Cauchy and Schwarz should be ashamed of themselves!!

Another Sunday brings another fantastic post from Scott Sumner.  I started reading his blog around the same time that everyone else did, after Greg Mankiw recommended it. I disagree with his big idea (that the fed should target NGDP), but his posts are always well researched and well written. In addition, his comments are almost always intelligent and thought provoking.  He is clearly very intelligent, but also very modest and willing to admit his ignorance. He argues facts, not ad hominims.

Todays post was on based on a post by Will Wilkinson essay about income inequality and the implications for immigration. It is certainly worthwhile to read the entire post, including most of the comments, but if you don’t have an hour to kill, here is the gist: while utility is raised by immigration into the US, inequalities are increased nationally by immigration. Some progressives (in particular, Krugman) reject immigration on the basis that inequality is increased. Conservatives who tend to reject immigration usually do so based on cultural basis (not wanting people who talk or look a certain way).

I think that Sumner accurately characterizes a large portion of the left and the right. Wilkinson responds in the comments that he is a liberal contractarian, meaning that he feels people should be free to make contracts (agreements) with others as they please, so long as they follow the rules that are in place at the time. This is essentially my own position, more or less, which has been advocated by Hayek. Sumner seems to be somewhat of a utilitarian, and isn’t completely convinced by Wilkinsons’ arguments. I understand his hesitation. If I recall correctly, Hayek made the case that allowing individual freedoms in making contracts leads to the optimal allocation of resources. It seems plausible, but that isn’t proof. And if obviating certain contracts ex post facto could lead to greater happiness for everyone, I would guess that most people would choose to do so.

Two points about this post.
1) Some people look at lousy metrics to determine policy, e.g. inequality. Some might include GDP and NGDP in this group.
2) I would like to see a positive case made by someone (Sumner possibly) that cantractarian principles are inadequate. Sumner always touts the devaluation of the dollar by FDR as a great thing. But under the gold standard this would amount to forgiving loans made by willing participants in contracts. In essence, this is violating contracts made by free people. The moral hazard argument seems like it should rule this out.

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3 Responses to “Cauchy and Schwarz should be ashamed of themselves!!”

  1. Scott Sumner Says:

    Thanks for the comment. Your comment on the dollar devaluation reminds me that I need to do a post “When do you break a promise to a friend?”

  2. darfferrara Says:

    Hey Scott! I really do hope that you do that post, although I don’t know how you find time to write as many high quality posts as you do. Keep in mind, though, that the question isn’t “When do you break a promise to a friend?”, so much as it is “When does a third party determine that it should break a contractual obligation between two parties?”. I suspect that the real answer is “When one of the two parties gives a large enough kickback to make it worthwhile”. As I mentioned though, that is only a legal issue when we were on the gold standard. People that write their contracts in fiat money should know what they are getting into.

  3. Jon Says:

    Some root cause thoughts here via certain commie labor related relatives of mine. Immigration has increased radically since NAFTA and the reason is U.S. subsidized agri-business has driven Mexican farmers out of business and impoverished them to where they are forced to come north. Inequality may be in some sense undesirable here, but the reason it’s coming here is because it has been made even worse in Mexico. Most immigrants don’t want to be here but come and stay long enough to earn enough money to live for a while back down south.

    Free contracts are great, but what’s happening is we have an oversupply of poor workers that have been created artificially by our government and its subsidy program, which artificially lowers wages of the migrant workers. Stop the farm subsidies and racist conservatives are happy because fewer people come north, and Krugman is happy because there is less inequality. Sounds ideal.

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