Working In ReverseSubmitted by Steve Lynch Wealth Management on May 14th, 2018
We live in a society that values intelligence. For the most part, this is a great thing. However, we have placed an extreme amount of emphasis on being well-rounded. This is a good thing, right? Being able to do a little bit of everything? Maybe so, but economics shows that it may also lead people down the road to poverty. Imagine if people thought they are educated in everything. As a result, they end up doing everything themselves. Imagine waking up every day and having to create everything you will use in the first hour after waking up. First, you have your sheets and blankets. How many people can create 1500 thread count Egyptian cotton sheets? Assuming you can make sheets, would yours be as comfortable as store-bought sheets? I would say that answer would be a resounding NO. Where would you source the cotton from and how do you prepare it for weaving? Then there is the topic of the mattress you slept on and the bed frame it lays on. The list can go on and on including your toothbrush, toothpaste with whitening technology, making sure you have water for showering, etc. Now, if you were able to do all these things would you be better off? Probably not! There are many economic theories. The above example is a lesson on the power of specialization and comparative advantage which was a combined effort of classic economists Adam Smith and David Ricardo. It points out that although you may do something well, it does not necessarily mean that you should do it yourself. Using trade, we are able to specialize in one thing and use other people’s specialties to meet our needs. This has allowed humanity to evolve into present day. Not to mention participate in things we actually enjoy. In today’s world, self-sufficiency is something that is valued and deemed to be a quality possessed by only the most educated in America. Unfortunately, that is down-right stupid. Worse, this is not at all how America has become the great nation it is today. If you look at what schools are teaching kids, you will see that they are being taught to be well-rounded. Think about this, if an individual was to go to college and get every possible degree and managed to get straight A’s. WOOHOO! This person would be extremely educated and yet, would still only know 1/100th of one percent of the knowledge out there. What is the point of all this? Well, we want to demonstrate the difference between intelligence and sophistication. It does not matter how much you know. Every human must still deal with humanity’s scarcest resource, time. Would it be efficient for you to make the tires your car you use to get to work? Or would it be better to let any number of companies who specialize in tires make them for you? Think about the time it takes to make the tires. Would you be better off spending your time making a tire or doing your job? A person who thinks they are intelligent may try and do all these things for themselves. However, a sophisticated person will utilize the knowledge and specialties of others to their advantage. A CEO of a company may be a wonderful driver and may thoroughly enjoy it. However, he will take helicopters and planes as much as possible even though it may be more expensive because driving simply takes time away from running their company. Sophistication is the only way to get ahead in today’s society. It does not matter how educated you are or what you do. There is something to be learned or gained from everyone. When we specialize, we are all better off. Make sure you use experts to help you handle all facets of life. Do not assume that you have the expertise or time to do what someone else specializes in. In short, be sophisticated and do what you do best and hire for everything else.