"Defending the indefensible Greg Mankiw is professor and chairman of the prestigious economics department of Harvard University. He is also author of the most widely used textbook on economics by university undergraduates. (...) Mankiw also seeks to defend the 1% by arguing that their skills and cleverness are inherited: “smart parents are more likely to have smart children”. So the reason some have more income than others is that they inherit their cleverness from their parents and there is nothing we can do about it. It is a genetic inequality. What Mankiw mistakes here is genetic differences with inheritance. Genes may be passed on, but there is no reason why incomes or wealth should be passed on from parent to child. The top 1% of income earners can perpetuate their income status for their children, but not because of their genes but because of their influence. Take the current scandal that internships in lucrative companies can be arranged by rich parents working in them or knowing the contacts, while equally clever poorer kids don’t get a look in. Okay, Mankiw says, let us assume that there are serious inequalities of income that are ‘unfair’. What can be done about it? Apparently little. Mankiw correctly points out that the US income tax system is already progressive. In other words, the more income you ‘earn’, the more you pay as a percentage in income tax. The poorest fifth pay just 1% of their income in federal taxes, the middle fifth pay 11% and top 20% pay 23%, while the top 1% pay 29% of their income in tax. So federal taxes are progressive. So what’s the problem, says Mankiw. But federal taxes are not the only taxes that people pay (see my post, thenextrecession.wordpress/2012/09/19/romney-and-the-47/). People also pay sales taxes, VAT, insurance taxes, capital gains tax and payroll taxes. And these are not progressive at all. Then there are the subsidies, allowances and exemptions from tax usually paid to the better off. There is every reason to conclude that the whole taxation system could be way more progressive and so bring about greater equality of incomes. But Mankiw appears to reject the case for government applying any redistributive policies at all. After all, he says, if you are born with two kidneys and somebody else has two failing ones, government should not be able to enforce the removal of one of your kidneys to give it to the other person. Mankiw equates the forcible removal of a person’s kidneys with the democratic decision of a government to make top earners pay more to help lower earners and spend of public goods! Mankiw prefers what he calls a “just deserts” perspective – namely that a person should get an income congruent with his contribution to society. On this perspective, there should not be higher taxation of those earning more because they are only receiving their ‘just deserts’, an income that matches their ‘marginal productivity’. Mankiw thus presents us with the neoclassical concept of marginal productivity – a concept hugely discredited as bearing no resemblance to the reality of capitalism (see Fred Moseley’s critique of Mankiw and marginal productivity,paecon.net/PAEReview/issue61/Moseley61.pdf). Mankiw discusses only the inequality of income in the US. But global inequality is even greater (see my post, thenextrecession.wordpress/2010/01/10/20/) and clearly not the result of just technology and skill differences, but instead the product of trade and capital flows dominated and controlled by rich capitalist economies over weaker ones. And Mankiw only talks of inequality of income. But under capitalism, private (not common) ownership of financial assets, real estate and the means of global production is key. So inequality in these ‘social’ assets is much more important and even greater than with incomes (see thenextrecession.wordpress/2012/02/28/free-markets-and-global-wealth). The power of capital dominates and exploits labour and thus enables the 1% to reap the benefits of the value created by the 99%. Mankiw has nothing to say about this."
Posted on: Fri, 21 Jun 2013 05:37:22 +0000
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