Well, 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:
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: