Adam Smith vs. ERE

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ThisDinosaur
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Adam Smith vs. ERE

Post by ThisDinosaur » Thu Sep 20, 2018 9:53 am

Adam Smith wrote:It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. ...

What is prudence in the conduct of every private family can scarce be fully in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.
The law of comparative advantage tells us shoemakers shouldn't make clothes, taylors shouldn't make shoes, and farmers shouldn't make either. But ERE's Renaissance ideal argues that we should be competent in all of those jobs so we can be antifragile.

The time and effort we spend learning multiple new self-reliance skills makes us less productive than if we just focused on one of them.

How do you balance the economic advantages of specialization against the fragility of interdependence?

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Re: Adam Smith vs. ERE

Post by jennypenny » Thu Sep 20, 2018 10:12 am

My goal is to only outsource things that I could live without if the source fell through. I'm not there yet, but that's the goal.

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Re: Adam Smith vs. ERE

Post by jacob » Thu Sep 20, 2018 10:26 am

The point is not to be antifragile. (Although that's nice too.)

The point is to recover inefficiencies by creating a systems design. Knowing many different things is crucial to being able to create such a design. One can not design without understanding the components of the design.

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Re: Adam Smith vs. ERE

Post by Tyler9000 » Thu Sep 20, 2018 10:29 am

There's a concept in the design industry where the most desirable designers are "T-shaped". It means that they have a deep level of expertise in one area with a broad level of competence in many areas. In contrast to the typical pure specialist mindset in large organizations, that allows them to simultaneously be a subject matter expert in something while also maintaining enough broad skills to succeed on many different types of projects.

Personally I think the same thing applies to ERE. It's not about being an expert shoemaker and tailor and farmer all at the same time, but really about being deep enough in one of those to make a living while being broad enough in each to not waste money paying for an entry-level service that shouldn't really require another specialist anyway.

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Re: Adam Smith vs. ERE

Post by ThisDinosaur » Thu Sep 20, 2018 11:22 am

So how do you decide when you're "competent enough" in something before redirecting your efforts? My guess would be using Pareto; just learn the top 20% "big ideas" of the topic. But sometimes this doesnt seem adequate.

For example, the prepper thread. How useful is it to be 20% prepared to Bug In vs Bug Out, vs Emigrate vs. Stockpile vs. Permaculture vs. Be the only guy in your neighborhood who can make Kerosene?

Wrt Systems design, I confess I haven't found "systems thinking" very useful. Everything I've read about it so far is either too abstract or too obvious to be useful. Obnoxious corporate speak, basically.

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Re: Adam Smith vs. ERE

Post by jacob » Thu Sep 20, 2018 11:50 am

Analects 15.3 wrote: The Master said, "Si! Do you take me for one who studies a great deal and remembers it?"
Zigong replied, "Yes. Is it not so?"
"It is not. I link all on a single thread."
There's no point in learning a bunch of different things if one can not combine them. If insights from one study(*) do not translate into another, then one will never be able to compete with Smith-like specialization. In Adam Smith's world, everything is linked together by trading things for money and money for things. It is extremely one dimensional (the only information channel is the dollar price) and this limits the solution space. The idea is that "the invisible hand" of the market then organizes all these specialists.

(*) Any kind of capital, whether skills, supplies, relations, ...

In the ERE [brain], there is some overall organization linking different things together in ways that are not clear insofar everything is compartmentalized or one remains ignorant of everything except one's own specialization. Consider how general ignorance of nutrition has resulted in the top three killers of humans all being related to lifestyle diseases. Why does this happen when we have well-trained specialists who can tell people what to eat and how to move for the cost of a few co-pays? Because those who are not specialists have no idea how to use/apply what they're being told.

There's a very big difference between information, knowledge, and wisdom. Adam Smith (and techno-optimists ala google) supposes that all we need is information---that more information is better than less information. ERE supposes that what we really need is wisdom built on knowledge: a superstructure to arrange this information.

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Re: Adam Smith vs. ERE

Post by Tyler9000 » Thu Sep 20, 2018 12:45 pm

ThisDinosaur wrote:
Thu Sep 20, 2018 11:22 am
Wrt Systems design, I confess I haven't found "systems thinking" very useful. Everything I've read about it so far is either too abstract or too obvious to be useful. Obnoxious corporate speak, basically.
Systems thinking is very real but I admit that explaining the concept to someone who does not already think that way is very difficult. Nonlinear thought processes combining seemingly unrelated data points into new ways of solving a problem don't lend themselves to easy algorithms. IMO you sorta have to be wired that way and not everybody is.

