Trade Matters

If there’s one thing you should know about me, it is this: I love food.

Most of us do, I suppose, although I know people who are very much in – and very happy to be in – Team Eat to Live. But based entirely on a magnificently unscientific sampling exercise carried out by yours truly, I feel reasonably safe in saying that more than half of the people I’ve met love food.

But ah, not as much as I do. Me, I dream about food. I plan my day around food. I look up recipes on YouTube, read books about cooking food, read books about the history of food, watch food shows, and some of my best friends in Pune happen to be chefs at restaurants. Food is what makes life wonderful. Fact.

This is an obvious corollary, but I also like to cook. I should be honest and tell you that I am nowhere near as good a cook as I would like to be, but I get a little better every year. Some recipes are now definitely a part of my repertoire, and through a series of hits and misses (of which the latter are far superior in number to the former), I keep adding to to it every year.

But even so, we have a cook who comes home to cook our meals for us. Sure, sometimes my wife or I will take over the kitchen, but on a daily basis it is the cook who bakes for us our daily bread.

Which begs an obvious question.

Why?

Why, that is, do we have a cook coming at home to make our food for us when I like cooking and eating so much?

And my answer to this question is what toda’y blogpost is about.

The reason we have a cook at home is because paying the cook her salary is what makes us rich.

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What allows me to type out this post instead of chopping up vegetables for dinner tonight? What allows me to read abstruse papers in economics to prepare for a class that I will teach today, instead of parboiling some rice? What allows me to curl up with a book on public policy, instead of kneading the dough to roll out some chapatis?

Time, of course. I earn time by paying the cook her wages. Because it is the cook who is doing all of these things, I have time on my hands.

What do I do with my time? Well, I write blog posts, I read abstruse papers, and I curl up with books. This allows me to get a little bit better at economics every passing year. Getting a little better at economics every passing year opens up new avenues to teach with every passing year. This teaching earns me enough money to live a comfortable life – and this comfortable life includes paying the cook her wages.

That is what I mean when I say that paying the cook her salary is what makes me rich.

Who loses out in the little “game” that our family plays with the cook? The game, in this context, is simply a way to refer to the fact that we pay the cook her monthly wages in return for the cook cooking our meals for us. Is my family worse off for having done so? I would argue no, for reasons I spoke about above.

Is the cook worse off for finding employment at our place (and at other homes in the neighborhood)? I have not asked her this question, but I feel reasonably safe in saying that she is not worse off. If anything, I would guess that she is better off because she has this job.

And so money exchanges hands for services rendered, but neither party walks away thinking that they got the short end of the metaphorical straw. We say thank you to the cook when we pay her her wages. And the cook says thank you to us when we pay her her wages.

Steven Horwitz speaks about going into a store to buy a turkey:

That turkey is not a gift, as the grocer gets my $9 per pound in return. It is instead a mutually beneficial exchange. We are genuinely thanking each other for having made us each better off. I am happier with the turkey than the $9 and the grocery store prefers the $9 to the pound of turkey. When we thank each other, we genuinely mean it. We are both grateful for the exchange.

https://fee.org/articles/the-double-thank-you-of-the-market/

Substitute the $9 per pound with the monthly wages of our cook, and substitute the turkey for the services rendered to us by the cook, and you will see that we’re both telling you the same story. Both sides of the transaction – in both cases – are benefitting from having been a part of the transaction, and therefore both are saying “thank you”.

(Fun question for you to think about: if you think Amazon is evil, does that make you evil too? This is assuming that you have transacted at least once on the Amazon platform, but then again, you almost certainly have, in one way or the other)

This is what economists mean when they say that trade is a non-zero sum game. Trade leaves both parties better off. Both parties in this “game” win. No one loses.

And this is a surprisingly counter-intuitive idea. Sports teaches us that for one side to win, the other has to lose. Sure, draws are possible in sports, but read the sentence again. For one side to win, the other has to lose. In trade, that is not necessarily the case. Both parties can (and often do) win.

Trade is a non-zero sum game, and the more you play this game, the richer you get.

And as I’ve said often enough on this blog, it is my deely held conviction that life is also a non-zero sum game – but that’s a story for another day.

For the moment, this lesson is more than enough for this blogpost:

Trade is a non-zero sum game