Wednesday, April 30, 2014

Greg Mankiw Debates Piketty On National Public Radio

NBR featured a debate between the Chairman of Harvard's Economics Department, Greg Mankiw, who is also the Vice President of the American Economic Association.  Mankiw's textbooks are also among the best selling economics texts in the US, and he has been an economics adviser to George Bush and to Mitt Romney.

Piketty was asked to summarize his book.  He has become quite good at summarizing a very long book that is loaded with data.  He reviewed the historical data on income inequality, and the concentration of wealth, and he suggested that the future of is not determined by the past.  It is possible for the democratic system to modify the future so that we do not duplicate the level of inequality that existed in the 19th century.  In his view, capitalism should be the slave of democracy instead of the other way around.  It is not too late to reverse the current trends in which rising inequality reduces the influence of the middle class which is an essential ingredient of an effective democracy.

Mankiw complimented Piketty on the success of his book.  He then shifted his focus to what he called the "false narrative" of the book.  He argued that the concentration of wealth does not follow from a high rate of return on capital.  People can choose to spend their income or to save it.  We need to encourage people to save their income, and to invest it, rather than tax it away.  He then followed Milton Friedman in arguing that economics is a positive science and not a normative science.  Economists should not be in the business of determining the appropriate degree of income and wealth inequality.  Piketty's normative statements about the level of inequality are best left to philosophers. Economics should remain a pure science and not return to its historical roots as political economy.  He then state his objections to the wealth tax that Piketty proposed.  Instead of taxing the wealthy, we need more programs to encourage savings and investment among lower income Americans.  That is the best way of reducing the concentration of wealth.  We should also take steps to improve the educational system.  That will equalize economic opportunity which is superior to policies designed to equalize the results of the market system which, according to Mankiw, rewards people according to their productivity.  Mankiw also argued that a tax on consumption would be better than a tax on income or wealth.  Piketty reminded him that George Bush made the tax system less progressive when Mankiw was his adviser but he did not advocate a consumption tax to replace the lost tax revenue.
He also could have also asked him to explain why conservative economists are usually asked to advice republican politicians if there is no connection between the "positive science" of economics and the normative outcomes of the political decisions that are made.  Piketty is too much of a gentleman to embarrass a prominent economist in public.

(the link to the radio broadcast is an arrow in the top left hand corner of the webpage)

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