More Disingenuous Treacle from Mankiw

Greg MankiwWell, Greg Mankiw is out with a great big pile of income inequality apologetics in The New York Times, Yes, the Wealthy Can Be Deserving. His article in a nutshell: superstar actors make more today than they did 50 years ago because they are worth it. Matt Yglesias‘ reaction to this argument is exactly the same as mine. He concludes, “It’s true—times change in ways that are disproportionately beneficial to some people. But that’s not a strong case for believing that whatever distribution of economic resources happens to emerge at any given time is optimal.”

Mankiw uses Robert Downey Jr as an example, so I’ll go along with it. It is true that more people have seen Downey in Iron Man 3 than saw Cary Grant in His Girl Friday. But the extra audience is due to changes in the economy and technology. These are social goods that have nothing whatsoever to do with Robert Downey Jr’s charm and acting ability. Why is he paid more? It’s quite simple: he’s lucky. The way the economy is set up either over-rewards him or under-rewarded Grant. What this means is that a given economic system under different conditions does not reward the same individuals the same. Thus, it must be unfair under some conditions and Mankiw’s argument doesn’t even acknowledge this, much less address it.

Mankiw is up to his usual tricks as well. Rather than looking at total taxes paid by people, he looks at federal taxes, which are the most progressive. This is unconscionable. What is he, an academic economist or a political operative for the Republican Party? Well, we all know the answer to that! He also makes some very questionable assumptions about Downey’s worth based upon the gross receipts of Marvel’s the Avengers. I cannot say whether he is just ignorant of the way actual businesses run (very common among conservatives) or he is, as is often the case, just being disingenuous.

There is a underlying problem with Mankiw’s big thesis that these huge salaries make us all richer: it isn’t true. In 1980, one could reasonably make that argument. But the last four decades have shown that as the top has done better, the middle and bottom have at best stayed even. I hate that people like Mankiw continue to argue this nonsense. If they want to go all Ayn Rand and say that it is tyranny to take a penny away from the rich, that’s fine with me. That’s their opinion. But this argument that income inequality is better for everyone doesn’t hold up. Of course, I know why they keep using it. It may be wrong, but it plays a hell of a lot better than the one about the poor oppressed rich.

This is not the first time that Mankiw has made this argument. Last June I wrote about another article where he highlighted Steve Jobs, J K Rowling, and Steven Spielberg. It’s shameful that he brings up these kinds of examples. All of the important work these people did was as workers, but who he’s defending are primarily owners. He does tip his hat to corruption, but only to say that people like Madoff should be thrown in jail. But as I’m sure Mankiw knows, that’s the exception. When people like James Dimon rob, cheat, and steal, they get bonuses.

I am so sick of reading Mankiw. It seems a couple of times each year, he will come out with another adult fairy tale, explaining to all of us idiots that we just don’t understand economics. And it’s so simple: if you encourage the job creators (You know, people like Robert Downey Jr!) fairy dust will be sprinkled throughout the economy, trickling down on all the rest of us. I think trickle is the wrong word, but what we get from Mankiw is treacle.

Update (15 February 2014)

I can’t believe I forgot to bring this up. As I discussed this morning, even as star salaries are higher than ever, the wages of establish actors have gone down. So even in Mankiw’s own example, we can see as a practical matter, Robert Downey Jr’s $50 million paycheck is not making everyone else richer by bringing more people into the theaters. (Of course, it isn’t Downey who’s bring them in.)

Update (16 February 2014 9:29 am)

Paul Krugman takes Mankiw to task. I particularly liked this:

Mankiw argues that our tax system is fair because the top 0.1 percent pays a higher share of income in federal taxes than the middle class. This neglects the partial offset of this progressivity by regressive state and local taxes. But surely the main point is that to the extent that taxes on the 0.1 percent are high (they aren’t really, in historical context) that’s largely because Mitt Romney lost the 2012 election, so that Obama’s partial rollback of the Bush tax cuts and the high-income surcharges that partially finance health reform remained in place and the Ryan budget didn’t happen. It’s kind of funny to claim that our system is fair thanks to policies that you and your friends tried desperately to kill.

In other words, Mankiw is being disingenuous.

Update (16 February 2014 9:42 am)

Dean Baker does a much more thorough job with Markiw. He starts by noting that Downey’s huge paycheck is only partly the result of technology; another part is the stricter enforcement of copyright. His larger point is that the current system that we have is a choice. It is not at all the most efficient or fairest. As he concludes, “If the 1 percent are able to extract vast sums from the economy it is because we have structured the economy for this purpose. It could easily be structured differently, but the 1 percent and its defenders aren’t interested in changing things.” You should read the whole thing, but here is a taste:

Then we get to the CEOs who Mankiw tells us get high pay because of what they contribute to their companies and the economy. If this is the case, how do we explain CEO’s of companies like Lehman, Bear Stearns, and AIG walking away with hundreds of millions of dollars even though they drove their firms into bankruptcy? When the CEO of Exxon-Mobil gets hundreds of millions because soaring worldwide oil prices sent Exxon’s profits through the roof, do we really think the pay is a function of hard work? How do we explain the fact that CEOs of incredibly successful companies in Europe, Japan, and South Korea make on average around a tenth as much as our crew does?
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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

4 thoughts on “More Disingenuous Treacle from Mankiw

  1. Here’s where I’m stumped. Now, quite obviously, articles like Mankiw’s (we’ve seen hundreds of them, both nationally and in every local business section) are a response to growing outrage over stupid, pointless inequality; the Jamie Dimons, etc.

    But who are they for? The people making no money rarely read this stuff. Most people making tons of money already believe what this stuff says.

    My best guess is that these articles are aimed squarely at centrist political figures, both locally and nationally (don’t balance the budget by going back to those job-killing 50’s tax rates!) Those political figures might be clueless enough to buy the argument. Small business owners should be in favor of higher taxes on big corporate earners, but are not, and legitimate investment adviser types who know what brand of criminal the Dimons are don’t buy this crap for a second. Anyhoo, that’s my guess . . .

  2. @JMF – Actually, I think those articles are aimed at the upper middle class, college educated set. They are the people who he claims to talk to at the beginning of his article. Of course, in my experience talking to the poorer classes, most people [i]do[/i] mind that Robert Downey Jr made $50 million on one film. The thing is, I normally defend such wages. It is certainly a lot more defensible than other aspects of our economy.

    I think what Mankiw is doing is what conservatives always do: spreading around enough confusion that people just throw up their hands and give up having an opinion. Of course, I don’t think that’s what Mankiw [i]thinks[/i] he’s doing. He’s a true believer. But he is carrying around some major cognitive dissonance. Remember: he was [i]for[/i] stimulus under Bush the Younger, [i]against[/i] it under Obama, and right before the 2012 election (when he was Romney’s economic adviser), he was again [i]for[/i] it. Amazing.

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