Wednesday, June 19, 2013

I Don't Really Believe Greg Mankiw is Stupid

But his "Defending the One Percent" makes me seriously question that belief.  It has some pretty glaring shortcomings and reads more like something I would expect of a new graduate student in political science than a Harvard professor of economics.

The problem isn't that he has written anything in particular that is wrong, but that the whole thing is not even wrong.  It's mostly arguing against a series of straw men. There isn't a single argument he puts forward that can't be demolished with 5 seconds of actual thought.  It's like Newt Gingrich wrote it: it sounds smart to stupid people, but any actual smart person would consider it a joke.

He seems to go back and forth between economic and moral notions of what is and what should be that leaves a confused mess.  In the end his "just desserts" theory sounds like a moral judgement and is couched in such terms, but the moral is: every one gets their marginal economic contribution, and that's just a load of crap.

I haven't the inclination to do a complete tear down on it but there are two things that pretty much kill off whatever he is saying:

1. People who think that current trends and levels of inequality are bad are not, as far as I have seen, arguing that we should do away with inequality entirely.  We will and should always have a 1% (and a 0.01%), it isn't their existence, but rather the yawning gap separating them from the rest of us that is the problem, and that Mankiw never addresses.

2. The marginal utility of $1 vs. the marginal economic contribution is a serious discussion which Mankiw just ignores, though he states conclusions as though it was obvious (basically how would his "just desserts" get applied in reality?).

Further to point 2.  Say someone creates something that provides $10 of good to everyone on the planet.  This person has certainly created something of immense value, but how do you reward that justly?  Mankiw's "just deserts" theory would imply something close to $70 billion, but there is approximately zero effective difference between giving that person $1 billion and the total $70 billion.  Really, there probably isn't a difference down to below $100 million.  So at what point is that person no longer benefiting justly, and just hurting the broader economy by depriving others of capital?

More importantly, how do you deal with things provided by workers in non-profits and government agencies?  Scientists and researchers create things that have immense value to our lives and societies, but are almost never compensated at anything approaching their contributions.  I don't care how much of an ass you are, you can't tell me that Steve Jobs gave more to humanity (morally or economically) than Jonas Salk.  Further, there is a serious question as to who did "create" the things that make people wealthy.  iPods are great, but there is a shit-ton of prior research and development that were required before that last step was taken, Steve didn't do all that, but he (well, Apple) got to reap the rewards anyway without haveing to go back and pay for the prior research.

Maybe Mankiw is stupid.

Update: Lots of others hammering on the idiocy.  Here is one with lots of other details, and here is one that does a much more thorough job than I do on the "just desserts" moral economics issue.

No comments: