Sunday, June 22, 2014

Greg Mankiw As The Defense Attorney For The Super Rich

Greg Mankiw is the Chair of the economics department at Harvard.  Many of his students are children of the super-rich, and many of those who are not children of the super-rich hope to become super-rich.  It is not surprising that Harvard and the NY Times provide a platform for Greg Mankiw to reassure them about their position in society.  Mankiw has justified the huge increases in CEO compensation by invoking an outmoded economic theory that is in all of our economic textbooks.  The theory suggests that everyone's wages are determined by their marginal contribution to revenue.  Therefore, it must follow that CEO compensation has risen because their marginal contribution to revenue has been increased by a similar amount. That is, they have become much more productive over time.  In this article, Mankiw responds to Piketty's book which suggests that we may be on our way back to the kind of societies that existed prior to the 20th century which is an anomaly.  That is, a society in which inherited wealth makes it possible for many to live off of the wealth created by their forebearers.

I will not bother to summarize Mankiw's defense of a patrimonial society.  Mankiw has summarized to quite well:

The bottom line is that inherited wealth is not an economic threat. Those who have earned extraordinary incomes naturally want to share their good fortune with their descendants. Those of us not lucky enough to be born into one of these families benefit as well, as their accumulation of capital raises our productivity, wages and living standards.

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