The Non-Mutual Inclusiveness of Economic Knowledge and Business Savvy

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I want to learn how to work remotely (ideally as an entrepreneur, but not required at this point. Any recommended resources in learning how to do that would be much appreciated). In pursuit of this goal, I have been reading a book by Tiomthy Ferriss called The 4-Hour Workweek.

My goal today is to describe a letter that was written to Mr. Ferriss and published in the updated version of the book. This letter was written by a physician who successfully established himself with a business he could work on remotely and travel as he pleased. However, I was disappointed that such a learned person could so woefully understand economic logic. Observe:

I had traveled extensively throughout the United States and some parts of Europe, but I had never experienced South American culture…During my trip, I spent a lot of time speaking to expatriates about how they used their retirement funds and pensions to live the lives of kings there. One thing was evident: Most of the expatriates who attempted to “set up a business” to help fund their lifestyle had failed miserably. I hypothesized that there just wasn’t enough currency (pesos) in the markeplace to really sustain a “gringo”-oriented business. [Emphasis added]

It is too bad the good doctor’s hypothesis fails miserably as well. Wouldn’t it be great if businesses actually became viable if the amount of paper money in circulation was simply increased? Stones really would then be turned to bread. But to ask the question whether wealth is increased by the increase in the amount of money, I think, is to answer it. Just ask the people of Zimbabwe, all of whom nearly became trillionaires overnight.

The doctor is mistaking currency for wealth. South Americans can’t afford to live like gringos if they don’t produce like gringos (or are consistently made poorer by their governments through the theft of taxation and inflation). Sadly, the doctor’s misunderstanding is not due to semantics; his hypothesis had to do with the number of pesos, not their purchasing power.

No doubt this doctor is an intelligent man; thus it is baffling to me that he would form such a hypothesis when simply thinking it through would reveal its flaws.

What is also troubling is that people will often make the mistake of thinking someone who is a successful investor or businessman automatically has good ideas for economic policies. Remember when Warren Buffett had the idea that the US government should force trade to be balanced with every other country? Think about what this would mean at an individual level. An employee will typically have a trade (or current account) surplus with his or her employer: he or she sells labor for money. As well, that employee will typically have a trade deficit with everyone else. But, in sum, his or her trade will be balanced. To keep the analogy going, what Buffett’s proposal would mean at an individual level is that the individual would buy an amount of goods from her employer equal to her salary and either sell labor or goods to her grocer equal to the value of the food she buys. This is what balancing trade with every trade partner would look like. It shouldn’t take too much imagination to see why this would be a dumb policy.

So, anyway, let us strive to be both successful at adding value and being knowledgeable about economics. They are not always the same thing.

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