Monday, March 3, 2014

Mankiw on Economic Inequality: Part I

N. Gregory Mankiw, professor of Economics at Harvard, and author of THE Economics 101 college textbook, wrote a piece for The New York Times published on February 15th, 2014, called “Yes, the Wealthy Can Be Deserving.”  What follows is my open reply to his article, which you should read (click on the title link) before reading my reply.

But what became clear writing this reply is that there is such fundamental confusion regarding the issue of economic inequality that I must deal with the confusion – first.

One: There are those who would frame the debate as “Economic Inequality vs. Economic Equality: which is preferable.”  This is deliberately deceptive, as there is no one whom I have ever encountered who urges economic equality – perfect equality, Utopian Socialism, or even garden variety socialism – as the remedy to the problem of economic inequality.  If you can show me anyone in the Inequality debate who preaches this kind of economic equality – what Paul Ryan calls equality of outcomes – show me, and I will apologize publicly and alter my position accordingly.

Two: Congressman Paul Ryan, chairman of the House Budget Committee, likes to frame the debate as “equality of outcome vs. equality of opportunity.”  This would be a very compelling argument if he could point to any Republican efforts in the past several decades to promote equality of opportunity among Americans who clearly NEVER have had any such thing.  Once again, if you believe that I am mistaken, show me, and I will apologize publicly and alter my position accordingly.

Three: Gary Becker, the 1992 recipient of the Nobel Prize in Economics, wrote a piece in 2007 titled “The Upside of Income Inequality.”  His argument is that higher education is worth something.  There are those who disagree with him, but I am not among them.  Intelligence, creativity, talent, and God knows how many other criteria – some measurable, some not – and formal education acquired – are all worth something, are worth higher pay, lots higher pay.  I have no argument with his position.  Except that no one who is really concerned with the issue of “Inequality” is talking about abolishing the monetary rewards of a higher education.

Three and a Half: In a more recent (2011) article, perhaps sensitive to his earlier argument’s lack of response, Becker argued that there are good inequalities and bad inequalities.  Good inequality motivates, increases worker productivity, and has social value; bad inequality does none of these.  Once again, I have no serious argument with this point of view, except that it misses the point that is being raised by those who care about “Inequality.”

Four: So, what then is the debate on Inequality all about?  Since the mid- to late-1970’s – while the economy has grown steadily  and while worker productivity has exploded – the rewards of our economic expansion have all gone to the top 1% and have not been shared by the vast majority of the population, the bottom 90% or even the bottom 99%.  America has become the MOST unequal of all industrial nations and she continues to become more and more unequal as time goes by.  So, the debate is not about the existence of economic inequality, or the contribution of education to inequality; rather, it is about a 40-year explosion of inequality that has benefited the top 1% and left everyone else behind.  Stagnant and declining wages, increasing unemployment, and rising levels of poverty in the same economy as an extended boom on Wall Street.  The debate asks us whether we have too much inequality, and what we intend to do about it.

That is the proper statement of the Inequality debate.  And here is the best video on the subject