Wednesday, March 18, 2009

Porters Reap the Gains from Specialization

The high school basketball team from Greenport, N.Y., is headed to the final four of the New York state championship this weekend. Their journey illustrates a key ingredient in American economic growth over the years, and how bad public policy could spoil the recipe.

Greenport is a small town near the end of Long Island’s North Fork, about 100 miles from New York City. Its small high school serves the town and neighboring villages, graduating about 50 men and women each year.

Athletes at such a small school rarely specialize. For those schools to field even a small variety of teams – basketball, football, baseball, etc. – many athletes may play multiple sports. But in high school, as in life, those who do not specialize in one task are unlikely to be as productive as those who do, even while those who undertake multiple tasks may find the variety in their work to be more enjoyable.

The advantages and disadvantages of specialization in the adult world are readily seen in the medical field. Research has shown, and pay scales confirm, that highly specialized medical doctors are more productive – make better diagnoses and fewer mistakes – than do general internists and general practitioners.

Yet every year many talented new medical school graduates choose to become general internists and general practitioners – and thereby receive less pay than that available from specialties – because they enjoy the variety of patients and situations to, say, performing the same surgery over and over again. And some of them may want to live in small towns like Greenport, N.Y., that do not have enough people to keep a specialist busy.

Some people think that members of the adult work force seek to maximize their incomes, and on this basis conclude that income taxes do not affect worker behavior. After all, they claim, maximizing all of your income is the same as maximizing half of your income, so what decision-making difference does it make whether the government takes half?

Taxes and regulation do make a difference in these kinds of choices, because workers do not simply maximize their income. Like the medical school graduates and Greenport High School athletes, people everywhere consider giving up some income and productivity in order to live a fuller life in some other way. They choose the more specialized career path when the extra income or production more than offsets the amenities of being less specialized.

Income taxes take no part of the joy from having a variety of work tasks, living in a small town, and many of the other amenities that come from the less specialized career path. Income taxes do take part of workers’ incomes, and therefore part of the reward of the more specialized career path. The higher the income tax rate, the more likely people are to look at the less specialized option.

The Greenport High School Porters consider the costs and benefits of specialization, too. One thing that makes this year’s team successful is that members have been focused on basketball. Although basketball is formally a winter sport, many of the Porters forgo other pastimes all year round. Among other things, many of the Porters take part in off-season basketball leagues, even in the summer, when Greenport offers great fishing, boating, etc.

The result for Greenport High School has been victories over schools many times its size, and maybe a state championship this weekend. In Greenport, as in the rest of the economy, productivity and success are made from effort and specialization.

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