Former Bush, Romney Adviser Greg Mankiw Writes Paper 'Defending The One Percent'
Mark Gongloff
06/17/2013
At long last the downtrodden, disrespected 1 percent have a hero to make their case: Harvard economist Gregory Mankiw.
The former economic adviser to President George W. Bush and wannabe president Mitt Romney has a new paper, called "Defending The One Percent," arguing that income inequality is not as terrible a thing as liberals make it out to be. And even if it is, fixing inequality is really hard to do in a way that is not totally unfair to the wealthiest 1 percent of Americans.
Mankiw's basic argument is that the 1 percent are richer than you probably because they are better than you. It's just science! Even the children of the wealthy are probably wealthier and better-educated than you at least partly because their genes are just better than yours, he suggests, and not because these people won the cosmic birth-family lottery that let them be born into wealth and privilege.
Mankiw reveals his simplistic mindset right off the bat, inviting readers to imagine a world of perfect income equality that is suddenly disrupted by the rise of an entrepreneur -- think "Steve Jobs as he develops the iPod, J.K. Rowling as she writes her Harry Potter books, or Steven Spielberg as he directs his blockbuster movies" -- who gets rich because everybody loves his or her products. Suddenly there is income inequality, egads!
"In my view, this thought experiment captures, in an extreme and stylized way, what has happened to U.S. society over the past several decades," Mankiw writes. "These high earners have made significant economic contributions, but they have also reaped large gains."
Well, in that case, inequality is easier to stomach. We all love our iPods and Harry Potter books and Spielberg movies and most of us probably don't mind watching their creators get rich.
The trouble with Mankiw's imaginary world is that it looks nothing like the real world, where the Jobses and Rowlings and Spielbergs are not the only people getting fabulously wealthy. In this world, many people get fabulously wealthy who do nothing for our general welfare, and possibly even hurt it.
Mankiw at least knows this could be a problem (emphasis added):
But of course, this is exactly what is happening. The wealthy have used campaign contributions, lobbying and think-tank founding to skew the political process to keep the system working in their favor. Mankiw admits to the existence of this on Wall Street, at least:If the top 1 percent is earning an extra $1 in some way that reduces the incomes of the middle class and the poor by $2, then many people will see that as a social problem worth addressing. For example, suppose the rising income share of the top 1 percent were largely attributable to successful rent-seeking. Imagine that the government were to favor its political allies by granting them monopoly power over certain products, favorable regulations, or restrictions on trade. Such a policy would likely lead to both inequality and inefficiency. Economists of all stripes would deplore it. I certainly would.
ome of what occurs in financial firms does smack of rent seeking: when a high-frequency trader figures out a way to respond to news a fraction of a second faster than his competitor, his vast personal reward may well exceed the social value of what he is producing.
And he admits this could be bad for the economy:
The last thing we need is for the next Steve Jobs to forgo Silicon Valley in order to join the high-frequency traders on Wall Street. That is, we shouldn’t be concerned about the next Steve Jobs striking it rich, but we want to make sure he strikes it rich in a socially productive way.
But, again, he ignores the evidence that this is exactly what has happened and falls back on standard-issue, shaky arguments that the rich are mostly rich because they deserve it, because they have better skills and education, not to mention DNA:
Smart parents are more likely to have smart children, and their greater intelligence will be reflected, on average, in higher incomes. Of course, IQ is only one dimension of talent, but it is easy to believe that other dimensions, such as self-control, ability to focus, and interpersonal skills, have a degree of genetic heritability as well.
Sorry, Poors, try being born to better parents next time.
Mankiw argues that rich people don't have better opportunities than middle-class people, really. And he knows this is true because he was able to get an Ivy League education despite being from a middle-class family, and now his kids, who have a more privileged life than he did, don't have all that much more opportunity for advancement than he did.
This elides the fact that generations of middle-class Americans after World War II were able to live relatively comfortable lives, owning homes and paying for college educations for their children, because those costs were low relative to their incomes. With the middle class shrinking now and college costs skyrocketing, it is little wonder that Mankiw's relatively wealthy children now have the same opportunities that middle-class children once had.
Mankiw also argues that CEO pay is not too exorbitant, that the wealthy already pay plenty in taxes and that they wouldn't really benefit from paying any more than they already do, because most of the government's money is going to poor people and sick people anyway.
In other words, it is a standard-issue, predictable call to stick with the status quo of inequality, despite evidence that inequality is hurting the economy and that it is at least partly driven by government policies favoring the wealthy.
