Why One John Grisham Equals Two Kanye Wests: Teaching Myself Economics, Part III
By P.J. O'Rourke
Today, I want to tackle an economic puzzle. It can seem counterintuitive... but it clearly explains why we're all better off when Kanye West spends as much time as possible touring Asia...
In my past two columns (here and here), I've been writing about how I taught myself something about economics. I learned that textbooks aren't much use in understanding day-to-day economics.
But I also found three books that helped me learn that economics isn't really hard to understand. I just had to use my common sense and keep my eyes open about how people behave in their economic pursuits. (I wrote about those books here, here, and here.)
But a couple of things in economics still puzzle me. In this column, I'll talk about one puzzle that keeps people from thinking straight about specialization in the workplace, trade barriers, and the international balance of trade.
It was something that the English economist David Ricardo discovered...
A prominent scientist in the "hard sciences" once told the famous economist John Maynard Keynes that economics wasn't really a science. The scientist challenged Keynes: "Name me one economic rule that isn't either obvious or unimportant."
Keynes said, "Ricardo's law of comparative advantage."
The law of comparative advantage postulates this: Imagine you can do X better than you can do Z, and a second person can do Z better than he can do X. Even if he can do both X and Z better than you can, an economy should not encourage that second person to do both things. You and he (and society as a whole) will profit more if you each do what you do best.
It's one of the most optimistic statements I've ever heard in economics. The way to create economic progress is to encourage everybody to do what he or she does best.
It's the same thing that we tell our children about the secret to success: "Pick something you're good at, work hard, do it as well as you can, and you'll succeed."
But is this really true? What if I'm sort of lousy at X, but really stink at Z? And what if my buddy is a world champion X-er and brilliant at Z-ing? What if my grilled burgers are awful, but my hot dogs are charred Lincoln Logs? Shouldn't I let my barbecue-whiz buddy cook the whole meal?
Well, yes. But that's just dinner at my house, not a whole economy. Let's choose a different example.
Let us, as a for-instance, decide that one bestselling legal thriller is equal to one top-of-the-charts pop song in terms of benefits to society (or "BS"). One thriller/song equals one unit of BS.
I think we can postulate that John Grisham is a better novelist than Kanye West. And assuming he plays the comb and wax paper or something, Grisham is also a better musician than Kanye, at least as far as I'm concerned.
Let's say Grisham is 100 times the writer that Kanye is, and let's say he's 10 times the musician. Then let's say that Grisham can either write 100 legal thrillers in a year (I'll bet he can) or compose 50 songs. This would mean that Kanye could write either one thriller or compose five songs in the same period.
If Grisham spends 50% of his time scribbling predictable plots and 50% of his time blowing into a kazoo, the result will be 50 thrillers and 25 songs for a total of 75 BS units.
If Kanye spends 50% of his time pestering Microsoft Word and 50% of his time making noise in a recording studio, the result will be one half-completed thriller and 2.5 songs, for a total of three BS units.
Putting Grisham splitting his time together with Kanye splitting his, the grand total benefit to society will be 78 BS units.
But if Grisham spends 100% of his time inventing dumb adventures for two-dimensional characters and Kanye spends 100% of his time making bad rhymes to the beat of what sounds like a backfiring bus, the result will be 100 thrillers and five songs for a total of 105 BS units.
Just to make things more of a puzzle, note that Kanye loses 40% of his productivity by having two careers, while Grisham loses only 25% of his productivity.
Therefore, Kanye has the "comparative advantage" in making music because his "opportunity costs" (the costs of his lost time and effort) will be higher if he doesn't stick to doing what he does best.
David Ricardo applied the law of comparative advantage to questions of foreign trade. The Chinese manufacture better iPods than we do (since we don't manufacture any). And the Chinese may be able to make better pop music. (I wouldn't know.) But both countries profit when we buy our iPods from China and let Kanye tour Asia. (And if he stays there, America has a definite advantage.)
Comparative advantage is a rare example of the counterintuitive in economics. It's also unusual because it requires a little arithmetic to understand.
We think of economics as strangled in math because of the formulas and graphs filling most economics textbooks. But you can (and I did) search the entire founding volume of economics – Adam Smith's An Inquiry Into the Nature and Causes of the Wealth of Nations – without encountering a mathematical formula.
Alfred Marshall, a direct heir to the thinking of Adam Smith and the pre-eminent economist of the late 19th and early 20th centuries (and a mathematician), put it this way...
- Use mathematics as a shorthand language, rather than as an engine of inquiry.
- Keep to the mathematics until you have done.
- Translate into English.
- Then illustrate by examples that are important in real life.
- Burn the math.
Regards,
P.J. O'Rourke