How does trade make people better off?
Being a jack-of-all-trades sounds like a good thing, doesn’t it? It seems as if having a wide range of knowledge and skills, as well as the ability to perform many kinds of tasks, would lead to a more productive life. Yet it is not necessarily so. It might be true if you ’lived alone on a desert island. But for the rest of us, being able to do everything for ourselves might not be an advantage.
To illustrate this fact, economists Robert Frank and Ben Bernanke give us the example of Birkhaman, a man from a poor village in rural Bhutan, a south Asian country that lies north of India and east of Nepal. Birkhaman worked as a cook for a Peace Corps worker stationed in Nepal. Not only was Birkhaman an excellent cook, he could also do many other things. He could butcher a goat, make furniture, thatch a roof, and build a house. He could also sew clothing, fix appliances, craft objects from tin, and even prepare home remedies. In short, Birkhaman was a jack-of-all-trades who had a much wider range of skills and abilities than most Americans.
Frank and Bernanke pointed out that although Birkhaman was very talented, he was by no means unique in Nepal. Many Nepalese can perform a variety of tasks that we, as Americans, would hire others to do. What accounts for this difference?
It might seem that the Nepalese do more things for themselves because Nepal is a poor country where many people cannot afford to pay others for their services. But the economists offered another explanation. They argued that poverty is the result — and not the cause — of the jack-of-all-trades phenomenon in Nepal. “The Nepalese do not perform their own services because they are poor.” Frank and Bernanke wrote. “Rather. they are poor largely because they perform their own services.”
Instead of doing almost everything themselves. Frank and Bernanke argued. poor Nepalese would be better off specializing in the production of particular goods and services. They could then trade among themselves to obtain any goods and services they do not produce. The result. as the trade-makes people-better-off principle tells us. would be more wealth and a better standard of living.
It may be nice to know how to do many things. but that does not mean it is in your economic interest to do them. In this chapter, we will examine how specialization and trade can make people better off than they would otherwise be.