Tuesday, March 4, 2014

Mankiw on Economic Inequality: Part II

Argument 1 – The title “Yes, the Wealthy Can Be Deserving” is disarmingly inoffensive.

Reply 1 – Is there a person alive who does not agree that “the wealthy can be deserving,” the logical equivalent of which is “some of the wealthy are deserving”?  The title is deceptive as no one wants to debate it, and surely no argument is necessary to defend it.  Surely Professor Mankiw means to argue more than his title suggests; and that is what I will answer.

Argument 2 – “Robert Downey Jr. was paid $50 million for his work on The Avengers.  Do you think that is unfair?”  Most of you will say no, it was not unfair.  After all, many of you chose to see the movie BECAUSE of Downey’s participation (and are more than happy to contribute a piddling $0.25 to Downey’s fortune out of the $8.00 you paid to see the movie).

Reply 2 – For starters, a $50 million payoff for one movie is hardly typical, of Downey or of Hollywood.  But what if there was a follow-up question.  What if Professor Mankiw had asked, “but do you think that Downey should pay a higher tax rate on this fortune than you (the reader) pay on what you earn?”  What if Professor Mankiw had asked, “do you (the reader) think that the producer – whose name you do not even know and who will take home more than Downey – should be paid what he will take home?  And do you think that he should pay a higher tax rate on HIS earnings?”  Maybe the answers to these questions will be different.

Professor Mankiw himself says: “When people can see with their own eyes that a talented person made a great fortune fair and square, they tend not to resent it.  But actors, authors, and athletes do not make up the entire ranks of the rich. Most top earners make their fortunes in ways that are less transparent to the public.”  Indeed, actors, authors and athletes do not make up ANY of the ranks of the super rich.  And THEY – the super rich – especially the invisible rich – are the heart of the real Inequality argument.

Argument 3 – “Consider chief executives.  Without doubt, they are paid handsomely, and their pay has grown over time relative to that of the average worker.  In 2012, the median pay of C.E.O.’s for companies in the Standard & Poor’s 500-stock index was nearly $10 million.  Did they deserve it?  …  the most natural explanation of high C.E.O. pay is that the value of a good C.E.O. is extraordinarily high.  … Just consider the role of Steve Jobs in the rise of Apple and its path-breaking products.”

Reply 3 – Really?  Does the value of a good C.E.O. include the explosion in the ratio of C.E.O. pay to average worker pay over the past 40 years?  Is a 2013 C.E.O. worth 250 – 400 times the average worker when he was worth ONLY 20 times the average worker in 1965 (see WashPost and Bloomberg)?  Is the value of an American C.E.O. so much more than the value of a C.E.O. anywhere else in the world?  Saying they are worth a lot does not justify their comparison with other industrial countries or the growth of the C.E.O. / worker ratio to stratospheric heights.  And, lest we forget the lessons of late 2008, we all have learned that the “value” of a “bad” C.E.O. is every bit as outrageous as that of a “good” C.E.O..  And invoking Steve Jobs as a valuable C.E.O. is perverse.  First, the very boards that typically choose C.E.O.s fired Jobs; Jobs returned to save his own company from disappearing.  Second, Jobs was not really a C.E.O., he was Apple’s co-founder.  Third, find me another C.E.O. who was worth what Jobs was worth.  I’ll wait.

Argument 4 – “The Financial sector plays a crucial role in the economy, allocating capital to where it will do the most good.  It makes sense that a nation would allocate its most talented individuals to the task.  Those working in finance face particularly risky incomes, and greater risk requires greater reward.”

Reply 4 – Ah, Finance!  Indeed, the efficient allocation of capital IS the proper role of Finance.  But providing a Cosmic Casino for those who can afford to play is more lucrative.  And playing with the nation’s economy is “Heads we win, Tails the taxpayers bail us out, and we will all collect our bonuses, no matter what!”  And was it really the Nation that sent these parasites to work in Finance?  Don’t get me started.  I have to believe that Professor Mankiw was busy with other things from 2007 forward.

Argument 5 – “A reliable tax system is important to ensure that the wealthy pay their fair share, and examples of the tax-dodging wealthy are not at all the norm.”

Reply 5 – The wealthy do NOT pay their fair share, not frigging close!  And the wealthy need not dodge taxes as they wrote the tax laws that so benefit them.

I understand that Professor Mankiw is a conservative Economist.  But this article has the intense aroma of being bought and paid for.  Or …