The complacency of the meritocrats

June 21, 2013

I like Greg Mankiw. He’s a great teacher who has produced excellent macroeconomic research. I admire his Pigouvian gas tax proposal. But he has a huge blind spot when it comes to inequality.

Mankiw was an economic adviser to Mitt Romney, whose party platform and vice presidential candidate endorsed deep cuts in Pell Grants, Medicaid, nutrition and housing assistance, and other programs that benefit poor and low-income Americans. These proposed cuts were matched by deep tax cuts at the top of the income distribution.

In his latest essay, “Defending the one percent,” Mankiw attempts to explain the philosophical underpinnings for such policies. Mankiw joins the tradition of grant economists such as Kenneth Arrow and Amartya Sen who have pondered inequality. Yet I’m puzzled by Mankiw’s argument, which combines a breezy tone with extreme disdain for “the left,” an ecumenical term he uses to describe everyone from President Obama to French President Francois Hollande to Joseph Stiglitz and the Occupy movement. At one point, Mankiw writes: “the same logic of social insurance that justifies income redistribution similarly justifies government-mandated kidney donation.”

One passage is particularly puzzling:

[T] he 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.

It’s not surprising that a bright kid from a modest background who became a Harvard professor holds sunny views of American meritocracy. I wouldn’t dismiss the reality of that. Yet almost by definition, most people have different experiences.

I’m surprised that someone of Mankiw’s accomplishment and empirical skill would retreat to anecdata when pertinent data are so widely available. One study examined intergenerational mobility between 1979 and 2000. A child in the top socioeconomic quintile had a 55 percent chance of remaining in the top 20 percent, and only an 11 percent chance of falling into the bottom 40 percent. The comparable mobility figures for children in the middle quintile were 13 percent and 31 percent. More recent data on the top 1 percent surely telegraph more extreme differences in life chances.

Mankiw’s personal experience seems not to include the lives of his own privileged students. The "Harvard Crimson" reports that 45.6 percent of Harvard undergraduates come from families with annual incomes exceeding $200,000, the top 3.8 percent of the American income distribution. Less than 18 percent of Harvard students have family incomes in the bottom 60 percent of the American income distribution.

Anthony Carnevale and Stephen Rose analyzed family background data regarding students who attended the top 146 colleges in the United States. Seventy-four percent of students come from the top quartile of family socioeconomic status. Only 10 percent came from the bottom half of the distribution. A mountain of evidence indicates that the top 1 percent enjoy many large advantages in gaining entry to the most selective institutions of higher education. Legacy admissions are only the most obvious non-meritocratic edge enjoyed by the most advantaged.

And that’s merely the inequality among kids with strong academic skills. Many youths I encounter in violence prevention and public health work face learning disabilities, ADHD, substance abuse and mental health concerns. Lucrative industries of costly test prep services, tutoring, psychological supports, attorneys, learning consultants and treatment programs exist to support affluent children who face such difficulties. Exclusive school districts such as Bethesda, Md., acquire reputations for excellent resources, too. Many youths greatly benefit from such services and resources. Some attend colleges such as Landmark that cater to the learning-disabilities market. Landmark’s annual tuition is $49,500.

The median annual family income in the United States is $62,272. Not many people with this typical level of resources can access such costly forms of help. Some kids will thrive anyway or will find wonderful people to help. Many will quietly fail along the way.

Mankiw’s essay might have been more useful had he stuck to a more interesting set of questions:

To the extent that our society deviates from the ideal of equality of opportunity, it is probably best to focus our attention on the left tail of the income distribution rather than on the right tail. Poverty entails a variety of socioeconomic maladies, and it is easy to believe that children raised in such circumstances do not receive the right investments in human capital.

Outside the pages of "Anarchy, State, and Utopia," the most bitter political divisions in America focus on related questions: What share of America’s national resources should be used to nurture the life chances and current consumption of the bottom-third of the income distribution? To what extent should taxes at the top end of the distribution be used to pay for that?

President Obama has proposed few measures designed to alter the fundamental income distribution of the United States. With one or two exceptions, he has conspicuously avoided populist Occupy rhetoric. He does favor mildly liberal policies that channel resources to poor and slightly less-poor Americans.

I wish I could have read Mankiw’s explanation of how such Republican policies would actually advance equal opportunity for low-income Americans. Unfortunately, the word “poverty” reappeared precisely once, on the second-to-last page, when Mankiw offhandledly comments:

Transfer payments to the poor have a role as well, because fighting poverty can be viewed as a public good (Thurow 1971).

As Mankiw explains elsewhere: “Government-run antipoverty programs solve the free-rider problem among the altruistic well-to-do.” Nowhere in sight is the idea that justice or fairness might require something more, or that the preferences of poor people themselves have independent weight, independent of the desires of their economic betters.

Mankiw instead trumpets what he calls the “just deserts” perspective:

According to this view, people should receive compensation congruent with their contributions. If the economy were described by a classical competitive equilibrium without any externalities or public goods, then every individual would earn the value of his or her own marginal product, and there would be no need for government to alter the resulting income distribution.

Mankiw defends a sanguine view of the top 1 percent, arguing that their outsized compensation mainly reflects their outsized productive contributions. I’m less convinced, but that’s only one concern. Why should people’s market wages so strongly determine what they deserve to have in life?

Productivity matters, but other things matter, too. On a good day, my brother-in-law earns $10 putting soap pads into boxes at a sheltered workshop. His just deserts reside in his claim to equal, dignified citizenship, not his meager ability to produce goods and services.

Mankiw expresses a decidedly narrow view of the mutual obligations that shape American democracy:

A third argument that the left uses to advocate greater taxation of those with higher incomes is that the rich benefit from the physical, legal, and social infrastructure that government provides. … As one prominent example, President Obama (2012) said in a speech, “If you were successful, somebody along the line gave you some help. ... The point is that when we succeed, we succeed because of our individual initiative, but also because we do things together.”

[H]igher taxation is being justified by the claim that the rich achieved their wealth in large measure because of the goods and services the government provides and therefore have a responsibility to finance those goods and services.

This line of argument raises the empirical question of how large the benefit of government infrastructure is. ... As I pointed out earlier, the average person in the top 1 percent pays more than a quarter of income in federal taxes, and about a third if state and local taxes are included. Why isn’t that enough to compensate for the value of government infrastructure?

Mankiw misconstrues the president’s real argument. Sure, the affluent disproportionately benefit from government and should pay more, but the point goes beyond infrastructure. It’s about what we owe each other given our differing roles and resources in a prosperous, interconnected society.

One night, my car died on the highway. A tow truck arrived, and I chatted with the driver. He drives I-94 all night long, fixing flats, providing jump-starts and tows. That’s hard work, but there’s a large labor pool available for it. He supports his fiancé and child on $31,000 a year. I believe it’s presumptuous to believe that Greg Mankiw and I make fundamentally greater contributions merely because we hold more lucrative jobs. One might ask why two professors should have health insurance and he doesn’t, why our kids should attend vastly superior schools. “It’s your just deserts” is no compelling response.

I pay a quarter of my income in federal taxes, while that truck driver is in the 47 percent. My taxes help provide his child with subsidized lunches and preschool. I help provide his family with health insurance. That’s as it should be. I still get a very good deal. He had my back. I should have his.

Harold Pollack is the Helen Ross professor at the School of Social Service Administration and co-director of the Crime Lab at the University of Chicago. He is a nonresident fellow of the Century Foundation.

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Lydia DePillis · June 21, 2013