Harvard Prof. Greg Mankiw in the NY Tmes, Yes, the Wealthy Can Be Deserving. Perhaps there is a case but, if there is, Mankiw ain’t making it in his op-ed. Talk about a target rich environment. People more eloquent than I will gut him. I’ll update with links as the rejoinders to his piece roll in.
UPDATE #1: Here we go:
… the point should be clear. If the 1 percent are able to extract vast sums from the economy it is because we have structured the economy for this purpose. It could easily be structured differently, but the 1 percent and its defenders aren’t interested in changing things. And the 1 percent and its defenders have a great deal of influence on the direction of economic policy.
- Over at Economist’s View commenter ilsm reminds us of Galbraith’s observation:
The modern conservative is engaged in one of man’s oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.
- Paul Krugman, Iron Men of Wall Street:
Mankiw invokes the strong role of financial fortunes in U.S. inequality to argue that the incomes are deserved…Has Greg been living in a cave since 2006? We’re now in the seventh year of a slump brought on by Wall Street excess; the wizardly job of “allocating the economy’s investment resources” consisted, we now know, largely of funneling money into a real estate bubble, using fancy financial engineering to create the illusion of sound, safe investment. We also know that there is a real question whether hedge funds, in particular, actually destroy value for their investors.
One more thing: Mankiw argues that our tax system is fair because the top 0.1 percent pays a higher share of income in federal taxes than the middle class. This neglects the partial offset of this progressivity by regressive state and local taxes. But surely the main point is that to the extent that taxes on the 0.1 percent are high (they aren’t really, in historical context) that’s largely because Mitt Romney lost the 2012 election… It’s kind of funny to claim that our system is fair thanks to policies that you and your friends tried desperately to kill…
- Commenter Jim Hansen responding to Krugman’s post:
[Quoting Mankiw:] “…a nation would allocate many of its most talented and thus highly compensated individuals to the task.”
“Most talented” at what? The 0.1 percenters rise to the top because they are the most talented at making money. Then the conservatives proclaim that the 0.1 percenters deserve to make huge sums of money because they are talented.
Beware of assumptions, especially if the assumption is based on a circular argument where cause and effect, the why and the what, are reversible or are essentially the same thing.
- Michael Tomasky, Greg Mankiw: the Wealthy are ‘Deserving,’ Even When They’re Crooks:
Sure, the value of a good CEO is extraordinarily high. Whether it’s 343 times as high as the wage of an average employee is highly debatable. But that’s not even my main criticism with Mankiw’s argument. The main problem in our society isn’t the over-compensation of good CEOs, scandalous though that is. It’s the over-compensation of bad ones.
Every year for the last 20 years, the Institute for Policy Studies has looked at the compensation packages of the top 25 highest-paid CEOs as defined by the Wall Street Journal. That’s 500 spots. Of those, 112 were held by Wall Street CEOs who drove their companies to bankruptcy or bailout. Another 39 were held by CEOs who ended up being terminated. A final 38 were taken by executives who ended up paying fines or settlements arising from fraud charges. That’s 189 out of 500, or 38 percent. Basically, two of every five of America’s highest paid CEOs behaved in a way that, if they were regular workers, would have gotten them fired, disgraced, possibly prosecuted—maybe even jailed.
But once you reach a certain level in America, you can’t fail. Oh, you can be humiliated, and in the most extreme cases, maybe even do a little soft prison time. But where it matters—financially—you can’t lose. And so the 112 received $258 billion in bailouts from American taxpayers. And the fired CEOs averaged golden parachutes of $48 million.
This is what’s wrong with American capitalism. It’s not that Robert Downey Jr. made $50 million for The Avengers, which is how Mankiw opens his column, marveling that no one he asks about it seems to resent Downey’s compensation. At least The Avengers made $1.5 billion…
… we don’t live in an age in which big investors and corporate leaders are justly rewarded for their good bets and rightly punished for their bad ones. We live in an age of rentier capitalism, in which textbook risk-reward scenarios have too often been replaced by a system in which powerful actors make massive profits in distorted or uncompetitive markets and simply aren’t punished—indeed are often further rewarded!—when they make terribly wrong bets or, worse, cook the books. What that has to do with Robert Downey is precisely nothing, except that one wishes Iron Man could swoop in and provide the Hollywood ending these people deserve.
- Matt Taibbi with a pre-rebuttal of Mankiw’s position, Forbes Calls Goldman CEO Holier Than Mother Teresa. He fleshes out the details of Tomasky’s commentary using Goldman as an example.
UPDATE #2: Mankiw’s op-ed is a rehash of his Defending the One Percent paper, which has already been critiqued:
- Jonathan Chait takes a $#!% on it in Republican Harvard Economist Writes Terrible Defense of the One Percent
- Matt Bruenig, Just Deserts? Do the 1 Percent Deserve their Wealth?
- Noah Smith, I get what you get in ten years, in two days
- Larry Mishel, Greg Mankiw Forgets to Offer Data for His Biggest Claim
There are many other critiques, I’m sure. Those are just the few that I found first.
Notes:
- What would you pay some $1000 an hour to do? Never mind market rates. What would be worth $1000/hr to you? Now let’s imagine someone who does that not just 40 hrs/week but 80 hrs/week. $1000/hr * 80 hrs/wk * 52 wks/year = $4,160,000 per year. The board of JP Morgan Chase voted to award CEO Jamie Dimon $18.5 million in restricted stock that will vest over the next three years. That’s on top of his base salary of $1.5 million, so Dimon’s total compensation last year was $20 million. And they gave him that raise after JP Morgan Chase got hit with $20 billion in sanctions by the Justice Department. Maybe the board was impressed that’s all Justice caught them doing?
- Perhaps a bigger issue than their perverse compensation is that the one percent allocates resources poorly – obviously not from their perspective but more generally. Ask yourself this: What fraction of the one percent earn their living by performing an activity/service which requires a high level of technical skill, e.g., surgery, as opposed to skimming some fraction off the top of a revenue stream? (We’ll stop short of calling that parasitism or extortion.)
- How to deal with the one percent problem? Put the workers in control of the means of production.