Comparative advantage is sort of like round-earth geography. The first time you consider it, you might look around — hey, looks flat here — and dismiss it as absurd. But the more you look for evidence to support or disprove it, the more supporting evidence you find, and sooner or later you find it impossible to reject. I mention this because I’ve just come up with a hypothesis of econoblogging, which has comparative advantage solidly at its root:
Any fundamental economic topic about which I consider blogging will, sooner or later, be written up far more convincingly by Nick Rowe.
The evidence in favour of this proposition continues to mount with this superb piece of rhetoric and analysis:
- Inequality and debt: the soft bigotry of low expectations (Worthwhile Canadian Initiative)
“The poor don’t have enough income to save, and can’t help going into debt to the rich. Debt is caused by inequality”.
That statement is wrong on many levels. It’s wrong theoretically. It’s wrong empirically. But most of all, it’s wrong because it might make inequality worse. It’s the soft bigotry of low expectations. Providence is especially important to the poor. Saying that the poor can’t help but be improvident is the last thing they need to hear.
After laying substantial groundwork, he comes to this:
Sure, the poor really need to consume today. But they really need to consume tomorrow too. So their need to save is as strong as the rich.
1. Inequality in permanent income will not affect the level of debt.
2. Inequality of transitory income will affect the level of debt. Those having temporarily low income today will borrow from those with temporarily high income today. And will repay the loans in future when the transitory shock reverses. (And it must reverse, because it wouldn’t be transitory if it didn’t.)
3. Inequality of rates of time preference will affect the level of debt. Those with high rates of time preference will borrow from those with low rates of time preference, until they are credit constrained and cannot borrow more.
…and supports it rather substantially with both dry fact and compelling anecdote.
Finally, he concludes with a parenthetical note that suggests we can all make similar hypotheses:
This post is not as well argued and evidenced as I want it to be. But I’m aware of the limits of my comparative advantage, so I’m going to stop here and post it as is. And give Frances something to respond to.
Anyway, the larger point implied by the title — and by Dr. Rowe’s article — is that paternalists can’t help but see the people they’re “helping” as inferiors: after all, if they weren’t inferior, they’d be technocratic paternalists as well. This feeds into yet another irritating Just World story, to which the hysterical fairy tales of evil exploitative capitalists (and, er, evil exploitative foreigners) are an obnoxious overreaction.