Go easy on Mankiw. After all, he was the first to discover that the McDonalds workers should be included as part of manufacturing.
On Tue, Jun 18, 2013 at 12:34 PM, raghu <[email protected]> wrote: > On Sun, Jun 16, 2013 at 1:14 PM, Jim Devine <[email protected]> wrote: > >> Defending the One Percent >> >> N. Gregory Mankiw June 7, 2013 >> >> > Rebutting Mankiw, from The Economist of all places.. > > http://www.economist.com/blogs/democracyinamerica/2013/06/inequality > -----------------------------snip > The 1 percent needs better defenders > > [...] > > So why does Mr Mankiw pick three figures from the entertainment and > computer industries, where everyone knows the "superstar" phenomenon is > strongest? Because if he used examples from other industries, it would be > even more difficult to convince the reader that the immense rewards being > reaped by those at the top had anything to do with their unique > contributions to the economy. Last year the highest-paid chief executive > in the > country<http://www.forbes.com/lists/2012/12/ceo-compensation-12_rank.html>, > at $131m, was a guy named John Hammergren, who runs a medical and > pharmaceuticals business called McKesson. If he hadn't been running > McKesson, some other guy would have been. If Michael Vascitelli ($64m) > hadn't been running Vornado Realty Trust, somebody else would have. Perhaps > those other guys wouldn't have been as good at their jobs; in that case, > these firms would have lost market share to competitors. So what? > > The social purpose of high executive pay is to create incentives for hard > work to maximise profit. But these guys are being paid double what their > predecessors were making in the 1980s, which was not exactly a period known > for its stodgy egalitarianism. Are we seeing startlingly better corporate > performance today than we were back then? Is there greater productive > innovation in, say, medical technology or commercial real estate? Is our > economy growing faster? Are general standards of living rising faster? No, > no, no and no. What public interest is served by the fact that these CEOs, > as a class, are earning a multiple of what their predecessors did a > generation ago? > > Mr Mankiw's analogy stacks the deck by making it appear as though great > creative entrepreneurs create the consumer demand which leads to > inequality. This is not how things work. Inequality is rising for > structural reasons that have nothing to do with the social value produced > by the labour of the top one percent of earners. If the government were to, > for example, return top marginal tax rates to the levels that prevailed in > the 1990s or the 1970s in order to compensate for the superstar effect, > there is no reason to believe that the top one percent would produce any > less value for society than they do now. Mr Spielberg would likely have > worked just as hard at 1970s tax rates as he does at 2013 tax rates; > indeed, he did so when he made "Jaws". Similarly, Mr Jobs worked very hard > on the Apple 2e in the 1970s and on the iMac in the 1990s, and Ms Rowling > worked quite hard on the Harry Potter series even though tax rates in > Britain are much higher than those in America. > > To avoid accusations that I'm just picking out an ill-thought-out analogy > while ignoring Mr Mankiw's main thrust, I'll add a few more points. Mr > Mankiw argues that the calculus of progressive taxation is based on a > confused utilitarianism. Whether high tax rates discourage productivity > among the top one percent is the wrong question, he writes. Redistribution > as such is misguided, he thinks, because we don't have any good way to > measure the increased utility which redistribution aims to create for low > earners: "there is no scientific way to establish whether the marginal > dollar consumed by one person produces more or less utility than the > marginal dollar consumed by a neighbor." This is strictly true, but I can't > see how it's relevant in any normal society, where such compromises are > made every time a law entitles citizens to equal treatment without trying > to determine each person's exact individual preferences. And it's a > particularly strange point to make in a paper called "Defending the 1 Per > Cent". We can be pretty sure that a dollar is worth more to someone who > earns $30,000 per year than to someone who earns $3 million. > > Mr Mankiw's preferred alternative is a "just deserts" theory, in which > people should retain the value of their labour beyond whatever is needed to > provide public goods and compensate for externalities and market failures. > "Confiscatory" tax rates, he says, should be avoided. This is one > reasonable approach, but at the least, it suffers from the same calculation > problem as the utilitarianism he derides: how much is a "confiscatory" tax > rate, exactly, and according to whom? > > But I think the worst weakness in the paper comes in Mr Mankiw's brief > treatment of the Rawlsian justification for redistribution. Rawls's > argument is that if people were asked what kind of society they'd want to > be part of, without knowing whether they'd be rich or poor (ie behind the > "veil of ignorance"), they would choose one where the rich paid taxes to > fund social insurance for the poor. Mr Mankiw objects that this approach > would also probably lead people to choose a society with mandatory organ > donation, since they wouldn't know whether or not they'd need an organ. He > thinks this a serious flaw in Rawls's argument: > > If imagining a hypothetical social insurance contract signed in an > original position does not supersede the right of a person to his own > organs, why should it supersede the right of a person to the fruits of his > own labor? > > Why indeed? And how come when I break your window it's just vandalism, > whereas when I break your nose it's assault? Because your rights over your > own body are more fundamental than other kinds of property rights, that's > why. If Mr Mankiw is looking to dismiss the Rawlsian social-insurance > argument, he's going to need a better argument than this. > > > > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l > > -- Michael Perelman Economics Department California State University Chico, CA 95929 530 898 5321 fax 530 898 5901 http://michaelperelman.wordpress.com
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