Greg Mankiw’s awful defense of trickle-down inheritances


Just wait until Paris Hilton's wealth trickles down to you! (Danny Moloshok/Reuters)

Former Bush adviser Greg Mankiw really likes rich people, and really doesn't like taxing them.

He thinks inequality is so high, because the rich are 1) smarter than everybody else, and 2) new technologies have let them take advantage of this more than before. And he thinks social mobility is so low, because rich kids are smarter than everybody else's kids, more due to superior genes than to superior resources. That's why he thinks higher taxes on higher earners are not only economically destructive, but also morally wrong. See, according to Mankiw, we'll all be worse off if we tax the rich more, because they'll work less and save less — depriving us of their abilities and capital. And since they get what they earn from their abilities, and not, say, from having the right connections, they deserve to keep more of it, too.

Even, apparently, if their only talent is inheriting money.

Now, it might seem strange that Mankiw would develop this defense of the "deserving wealthy" only to turn around and defend heirs, too. But you need to remember that Mankiw has never met a rich person whose taxes he doesn't want to cut. That's clear enough in his latest piece arguing that we shouldn't worry about inherited wealth, because it will ultimately trickle down to everyone else. "When a family saves for future generations," he tells us, "it provides resources to finance capital investments," which eventually "raises labor productivity" and lets "workers enjoy higher wages." That's just, as he puts it, "standard economic analysis." The problem, of course, is that the world doesn't always work the way standard economic analysis says it should.

As Danny Vinik points out, compensation hasn't risen with productivity for over 40 years. You can see that in the chart below from the Economic Policy Institute. Since 1973, inflation-adjusted wages and benefits have barely increased for most workers, despite increasing productivity.

Productivity Wages

This is two-card monte, because we're still waiting for the last one to trickle down. Now, you start by saying that we shouldn't tax the rich too much, because they're smarter than everybody else and deserve their wealth. Never mind, as Noah Smith points out, that nobody "deserves" the brains they inherit. Or that, when it comes to IQ, we shouldn't put too much weight on nature over nurture, since we know, for example, that growing up in poverty can hurt children's neural development. No, then you admit that it doesn't matter whether they deserve their money or not. That we still shouldn't tax the rich too much even if they are layabout heirs. That's because we need their savings to fund the investments today that will make us all more productive — and hence, better paid — tomorrow.

Then you hope that nobody notices that the wealth hasn't trickled down. And if they do, just say it's because we haven't cut top-end tax rates enough. That should do it.

Matt O'Brien is a reporter for Wonkblog covering economic affairs. He was previously a senior associate editor at The Atlantic.
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