Sunday, June 16, 2013

Defense of the 1%

Image of a conservative economist, from The Century Foundation.

Greg Mankiw, President W's chairman of the Council of Economic Advisors, tackles some philosophical issues in defense of the 1% (Via Chris Bertram at Crooked Timber). It's one of the most transparently stupid things I've read lately, and that's saying a lot.

Simple falsehood
the intergenerational transmission of income has many causes beyond unequal opportunity. In particular, parents and children share genes, a fact that would lead to intergenerational persistence in income even in a world of [jump]
equal opportunities. IQ, for example, has been widely studied, and it has a large degree of heritability. Smart parents are more likely to have smart children, and their greater intelligence will be reflected, on average, in higher incomes. Of course, IQ is only one dimension of talent, but it is easy to believe that other dimensions, such as self-control, ability to focus, and interpersonal skills, have a degree of genetic heritability as well. 
It's interesting to note that Mankiw, who presumably has a very high IQ, still types with carriage returns and two or three spaces after each period, unable to trust his computer to format the paragraph on its own. Nevertheless this crucial inefficiency doesn't stop him from earning much more than I do—to say nothing of my mother, who learned the skill in her mid-80s.

"Easy to believe" indeed, true or not, but as it happens largely irrelevant, as any fool who knows how to use Wikipedia can see, as the non-genetic factors are demonstrably the most important:

The American Psychological Association's 1995 report Intelligence: Knowns and Unknowns stated that IQ scores accounted for (explained variance) about quarter of the social status variance and one-sixth of the income variance. Statistical controls for parental SES eliminate about a quarter of this predictive power. Psychometric intelligence appears as only one of a great many factors that influence social outcomes....
A 2002 study[89] further examined the impact of non-IQ factors on income and concluded that an individual's location, inherited wealth, race, and schooling are more important as factors in determining income than IQ.
Image from The Economist.
Direct contradiction

It's important to understand that inequality is not a problem in its own right so much as a symptom, as when you consider rent-seeking activities:
to the extent that Stiglitz is right that inefficient rent-seeking is a driving force behind rising inequality, the appropriate policy response is to address the root cause.  It is at best incomplete and at worst misleading to describe the situation as simply “rising inequality,” because inequality here is a symptom of a deeper problem. A progressive system of taxes and transfers might make the outcome more equal, but it would not address the underlying inefficiency. 
But once you've dismissed rent-seeking by fiat ("I am skeptical that such rent-seeking activities are the reason why inequality has risen in recent decades"), the deeper problem vanishes into the mist:
I am led to conclude that concern about income inequality, and especially growth in incomes of the top 1 percent, cannot be founded primarily on concern about inefficiency and inequality of opportunity. If the growing incomes of the rich are to be a focus of public policy, it must be because income inequality is a problem in and of itself.   

Rich kids do not have any special opportunities, for heaven's sake! After all Mankiw's don't.
By contrast, the educational and career opportunities available to children of the top 1 percent are, I believe, not very different from those available to the middle class.  My view here is shaped by personal experience.  I was raised in a middle-class family; neither of my parents were college graduates.  My own children are being raised by parents with both more money and more education. Yet I do not see my children as having significantly better opportunities than I had at their age. 
This argument might hold if you make the corollary assumption that time does not exist.

Actually Mankiw has never attended a public school. By this indicator, he's in fact no wealthier than his parents were. Nor did he ever make it all the way to the 1%, I think, in any case, even though his two college textbooks no doubt sell briskly. But when he was in school it was in a relatively egalitarian US, with a GINI coefficient of around 0.39 (comparable to Norway and Japan at the time); while if his kids are in school now it is upwards of 0.47, which is a lot more (more like China and Mexico). Of course his children's opportunities are not better than his were: the pool of opportunity has been drying up over the course of the past generation.
Via AngryBlackBitch.
Pound of flesh

According to Mankiw, using redistributive taxation for social insurance purposes is just like mandating people with healthy kidneys to donate them for transplant:
the same logic of social insurance that justifies income redistribution similarly justifies government-mandated kidney donation. No doubt, if such a policy were ever seriously considered, most people would oppose it. A person has a right to his own organs, they would argue, and a thought experiment about an original position behind a veil of ignorance does not vitiate that right. But if that is the case, and I believe it is, it undermines the thought experiment more generally. If imagining a hypothetical social insurance contract signed in an original position does not supersede the right of a person to his own organs, why should it supersede the right of a person to the fruits of his own labor?
Let's say I fully acknowledge that you built that kidney. (And it's the fruits of your rent-seeking, unceremoniously assumed out of the argument, that I'm after in the first place, not your labor.)

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