Greg Mankiw: Lost in Theory, Counting Money

Nathan Robinson on Greg MankiwEconomist Gregory Mankiw is very pleased to have been gouged by a scalper, he informs us in a recent New York Times column. Mankiw recently went to see the Broadway musical Hamilton, and paid the going rate for a ticket: $2,500. Yet he was far from dismayed at having paid this extraordinary sum. In fact, he describes those who object to price-gouging as “pernicious.”

That’s because Mankiw adopts the standard economist’s view on exorbitant prices for goods: where the layman sees gouging, the economist sees the sublime operation of the law of supply and demand. As Mankiw says, “terms like ‘scalping’ and ‘price gouging’ are pejoratives used to demonize those who resell tickets at whatever high prices the market will bear.” …

He gives a parallel example. In 2009, Jay Leno decided that what unemployed auto workers needed the most was free tickets to a Jay Leno concert. So he gave them a bunch of tickets, which many of them promptly tried to sell on eBay for $800 each. Leno was horrified. But Mankiw thinks Leno should have been pleased…

The free market reveals what each individual values, and how much they value it. If I keep my Jay Leno ticket, rather than selling it, it is because I value the experience of seeing Jay Leno more than $800. If my coworker sells his ticket, it is because he prefers the money. Everyone gets what they want the most, as the market efficiently satisfies our preferences.

Yet when economists tell this fable, they neglect a single crucial fact: some people are wealthier than other people. The reason Mankiw loves price hikes is that they don’t affect him, because he has so much money that he doesn’t really care what price he pays for a Hamilton ticket. Wealth confers the ability to jump to the front of the line, bypassing those who may want to see the show far more but who have less money to spend on theater tickets…

The situation surely differed depending on the unemployed workers’ personal finances… In each instance, the outcome does not reflect how much the workers want their tickets, but how financially desperate they are. Thus what Mankiw sees as a measure of preference is in fact largely a measure of hardship. Economic outcomes aren’t a product of what people value, but how much money they have to throw around.

—Nathan Robinson
Do Economists Actually Know What Money Is?

4 thoughts on “Greg Mankiw: Lost in Theory, Counting Money

  1. This sort of valuation can be great in a game. In fact, it’s an important skill in many games. Given this particular set-up of pieces, should I lose two pawns to gain your rook?

    If everyone in real life started w/ the same resources and if someone who lost all their resources could start a new life, again w/ equal resources, then Mankiw, and Libertarians in general, would have the best economic system.

    • Well put! It probably isn’t a surprise that when I was a libertarian, I was also very into chess. My love of chess has continued on, however. :-)

  2. To be fair to libertarian economists, they can and do cite many other examples of prices serving to efficiently allocate resources even in very poor communities.

    In the case of Greg Mankiw, he either likes to humble brag or he lacks the “soft” social skills and assumes that the world around himself is the normal experience. I think it is a combination of both factors at work here.

    I have been reading him, on his blog and in his text books, for a while now and so many of his examples will be thinks like the trade off involving caviar and yachts or how you can offset your tuition hikes at Harvard by asking your wealthy parents to invest more aggressively or how public safety can be insured by everyone simply calling their lawyers, that they have on retainer, and suing any company that created a safety hazard.

    His text books and his blog sometimes feel more like a lifestyle magazine more than anything that is serious about economics.

    • That’s an excellent point. I had thought much the same thing, “I wonder how much of this article is really just about him showing off that he could afford these tickets?” I haven’t read his textbooks. But I have been reading him for years — usually via Mark Thoma (as with this article). And there is a strong current of self-justification. He wants to make it really clear to the world that he’s rich because he’s just so damned great. I suspect that he is personally very insecure.

      I’ve never forgiven him from changing his policy prescriptions depending on who’s in the White House. It shows a complete lack of intellectual integrity.

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