I do agree that the term has been reduced to hollow corporate jargon in a lot of business schools. They really love their buzzwords. Try reading a book on systems engineering for a more practical perspective, and think about how you might apply that mindset to different types of non-engineering problems.

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Re: Adam Smith vs. ERE

Post by Kriegsspiel » Thu Sep 20, 2018 3:15 pm

Tyler9000 wrote:
Thu Sep 20, 2018 10:29 am
There's a concept in the design industry where the most desirable designers are "T-shaped". It means that they have a deep level of expertise in one area with a broad level of competence in many areas.
Middle finger-shaped, maybe.

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Re: Adam Smith vs. ERE

Post by Kriegsspiel » Thu Sep 20, 2018 3:18 pm

To answer Dinosaur... if you enjoy it or get some kind of satisfaction, why care if it's uneconomic? On the other side, if you don't like your job, it doesn't make (common)sense to do more of it in order to pay for stuff that you would rather do yourself.

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Re: Adam Smith vs. ERE

Post by Riggerjack » Thu Sep 20, 2018 3:41 pm

Adam Smith was concerned by Mercantilism. This shouldn't be an issue today. His classic model of a pin factory is the basis of today's hyperspecialization.

However, it only takes a few years to a decade to max out specialization. After that, the law of diminishing returns kicks in. One can put infinite effort into expansion of expertise (doing research at the edge of knowledge) for minimal knowledge gains. This has its own rewards. Or one can put effort into a broad knowledge to couple with deep specialized knowledge (the T shape described above). Or one can just go for wide and shallow knowledge.

I agree with Jacob that establishing that deep knowledge is vital to establishing patterns. In that there is a huge mental capacity difference in the people who have achieved expertise in a field, and those that haven't. But there is an equal difference between those who continue to develop expertise, and those who generalize after achieving expertise.

In a scale of personal growth, I would say that shallow knowledge is less than expertise, which is less than extreme expertise, which is less than expertise plus wide general (shallow) knowledge.

From an economic viewpoint, if one can make a higher income than one pays for services, one should maximize this. Following this logic leads to "Boomer results". Those who earn more, work longer, and get more products and services than those who earn less. There are some here who use just this model, higher earning, coupled to higher spending, as they use their time to maximize earnings, and simply save far more than their peers. Adam Smith and I both think this is a fine strategy.

Where Adam Smith and I diverge is that I am considering my personal development as my primary motivator, rather than my net worth, consumption, or productivity.

So for me, learning to drop a tree, and hew it to a beam, saves me $75 (cost of beam, retail) and costs a tree. Economically, this is a loss. The tree is worth more than the beam, and my time must have some value. This is just crazy expensive.

But from this I also get learning, exercise, and a tree out of the way, all of value to me greater than the value of buying a beam, and growing the tree. Or buying the beam, and paying someone to fell the tree, and haul it to the mill, to make the beam, and paying me the value of the log minus felling, processing, and transport both ways.

On a lesser scale, learning to sew a patch can save me buying a new pair of jeans. $13 from Costco, minus cost of patch and thread plus my labor, again, I lose out. And these days I can get them delivered, so I don't even have to factor in a trip to Costco.

But knowing how to both sew and hew, I feel better about me. I get the wider array of topics I can talk about with the confidence of experience, boosting my confidence in social situations. I get a richer variety of crazy disaster stories that can keep people laughing. I get a richer life.

But this richer life comes at the cost of not being able to afford to take 2 cruises a year while working, and a gardener in retirement. It comes at economic cost.

I can pay that price.

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Re: Adam Smith vs. ERE

Post by daylen » Thu Sep 20, 2018 4:35 pm

Reminds me of the difference between true random and human-simulated random. Humans tend to disperse things in a uniform distribution when "randomizing".

So, I think that a true generalist would have many different degrees of specialization, because then their experience could help them estimate the marginal utility of a particular form of specialization after some time doing it. It also helps with meta-learning or learning to learn; after learning a bunch of different things to different degrees, the underlying mechanisms start to become more discernible.

