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Free trade and the cost of doing what you love

By Robert Skidelsky

Likewise, the economists Betsey Stevenson and Justin Wolfers, pioneers of “lovenomics,” cite the tax code as a reason for not marrying. They also conducted a cost/benefit analysis before having a child.

As Wolfers explains: “The principle of comparative advantage tells us that gains from trade are largest when your trading partner has skills and endowments that are quite different from yours. I’m an impractical bookish Harvard-trained empirical labor economist, while Betsey is an impractical and bookish Harvard-trained empirical labor economist. When your skills are so similar, the gains from trade aren’t so large. Except when it comes to bringing up our baby. There, Betsey has a pair of, um, endowments that mean that she’s better at inputs. And that means that I’m left to deal with outputs.”

As Stevenson helpfully clarifies: “It turns out that fathers can be pretty good at dealing with diapers.”

At this point, those untutored in economics are likely to start gnashing their teeth.

“I enjoy doing lots of things that do not maximize my earning power,” they might protest.

However, as soon as we accept the premise that to be rational is to seek to maximize one’s utility — defined in terms of consumption, with money the way to maximize it — the economist’s logic wins.

At that point, we must admit that it is irrational to spend time on long conversations with friends if it is time stolen from inventing, say, new software (unless the conversation helps the invention).

For Wolfers, it is a coincidence that what earns him the most money, economics, is also what he most enjoys doing.

Such reasoning crystallizes opposing views of the world, one in which time is a cost and the other in which it is a benefit. The first sees time spent on enjoyment as a missed opportunity; the second as part of the good life. We should be clear about what is at stake in the choice between the two.

Robert Skidelsky, a member of the British House of Lords, is professor emeritus of political economy at Warwick University.

Copyright: Project Syndicate

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