Does self-sufficiency lead to poverty?

johndcook.com - Self-sufficiency is the road to poverty

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In his podcast Roberts on Smith, Ricardo, and Trade, Russ Roberts states that self-sufficiency is the road to poverty. Roberts elaborates on the economic theories of Adam Smith and David Ricardo to explain how specialization and trade create wealth and how radical self-sufficiency leads to poverty. Suppose you decide to grow your own food. Are you going to buy your gardening tools from Ace Hardware? If you really want to be self-reliant, you should make your own tools. Are you going to take your chances with what water happens to fall on your property, or are you going to rely on municipal water? Are you going to forgo fertilizer or rely on someone else to sell it to you? Carried to extremes, self-reliance ends in a Robinson Crusoe-like existence. People in poor countries are often poor because they are self-reliant in the sense that they must do many things for themselves. They do not have the opportunities for specialization and trade that are available to those who live in more prosperous countries. Some degree of self-reliance makes economic sense. Transaction costs, for example, make it impractical to outsource small tasks. It also makes sense to do some things that are not economically feasible. For example, an orthodontist may choose to make some of her own clothing or keep a garden for the pleasure of doing so, not because these activities are worth her time. In general, however, specialization and large trading communities are the road to prosperity. Without a large economic community, no one can become an orthodontist (or an accountant, barrista, electrician, …) Why do we so often value self-sufficiency more than specialization and trade? Here are a three reasons that come to mind. In America, self-sufficiency is deeply rooted in our culture. We admire the pioneer spirit, and this leads to seeing as virtues actions that were once a necessity. Self-sufficient people are generally well liked, especially if they’re not too prosperous. Conversely, those who create wealth by leveraging the labor of others are often treated with suspicion and jealously. Our school system encourages “well-roundedness” rather than excellence. The way to succeed is to be moderately good at everything, even if you’re not outstanding at anything. (More on this idea here.) Update: After writing this post, I read Russ Robert’s book The Choice: A Fable of Free Trade and Protectionism. I discovered one of the later chapters is entitled “Self-Sufficiency Is the Road to Poverty.” Excellent book.