Greg Mankiw — the inequality defender16 February, 2014 at 18:00 | Posted in Economics, Politics & Society | 5 Comments
Walked-out Harvard economist Greg Mankiw once again has felt it necessary to ride out and defend the 0.1 %. This time also invoking Adam Smith’s invisible hand:
[B]y delivering extraordinary performances in hit films, top stars may do more than entertain millions of moviegoers and make themselves rich in the process. They may also contribute many millions in federal taxes, and other millions in state taxes. And those millions help fund schools, police departments and national defense for the rest of us …
[T]he richest 1 percent aren’t motivated by an altruistic desire to advance the public good. But, in most cases, that is precisely their effect.
When reading Mankiw’s articles on the “just desert” of the 0.1 % one gets a strong feeling that Mankiw is really trying to argue that a market economy is some kind of moral free zone where, if left undisturbed, people get what they “deserve.”
Where does this view come from? Most neoclassical economists actually have a more or less Panglossian view on unfettered markets, but maybe Mankiw has also read neoliberal philosophers like Robert Nozick or David Gauthier. The latter writes in his Morals by Agreement:
The rich man may feast on caviar and champagne, while the poor woman starves at his gate. And she may not even take the crumbs from his table, if that would deprive him of his pleasure in feeding them to his birds.
Mankiw has stubbornly refused to nudge on his neoliberal stance on this issue. So, rather consistently, he links on his blog to a PBS-interview with his friend, libertarian professor of law, Richard Epstein:
PAUL SOLMAN: Aren’t many of the top 1 percent or 0.1 percent in this country rich because they’re in finance?
RICHARD EPSTEIN: Yes. Many of the very richest people in the United States are rich because they are in finance.
And one of the things you have to ask is, why is anyone prepared to pay them huge sums of money if in fact they perform nothing of social value? And the answer is that when you try to knock out the financiers, what you do is you destroy the liquidity of capital markets. And when you destroy the liquidity of those markets, you make it impossible for businesses to invest, you make it impossible for people to buy home mortgages and so forth, and all sorts of other breakdowns.
So they should be rich. It doesn’t bother me.
PAUL SOLMAN: Are you worried that a small number of people controlling a disproportionate share of the wealth can control a democratic system?
RICHARD EPSTEIN: Oh, my God no.
Now, compare that mumbo jumbo with what a true liberal — John Maynard Keynes — has to say on the issue in his General Theory (1936):
The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes … I believe that there is social and psychological justification for significant inequalities of income and wealth, but not for such large disparities as exist to-day.
A society where we allow the inequality of incomes and wealth to increase without bounds, sooner or later implodes. The cement that keeps us together erodes and in the end we are only left with people dipped in the ice cold water of egoism and greed.