Stay Classy, Greg: Mankiw on What the Rich Deserve, and Why They Deserve It
By Lambert Strether of Corrente.
Just the the other day, celebrity economist and 1% fluffer Greg Mankiw — sorry for the redundancy — placed an an Op-Ed with the Times. I quote in relevant part:
Yes, the Wealthy Can Be Deserving
These questions go to the heart of the debate over economic inequality….
The value of making the right decisions is tremendous…. [One] case is the finance industry, where many hefty compensation packages can be found. There is no doubt that this sector plays a crucial economic role. Those who work in banking, venture capital and other financial firms are in charge of allocating the economy’s investment resources. They decide, in a decentralized and competitive way, which companies and industries will shrink and which will grow. It makes sense that a nation would allocate many of its most talented and thus highly compensated individuals to the task.
In addition, recent research establishes that those working in finance face particularly risky incomes. Greater risk requires greater reward.
[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.
Let’s put on our waders and rubber gloves, shall we?
But wait! Let’s look at assumptions. In Mankiw’s world, we have two classes, the rich (“richest 1%”) and the rest of us, and a relation between them: inequality. Could it be that both assumptions are problematic?
Thomas Piketty and Emmanuel Saez, of the World Top Incomes Database, have created this handy chart, suitable for placement on the fridge, if you have a fridge, that can help us question both assumptions (courtesy of George Washington’s Blog).
The chart undermines both Mankiw’s assumptions. First, as to classes: It’s clear from Chart 1 that there are class distinctions even within the 1%. The top 0.01% (the Waltons, the Buffets, the Kochs, in baby blue) are being “rewarded” spectacularly better than all other classes. It’s also clear, taking income as a proxy for capital, that these oligarchs enter into a very different set of class relations than, say, the executives, doctors, and bankers who make it into the top 1%. It is, after all, one thing to extract wealth from the “human resources” of the largest retail operation in the world, or from a transcontinental railroad, or a from a monopoly on a proprietary software package, as the 0.01% [. . .]