Sunday, February 16, 2014

A Famous Economist Goes Off the Rails (Umm, That Never Happens...)

Economist Greg Mankiw: He doesn't look like an idiot or a liar, but they rarely do.

No, it's not Paul Krugman. It's Greg Mankiw, former Bush administration chairman of the Council of Economic Advisors and current Professor of Economics of Harvard University.

Mankiw wrote an op-ed for the New York Times a few days ago, and I apparently spotted it early, perhaps minutes after it was published online. I was flabbergasted. I started to write about it but thought, why not wait and see what Krugman made of it? It took a day or two, but Krugman did the work, naturally, better than I could. He, in fact, highlighted the very paragraph that had left me speechless:
Which brings me to the amazing part of the column. Mankiw invokes the strong role of financial fortunes in U.S. inequality to argue that the incomes are deserved:
A similar 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.
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 resouces” 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.
People like Dr. Mankiw can't be serious. Whatever would make them think they could get away with statements like this? I don't know, but he deserves to be knocked down for insulting our intelligence.

In passing, I'm not against rich people. Some no doubt deserve their wealth. I just believe in more progressive marginal income tax rates because the wealthy can not only afford it but also have an obligation to give back to the society with whose help they acquired their wealth. Those who do not understand this are either overly greedy, dumber than a brick, or driven by ideological necessity.

I'm also in favor of much higher standards of living as we move down the quintiles. It makes sense that the money flowing to the top would have to be siphoned downward to bolster incomes at the bottom. That makes good policy sense to me.

What's really irks me is that anybody, including the wealthy themselves, would think they needed to defend the ridiculous accumulation of wealth at the top. It's not good for our society, our economy, or our moral legitimacy as a nation.

Anyway, I was entertained by Greg Mankiw's silly op-ed, though it should have been published by the Onion, not the New York Times.

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