Defending the One Percent? Mankiw on Inequality and Just Deserts
David Cloutier June 25, 2013 - 8:00am
Harvard economist Greg Mankiw has written a forthcoming article, titled “Defending the One Percent,” that should be required reading for anyone interested in economic justice and inequality – perhaps especially for those like myself who will dispute Mankiw’s conclusions. As a WaPo opinion piece rightly suggests, Mankiw’s anecdotal affirmation of equality of opportunity is problematic. However, it would be wrong to dismiss the piece because of this, for it is a remarkable (and remarkably candid) laying-out of the fundamental challenges from mainstream economics to Catholic concerns about inequality.
Mankiw’s overall argument suggests that we have three possible ways of deeming whether wealth inequality is wrong: a strictly utilitarian perspective, a “veil of ignorance” perspective, and his preferred alternative, what he calls the “just-deserts” perspective, in which “people should receive compensation congruent with their contributions.” In defending the latter perspective, Mankiw makes a number of provocative claims:
He disputes the claim about inequality-of-opportunity partly on grounds that genetic inheritance plays a role in various traits that correlate with high income. He rejects claims that most high-income individuals are compensated beyond their productivity, and (rather carefully) refutes the standard arguments against such compensation. He instead argues that high compensation at the top is the result of increasing demand for high-skilled workers relative to low-skilled, and technological change which allows some of these high-skilled individuals to leverage their talents across enormously large fields of demand. If the best possible doctor could be seen by as many people as Twins catcher Joe Mauer, he would probably make more than Joe Mauer. He accepts that the wealthy benefit not only from government infrastructure and research but also from transfer payments, but suggests that the 1% already contribute disproportionately to public funds through progressive taxation, and that over time, government spending has increasingly shifted from infrastructure investment toward transfer payments.
Mankiw is a worthy conversation partner, largely because he is not a doctrinaire conservative. He actively supports Pigovian taxes on negative externalities (e.g. higher gas taxes), and is far more careful to accept the existence of distorting, “rent-seeking” problems in present systems. He accepts, for example, the claim that some activity in the financial sector is excessive not because of its primary work of efficient allocation of investment capital, but because of opportunistic use of split-second information and the like. So Mankiw is not blind to our problems. But he does want to fundamentally defend the present system as largely just and effective. I want to call attention to three underlying tenets of his argument, because I think these – and not the empirical issues above – are what should be disputed by Catholic social thought:
First, he argues that both utilitarian and “veil of ignorance” approaches fail because they support conclusions that contradict our “innate moral intuitions.” He gives examples: strict utilitarianism would have to support not simply national but global progressive taxation and redistribution, as well as lead to a “best-case” scenario where the most productive workers actually had less leisure and consumption than less productive workers (since this would create the maximum total utility for the society); “veil of ignorance” tests would support programs like forced kidney donation (since you don’t know if you will be the one in need, and surely if you were, you’d want one available).
But we should note something about his (quite standard) use of utilitarianism: he explicitly assumes that consumption and leisure equal utility, while work effort equals disutility. This is really where Catholics – who have a rich encyclical, Laborem Exercens, on the dignity of work as not only good, but imago Dei – should pick the argument. So long as work is fundamentally a disutility, then no doubt Mankiw’s central conclusion – that higher compensation should come from more work productivity – follows. Even in the article, Mankiw is forced to defend his (lower) compensation as an economics professor on the grounds of “personal and intellectual freedom” – that is, on leisure and consumption grounds, rather than on the more obvious grounds: he likes the work more! On his grounds, one goes into academia (despite lower salaries) not because one wants to teach or write, but because one wants the more flexible schedule. What needs to be challenged here is the whole perspective that work is a disutility. Is it really a disutility for Joe Mauer? C’mon… as the WaPo article nicely captured in a closing vignette on a late-night highway tow truck patrolman, the guy who has to drive around all night and stop to helping stranded motorists seems to do encountering some real disutility, doing work that many of us would refuse. How is it that he only “deserves” $31,000 a year?
The second challenge is the story Mankiw tells about rising inequality as hinging on education and skill development. Setting aside genetics, he commendably suggests that we “focus on the left tail” of the income distribution spectrum, for it is “easy to believe that children raised in these circumstances do not receive the right investments in human capital.” A bit inhumanly-worded, but the point is well-taken. However, this is followed by the problematic anecdote of the equality of opportunity had by the middle-class relative to the 1%. The argument here is, don’t knock the 1%, just bring up the bottom.
Such an argument is appealing to those who have succeeded in the meritocracy. Like Mankiw’s, my parents didn’t go to college, and I have ridden the meritocracy to where I am (such as it is), and certainly could have ridden it further (in monetary terms) if I’d taken other available choices in my life. But Mankiw’s perspective seems to neglect exactly the “winner-take-all” point that he made before. My Jesuit high school education, my prestigious liberal-arts college education – both were vastly more affordable and less competitive 15 years ago than they are today. Education and skill development cannot be universally available if the post-graduation employment market is increasingly competitive and winner-take-all – what happens is that the dynamics of the job market just “backs up” into the educational universe.
The third and final point is Mankiw’s recourse to the piece of economics that I find the most problematic of all: the assertion that, because consumption utility is based on subjective preferences and we have no way to quantify those preferences, “it is impossible to compare utilities across people” and so there “is no scientific way to establish whether the marginal dollar consumed by one person produces more or less utility than the marginal dollar produced by a neighbor.”
What this means concretely is that we really can’t figure out if medication for a poor child’s simple illness “produces more utility” than the $50 spent on the gizmo in the SkyMall to keep you dog amused for an extra hour… or to monogram your designer light-up bathroom mirror… or, well, you get the picture. If there’s any observation in the article that should go against our “basic moral intuitions,” it is this one. From Aquinas’ distinction between natural and artificial wealth to Keynes’ distinction between absolute and relative (emulative) needs, there are crucial arguments that suggest satiable basic needs should have priority over insatiable, socially-competitive ones. This moral scrutiny of spending really should be the Christian response to inequality, as it was in the works of earlier Catholic writers like John Ryan, who criticized the “higher-standard-of-living fallacy” which believes that “right life consists in the indefinite expansion and satisfaction of material wants.” The problem isn’t having a lot of money, or even that they got it in some “unjust” way; the problem is believing that there is no social claim on that money, simply because it is a “just desert” based on their economic productivity. Mankiw may be right economically that, in a lot of cases, it really is a just reward. The problem is that the 1% should be challenged on how they spend it.
Of course, it’s easier for Christians to avoid this problem and make other arguments, because it would (rightly) call attention to our own non-1% spending habits as open to moral scrutiny. I say, bring it on.
About the Author
David Cloutier is associate professor of theology at Mount St. Mary’s University and editor of catholicmoraltheology.com. He is the author of Love, Reason, and God's Story: An Introduction to Catholic Sexual Ethics (2008) and is working on a book on the moral problem of luxury in contemporary economic ethics.