“Fight” between Mankiw and Krugman

Greg Mankiw posted a blog defending the 1 percent richest people four days ago, and Paul Krugman obviously had a disagreement with that, he then wrote a post against Mankiw’s avocation.

Actually this is not the first time those two greatest economists disagree with each other on the equality problem. On June 8, 2013 Mankiw published his article Defending the One Percent, claimed that inequality problem is not that serious and the fixing the inequality is so hard and may result in the unfairness for those rich people. He argued that the reason why some people are richer is simply because they are better (in every possible way). And he also said the absolute equality is actually inequality, and actually rich people had contributed for the economy more than others in US. Basically, Mankiw’s idea is to control intervention toward equality in order to maximize efficiency.

In opposite, Krugman proposed that “We live in a society that allocates rights to intellectual property in a way that yields huge rewards to a select few, that taxes top incomes at a historically low rate”. Also on the other hand, Mankiw neglect the inequality of opportunity, which is vital to decide whether the resource will be allocated in a fair way, for this, Krugman said that children from rich families are more likely to remain their top position. Finally, he found it absurd for Mankiw to think that solving inequality would lead to absolute equality.

Now this “war” has been updated.

Mankiw’s new blog Yes, the Wealthy Can Be Deserving once again insisted on the rightness for rich people to own huge amount of money. Mankiw gave an example about Robert Downey’s income through the film The Avengers and argued that those incomes are totally legitimate and the player himself deserved the money, thus there should be no doubt toward the inequality. In addition, he believed that financial systems are “allocating the economy’s investment resources” fair enough to make the country work effectively.

One days later, Krugman agian wrote a blog to comment on Mankiw’s article. First he noted that film stars are not representative in terms of the “upper tiers of the income distribution”, executives from finance, corporate and real estate are actually what we are referring to as top 1 percent. And he strongly disagree with Mankiw’s statement about fair distribution, he pointed that our financial crisis was caused by the rich-dominated financial systems. So there is no such effectiveness addressed by Mankiw.

For me, I agree almost with Krugman, however, I also think it is great for Mankiw to think from the way of economic efficiency and dear to fight against main stream idea as long as he thought it is unreasonable.

I’d like to see this to continue and learn more from it.

5 thoughts on ““Fight” between Mankiw and Krugman

  1. psseo

    Nice post about this two great economists’ disagreement. I do not have such a knowledge or wisdom whether to judge whose opinion on inequaility issue is right, but Krugman’s explantaion and logic sounds more persuasive. I don’t think that this capitalistic economy or financial markets are so perfect. So, I think government intervention for more distribution of wealth to poor people will actually contribute to 1% rich people’s welfare in many respects.

  2. Chris Chegash

    I think I can sympathize with both points of view. I agree in a sense with Mankiw that perfect income equality isn’t a good thing. At some point, higher taxes do discourage people to work more. If the government took everyone’s entire income and then distributed it even, that would be terrible for the economy. That is all to say that some inequality is good.The question is really “how much” inequality is a good thing.

    How do we reduce inequality? Tax the rich more? We already have one of the most progressive tax systems of any major economy.

  3. enjar

    I praise Mankiw for looking from a non-mainstream angle on the subject. Economists, specially those famous ones, are good at presenting new perspectives.

    One crucial point Krugman made is when he said:
    “The critique falls along three lines. First, as Dean Baker notes, even if you believe that the glittering prizes at the top of the economic scale were fairly won, the size of those prizes is very much defined by policy choices.”
    I am not fully aware of how the policy frames the prize size today, but if this is indeed true, that is a problem. I agree with Mankiw in a sense that those top earners indeed works hard and deserves more income than others. But if the difference between those top earners’ and others’ incomes is shaped by factors other than difference between those people’s ability and work-ethic, that is a problem

  4. agolicz

    This is a really interesting debate, and the fact that both sides have such highly persuasive arguments makes the debate really valuable to learn about income inequality. One point that I think often gets left out of this argument (at least I didn’t see it in the Krugman articles) is the topic of risk. Entrepreneurs are often highly rewarded not only because they add value to society but because they are willing to place large bets on their passions when the probability of failure is enormous. We hear often about those that succeed, but behind every successful startup entrepreneur is a hundred entrepreneurs who have failed to the detriment of their own financial stability, often leading to bankruptcy. Beyond the value added by these businesses, entrepreneurs also typically enjoy the rewards of taking an incredible risk and pushing boundaries despite near certain failure. While it’s not clear whether or not anyone “deserves” to have a billion dollar startup valuation, or earn a million dollars a year working in finance or whether this is “fair,” it’s still important to note that we’re not compensating people for only their value. All I’m going to say is that fairness is subjective, so this debate will last as long as our definitions of what’s “fair” differ.

  5. dslavin

    I agree with agolicz. His point about risk is important. If the United States wants to be at the forefront of innovation it must continue to encourage entrepreneurs to take these risks. Too much income equality policy, like it or not, disincentives some of those entrepreneurs.

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