it himself. He apprentices to a smith, and goes away with a sword -- not particularly good, but adequate, and he made it himself. (He also resolves a dispute between feuding warlords by inventing what we would call Fair Division Theory, and finds himself with a flock of sheep and no fold until he encounters a guy who's been carefully maintaining a sheepfold against the day a flock of sheep should arrive. But I digress from the theme.)

To the extent that your self-image is of somebody who can do a wide variety of things for himself, even though he doesn't expect to make a living at most of them, and who could get along on less than he currently earns, you're buying that self-image. If the price is a bit of arguably economically-inefficient behavior, so be it -- people have paid much more for their self-images.

 
At 9:11 PM, August 26, 2021, Blogger SB said...

It also occurs to me that the "feeding forty people out of your own kitchen" thing is an example of repositioning the event from the economy of money and exchange to the economy of time and gifts. Describing something in terms of money makes people think of precise exchange -- "am I getting what I paid for?" or "am I getting more or less than somebody else?" -- whereas gifts of time and expertise are mushier, inspiring questions like "have I done something nice for this person in return?"

For rational economic actors, the best possible Christmas gift is cash, as it gives the recipient the most possible choice in what to do with it... but to most of us it would feel crass and "cheap", in that it doesn't cost the giver any of what we actually prize -- time and personal consideration. Likewise, feeding my friends with my own time and skill feels like more of a gift than feeding them by just handing money to a caterer.

 
At 10:04 AM, August 27, 2021, Blogger David Friedman said...

@SB:
I have a chapter on gift economies and the gift puzzle in what I am writing. If you are sufficiently curious, email me and I'll send you the draft. ddfr@daviddfriedman.com

 
At 3:30 PM, August 28, 2021, Blogger Frank said...

Well, I can't do all those things Heinlein requires. Neither can my wife. But together we can do a lot of them.

 
At 4:18 PM, August 28, 2021, Blogger Dustin said...

It depends on whether you are proud of those things because you prepare for uncertainty or if you're proud of those things for other reasons and use uncertainty as an excuse.

To help you answer this, you should try to come up with numbers. How much work/money/time do you put into these things and how likely do you think the risks you are prepared for are?

 
At 9:08 AM, August 29, 2021, Blogger Charles Collom said...

Having competence across many domains and specialization in few is compatible with Heinlein’s principle. The cost of competence rises exponentially as you level up. The return for level 4/10 competence in 10 domains is much lower that level 8 competence in 1 domain. The return of multi-domain competence is avoidance of Dunning-Kruger traps and the ability to recognize true competence in those domains (avoidance of upselling, unnecessary car “repairs”) and probably more. Specialization in few domains allows for maximization of income / prestige.
It seems intuitively correct that if the cost of Lvl 10/10 competence in one domain is the same as 9/10 in one and 6/10 in 20, then you’d want the latter.

 
At 2:30 PM, August 29, 2021, Blogger Jonathan said...

In general, having a skill is potentially useful and something to be proud of. The more skills the merrier. However, acquiring a skill costs something: time, effort, money, etc. And, having acquired it, you probably have to spend more time periodically practising it, or you'll lose it. So bear in mind what sort of return on investment you can expect; although that's not just monetary. Subjective satisfaction and pleasure are also worth taking into account. As an economist, you know all this better than I do.

Heinlein's list contains a number of skills that I've never needed or wanted, and surely never will, so to be without them pains me not at all. There are other skills he didn't mention that are more useful to me, or would be if I had them.

 
At 8:33 PM, August 30, 2021, Blogger Atanu Dey said...

Dear Dr David Friedman:

Nothing to add other than to say that I am delighted to read your post.

Regards,
Atanu

 
At 3:40 PM, September 03, 2021, Blogger Monica said...

In addition to the utility of gaining and maintaining skills in an uncertain world, I suspect that many (not all) of the skills you use instead of hire bring you some direct pleasure. You *enjoy* cooking (and the opportunities to explore that come with it), as do I. I don't cook my own large dinners because I can't afford to cater; I do them because I enjoy the challenge of planning and preparing a meal that (I hope) delights my guests and satisfies all dietary constraints present. Similarly, I suspect you enjoy building bookcases that are just right for your particular purposes. That pleasure, that benefit, also counts on the "what you're getting" side of the ledger, and is a lot harder to buy.

Granted, most of us probably don't enjoy doing our own clothing repairs, setting bones, or pitching manure. Sometimes the utility comes in other ways. If the wall is load-bearing I'm definitely going to hire it out. But some things we would do even if we didn't have to.

 
At 1:18 PM, September 07, 2021, Blogger FraserOrr said...

You are arguing that spending the cost of learning the new skills is a hedge against the risk of your current financial assumptions are sustainable. It seems to me that that may be one approach, but you could also spend that cost on other risk mitigations instead of learning to sew a button or build a bookshelf, you could, for example, instead invest in a cabin in the woods with sufficient modern conveniences, or invest in a foreign citizenship and property there to reduce the risk of USA collapse, or perhaps a whole range of other such approaches.

Moreover, I think you should also consider transaction costs. For example, sewing a button is a relatively simple thing (you can buy a machine to make it easier too), but getting someone to do it for you probably means that you pay more in transactions costs than in the actual labor cost of doing the two minutes of sewing. It is, for example, cheaper to sew the button than drive to some place where they can do it for you, leave it with them, then drive back to collect the result.

Finally, you need to consider the non utilitarian benefits. For sure building a bookcase does produce a utilitarian result of a place to store your books. But I imagine that for most people who do so (I am assuming "build" here means more than "put together a flat pack from Ikea") do so out of the pleasure of the making, and the pleasure of owning something that they made. If we see life as an exchange of effort to produce happiness then this pleasure most likely dominates the actual financial savings.

 
At 9:38 AM, September 08, 2021, Anonymous Anonymous said...

This is an example of how it's terrible that economists use "rational" to mean "optimal." It's good to consider the hypothesis that your status instincts produce good outcomes, but instincts are definitely not reason.

 
At 9:48 AM, September 08, 2021, Anonymous Anonymous said...

I like the paragraph Ahmed quotes from interfluidity. But I think that the paragraph really contradicts both your post and the rest of the interfluidity post. The question is what are you saving your money for? You answer a different question: you say that you don't choose obvious consumption because the alternatives are insurance. But I just repeat the question. If you like insurance so much, why don't you also use your money to buy insurance? Impressing people with your cooking talents invests in your social capital, but buying a party also invests in social capital. Maybe you should throw more parties total and more diverse ones.

Similarly, the rest of the interfluidity post seems to treat capital as insurance. But productive capital is fragile and not portable. In a real crisis, it is mostly destroyed. The quoted paragraph says that insurance is idiosyncratic and must be bought ahead. Insurance for the elites is the reason capital flows from poor countries to rich countries, but this doesn't address how elites in rich countries buy insurance.

 
At 4:14 AM, September 09, 2021, Blogger Jason Azze said...

As a Level VII Pedant, it is my duty to point out (as I often do when this quotation appears) that Robert Heinlein didn't say it; his character, Lazarus Long did. And old Laz had a massively extended lifespan and access to a time machine, leaving him much more time to acquire skills than you or I have. Well, at least as far as I know. Perhaps DDF has access to a time machine.

 

Post a Comment

<< Home