Mankiw argues that the 1 percent make so much because of their high contribution to output — basically, that they have high marginal productivity. So they earn what they get; and Mankiw further argues that economic opportunity is in fact relatively if not perfectly equal. All’s fair!
Chait calls the article “an embarrassing piece of ignorant tripe”:
Mankiw asserts that his premise, that the rich deserve all they have and are entitled not to pay higher tax rates simply for the social good, “is more consistent with our innate moral intuitions.” If that’s the case, why was Obama so persistent about arguing for higher taxes on the rich, and Mitt Romney — the candidate Mankiw advised — so eager to avoid admitting he wanted lower taxes for the rich? And since Mankiw’s “innate moral intuitions” rest upon a series of shaky factual suppositions, perhaps he should consider the possibility that they are less a rational argument than a rationalization.
I sure can see the innate moral intuition in thinking that a talented person deserves to keep the fruits of her talent, even if it is beyond Chait’s imagination. But what I also see is context, because humans are social animals and all absolute moral claims, for a conservative, need to be adapted or mitigated according to the times and society we actually live in. That’s where I differ from Mankiw. When society is hurtling toward massive and destabilizing inequality which is jeopardizing core trust in the political system, then I think you need to adjust. When globalization and technology are massively enriching a minuscule few, where they once helped far more, it’s time to re-think.
The classic take on this was, of course, Michael Young’s prescient attack on the meritocracy and his fears were subsequently amplified by the brilliant book on the deep sources of our new soaring inequality, The Bell Curve. Young’s core argument:
Ability of a conventional kind, which used to be distributed between the classes more or less at random, has become much more highly concentrated by the engine of education. A socialrevolution has been accomplished by harnessing schools and universities to the task of sieving people according to education’s narrow band of values.
With an amazing battery of certificates and degrees at its disposal, education has put its seal of approval on a minority, and its seal of disapproval on the many who fail to shine from the time they are relegated to the bottom streams at the age of seven or before. The new class has the means at hand, and largely under its control, by which it reproduces itself.
This is the problem, and it helps you understand that more education (or even higher tax rates) will not necessarily solve the problem of inequality. The causes are deeper and more corrosive – technological, global, and the unintended consequences of meritocratic sorting (which I suspect is also a key force behind cultural polarization from Iran and Turkey to the US. The most brutal take-down of Mankiw, for me, came from the Economist.
Matt Nolan comes to Mankiw’s defense:
All the stuff in this paper should be standard knowledge to virtually anyone who has studied economics – and I don’t mean at a high level. He is just trying to show the nature of the debate we can have around income inequality for non-economists – and illustrate that there are complicated issues, both in terms of getting the right “measurement” of things, and in terms of our normative assumptions around fairness. …
He is writing to intelligent non-economists about tax and redistributive policy, and illustrating that there are trade-offs, and fundamental normative questions, that have to be faced before we can make a conclusion. Simply concluding “soak the rich” based on a single graph without context and analysis is moronic.
Chris Dillow maintains that “meritocracy is no evidence whatsoever of the justice of a social system”:
Imagine a Stalinist centrally planned economy. The dictator knows that central planning is a difficult job requiring intelligence, skill and hard work. He therefore ensures a system of rigorous exams and hiring to ensure that the best people occupy key positions. Such a society will be highly meritocratic, in the sense that there’ll be a strong correlation between individuals’ success – their position in the hierarchy – and their “merit”: their IQ, capacity for work or (if you like) the “soft skills” which enable individuals to move up the hierarchy. Indeed, it’s quite likely that this society will be more meritocratic than free market economies, where dumb luck is so important. …
The point here is that you just cannot infer the fairness of an economic system from its degree of meritocracy. An unfair system might be very meritocratic – as in my example of an idealized centrally planned economy. And a fair system might be unmeritocratic …
And Barro thinks Mankiw is “accidentally mak[ing] the case for higher taxes on the rich”:
Normally, economists model labor as something that employees sell to employers. Raise income taxes and you cut the price received by the employee, so he works less. Cut taxes and he works more. A cardiologist might behave exactly like that, doing more procedures if his taxes are cut. But Lady Gaga can’t very easily decide to produce twice as many hit songs. She might only have so many good ideas. And unlike the cardiologist, producers of ideas have had big, positive pre-tax shocks to their income. Being able to sell into a global market and scale up quickly means a great idea is worth a lot more than it used to be. Even if the share of that value that is captured by the idea generator gets cut—whether through a tax increase or a weakening of intellectual property protections—creating great ideas should be more appealing than ever.