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Re: Adam Smith vs. ERE

Post by jennypenny » Thu Sep 20, 2018 4:55 pm

Huh, I kinda disagree with the systems thinking thrust of the thread. I'm on board with the web concept. I think it's the focus on specialization and particularly productivity that's bugging me. Why is productivity the best measure of our time? Shouldn't we judge by whether our skills provide for our own needs and not by how our skills measure up against others?

I'm a terrible gardener, especially considering all the years I've spent gardening. Still, I grow enough to live on a few months of the year. I'm a decent cook, can sew basic clothes, have a good knowledge of first aid, can manage our money, can do basic household repairs ... why is it necessary to specialize in any of these or outsource them just because someone else can do them better or faster? The only thing I've specialized in is the skill I can monetize where specialization earns me a higher wage.

I'm working on our bathrooms so I'm learning a little plumbing and carpentry. I probably won't use those skills again so they don't fall into any system of mine and my work won't be nearly as good as a professional's ... so should I not DIY and hire out? I feel like part of the appeal of ERE is having the time to putter through such things.

Maybe I'm misunderstanding the systems point of the thread?

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Re: Adam Smith vs. ERE

Post by prognastat » Thu Sep 20, 2018 5:41 pm

I think certain self sufficiency skills are useful to have even if you could pay someone else to do them due to the flexibility they grant you.

For example if you make a lot of money it might at first glance seem worthwhile to farm out some work such as cooking(delivery), cleaning, yard work etc. However if you lose your job and are unable to replace it with a similarly financially beneficial job the skills you built up doing those other things yourself means your better equipped to lower/keep low your expenses. Also depending on the job you have there might not be a great opportunity for additional hours making those other skills more worthwhile as they can be done in the additional time you posses.

It's just a matter of how far you want to go in focusing on these skills. I would say start with what you would do the most(such as cooking which would be daily) as opposed to repairing your broken appliances(something you would hopefully only have to do once every few years).

Also some things people believe save time either don't or don't near as much as one would think(such as getting take out/drive through/eating out which often takes as long or longer than cooking something yourself if you've made the cooking process efficient)

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Re: Adam Smith vs. ERE

Post by ThisDinosaur » Fri Sep 21, 2018 6:32 am

jennypenny wrote:
Thu Sep 20, 2018 4:55 pm
Huh, I kinda disagree with the systems thinking thrust of the thread. I'm on board with the web concept.
...
I'm a terrible gardener, especially considering all the years I've spent gardening. Still, I grow enough to live on a few months of the year.
...
Maybe I'm misunderstanding the systems point of the thread?
Perfect example. Should you have a backyard garden? Almost any job would pay you more per hour of work than you'd save in grocery money by gardening. But what if you dislike work as much as you dislike gardening?

Option 1, suck it up and keep working.
Option 2, FIRE=save 25-33× annual vegetable costs and invest in financial markets.
Option 3, suck it up and garden.

Option 3 is the least economical but option 3 is the most robust to economic collapse. Option 3 also circumvents frictional costs like tax of your labor, tax on the farmers labor, and the farmers profit. It also results in knowledge and skill acquisition that may be useful in unpredictable ways later.

It's been well established that FIRE is not the same as ERE. Option 3 is ERE/Web Of Goals/System design because it solves multiple problems with a single solution.

But when compared to Option 1, Option 3 is just a worse paying job. At the moment I'm doing all 3 options, I'm just trying to figure out what the balance of efforts should be.

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Re: Adam Smith vs. ERE

Post by jacob » Fri Sep 21, 2018 6:53 am

Garden:
It reduces going to the supermarket (might reduce need for car).
It forces you to eat more vegetables than you might otherwise do.
It forces you to eat less processed food.
It provides a light form of exercise.
It creates produce which can be given to neighbors // you can talk about how the tomatoes are doing over the fence.
It reduces the amount of lawn you have to take care of.

Health:
It's good if you eat more vegetables and less processed food.
If you're otherwise sedentary even moving for 10 minutes each day helps.

Cooking:
You have better ingredients.
You generate compost.

Planet:
Driving and car ownership in general is bad.
Supermarkets are centralized food systems that are more subject to interruptions.

With everything you do, you can never do just one thing. This is so important to systems thinking that I framed it in the book. You build a system out of these things you do be connecting them. A good system has mostly homeotelic goals (also explained in the book). If those homeotelic goals support each other, we have what I called a web-of-goals which is essentially a system of systems with practically no friction.

Conversely, if living is simply seen as a collection of activities rather than a system of activities, then there's no deliberate elimination of friction. That is perhaps why you're going all Adam Smith on this... friction is only a problem when things are considered in isolation. When things are seen as a system, what is friction in one part is perhaps positive work in another: e.g. having to dig is friction in terms of gardening, but digging a work-out in terms of health. This way friction is eliminated IN.A.SYSTEM where the whole is greater than the sum of the parts.

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Re: Adam Smith vs. ERE

Post by Farm_or » Fri Sep 21, 2018 6:56 am

Some very good points to ponder here. Being a one man show on a productive farm allows me to relate some practical points.

Times have changed. The availability and price of labor can influence outsourcing vs insourcing. I personally don't have much choice but to do it myself. There are some things that I do better than I can hire and some things I would benefit to pay somebody else to do.

Continuous learning and improvement has broadened those things that I am better at than the general hired help. Conversely, the list of those things that I am inefficient at has shrunk. The key is leveraging those strengths for competitive advantage while balancing your shortcomings.

The "crossover" thinking and applying ideas from seemingly unrelated subject matter to "old" problems is something that I benefit from. Some principles of ere applied to Ag business for example.

Years ago, I attended a seminar when the speaker asked, "Decades from now, you may be competing with Chinese farmers. Will you be able?" My response to myself was - yes. So long as it's mostly northern, but I think we'd have some greater difficulty competing with the southern Chinese farmers? Maybe there's something to learn from them?

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Re: Adam Smith vs. ERE

Post by ThisDinosaur » Fri Sep 21, 2018 7:32 am

What is the virtue of the systems approach if not to optimize the relationship between your efforts and your goals? I dont think digging a garden is better exercise than walking to and from a grocery store ("farmers walk" with grocery bags.) And I would argue that the variety of vegetables you could purchase from the store is healthier and more enjoyable than the limited variety available to a backyard permaculture gardener.

Trade between specialists *is* a system and it's a very extremely efficient one in terms of productivity , outputs per inputs. People like Farm_or are so damned efficient at making food for the rest of us that Jacob can spend years learning about how the Carbon in his vegetables were formed in a supernova. This is a good thing in my opinion, and it doesnt make sense to say that we should all be closed loop subsistence farmers when that's clearly a worse system than the specialist system is.

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Re: Adam Smith vs. ERE

Post by jacob » Fri Sep 21, 2018 7:48 am

Trading/specialization is a system and it is efficient in terms of production.

However, it's highly inefficient in terms of consumption which is another system.

The difference between producing and consuming results in investments which is a third system.

It is the combination of those three that results in FIRE. ERE does this more effectively than any other system (that I know of) because it integrates all three systems. http://earlyretirementextreme.com/myfor ... Levels.jpg ... note that the typical household spending here describes the same standard of living but at very different costs due to the increasingly systems-oriented focus.

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Re: Adam Smith vs. ERE

Post by 7Wannabe5 » Fri Sep 21, 2018 7:56 am

The authors of "Discards Your Way to Wealth" make the point that every business (and each individual producer/consumer, or each social grouping) creates a differential of opportunity where price and value irrationally vary based on definition of function or purpose. Therefore, the more specialized, or tightly defined, a business or individual becomes, the greater this boundary differential becomes.

So, for instance, in our highly affluent, highly specialized society, if you need something like a coffee mug, you should also consider "retrieve from nearest dumpster" vs. "make from scratch" vs. "buy at Pottery Barn" in order to determine most efficient means of acquisition. The reason the mug ended up in a dumpster is generally going to be something like an individual had to quickly transition location in order to improve production of financial resources efficiency from $15/hr to $22/hr at the margin.

Observation not judgment.

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Re: Adam Smith vs. ERE

Post by ThisDinosaur » Fri Sep 21, 2018 7:59 am

So the Chop Wood Carry Water individual spends $6K per year with the same standard of living as the other levels. I submit that this $ number is misleading because it obscures the cost in labor CWCW guy does on his biointensive, humanure-cycling, permaculture plot. If this guy doesnt enjoy that lifestyle, his cost in labor/effort/unwanted "work" is actually higher than the highly paid IT professional couch potato who gets all his vegetables delivered via Uber Eats.

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