By Lambert Strether of Corrente.
Just the the other day, celebrity economist and 1% fluffer Greg Mankiw — sorry for the redundancy — placed an Op-Ed with the Times. I quote in relevant part:
Yes, the Wealthy Can Be Deserving
These questions go to the heart of the debate over economic inequality….
The value of making the right decisions is tremendous…. [One] case is the finance industry, where many hefty compensation packages can be found. There is no doubt that this sector plays a crucial economic role. Those who work in banking, venture capital and other financial firms are in charge of allocating the economy’s investment resources. They decide, in a decentralized and competitive way, which companies and industries will shrink and which will grow. It makes sense that a nation would allocate many of its most talented and thus highly compensated individuals to the task.
In addition, recent research establishes that those working in finance face particularly risky incomes. Greater risk requires greater reward.
[T]he richest 1 percent aren’t motivated by an altruistic desire to advance the public good. But, in most cases, that is precisely their effect.
Let’s put on our waders and rubber gloves, shall we?[1]
But wait! Let’s look at assumptions. In Mankiw’s world, we have two classes, the rich (“richest 1%”) and the rest of us, and a relation between them: inequality. Could it be that both assumptions are problematic?
Thomas Piketty and Emmanuel Saez, of the World Top Incomes Database, have created this handy chart, suitable for placement on the fridge, if you have a fridge, that can help us question both assumptions (courtesy of George Washington’s Blog).
Chart 1
The chart undermines both Mankiw’s assumptions. First, as to classes: It’s clear from Chart 1 that there are class distinctions even within the 1%. The top 0.01% (the Waltons, the Buffets, the Kochs, in baby blue) are being “rewarded” spectacularly better than all other classes. It’s also clear, taking income as a proxy for capital, that these oligarchs enter into a very different set of class relations than, say, the executives, doctors, and bankers who make it into the top 1%. It is, after all, one thing to extract wealth from the “human resources” of the largest retail operation in the world, or from a transcontinental railroad, or a from a monopoly on a proprietary software package, as the 0.01% do; and another, and quite smaller thing, to loot a single company, collect commissions from Big Pharma, or work an accounting control fraud or three in real estate. Importantly, the chart also makes crystal clear that, for those with no access to capital (Chart 1’s “bottom 90%”, in purple), their income has been flat not merely since the neo-liberal dispensation began, in the mid-70s, but forever.
Second, as to relations between the classes, Mankiw frames his Op-Ed in terms of “inequality.” To be fair, that’s a term that pervades the political class. Larry Summers: “Inequality has emerged as a major economic issue in the United States and beyond.” Joan Walsh: “In the end, the president did mention income inequality….” WaPo: “Income inequality has emerged as a central fact of the modern U.S. economy….” Jennifer Rubin: “The right is winning the inequality debate.” And so forth. But is “inequality” the right term?
I’d argue that “inequality” is not at all the right term (unless your object is to conceal, rather than investigate, relations between classes). Citing (sadly) Wikipedia for a layperson’s understanding[3]:
In mathematics, an inequality is a relation that holds between two values when they are different (see also: equality).
- The notation a ≠ b means that a is not equal to b.
It does not say that one is greater than the other, or even that they can be compared in size.
So what does “inequality” tell us? Not much. Hemingway’s famous set-up of Fitzgerald is a symmetrical relation. The rich are different than you and me, but, equally, you and me are different from the rich. Hemingway’s punchline introduces the asymmetry: Yes, they have more money. Not a ≠ b, but a > b (or perhaps $ > -$). If I fell into the pit of becoming a Walmart greeter, it would be absurd to characterize the relation between the Waltons, and me, as one of inequality: They can rent my time, but I can’t rent theirs; that’s inherently an asymmetrical relation, better characterized as (for example) exploitation rather than inequality. Oh, and to answer the question: How much? Well, too much is never enough; that’s why Arrighi talks about “endless” accumulation.
And now to the remaining substance of Mankiw’s paper.
So, first, what do the rich deserve? Or rather — reframing the question in terms that the rich would understand — how much[2] do they deserve? I’m reframing the question that way because it seems to me that the essence of neo-liberalism, the dominant ideology of the political class on upward — can be summed up in one sentence: Those who are good with money deserve longer life, and those who are not deserve to die (to be fair, in the aggregate, they deserve to have their life expectancy shortened). That’s how things played out in Russia after “reform,” anyhow! You can see this idea play out very precisely with ObamaCare; if, rat-like, you demonstrate the ability to navigate the maze of the Exchanges successfully, you will be rewarded with better medical care which (one hopes) will translate into longer life; at least in the aggregate. Single payer doesn’t select for people being good with money which is why, from the neo-liberal perspective, it’s immmoral. You can also see the same idea play out with disemployment and economic stress generally.
And second, why do they deserve it? Mankiw presents two arguments. First, risk. Re-quoting Mankiw:
[T]hose working in finance face particularly risky incomes. Greater risk requires greater reward.
Of course, that fits with the essence of neo-liberalism as I’ve described it. Since those who risk their lives, as opposed to what’s really important — money — aren’t rewarded with any wealth at all:
The Riskiest Jobs In the United States
(compiled from source 1, source 2, and source 3)
- commercial fishermen and related workers
- loggers
- mining and oilfield workers
- pilots and flight engineers
- agricultural workers
- roofers
- garbage and recycling collectors
- iron and steel workers
- truck drivers and traveling salespeople
- industrial machinery workers
- law-enforcement officers
That’s funny, I don’t see finance in there.
Alrighty, then.
Second, Mankiw urges, the rich are doing important work: Allocating capital. Re-quoting again:
Those who work in banking, venture capital and other financial firms are in charge of allocating the economy’s investment resources. They decide, in a decentralized and competitive way, which companies and industries will shrink and which will grow. It makes sense that a nation would allocate many of its most talented and thus highly compensated individuals to the task.
Right, right. These are the clowns who allocated a shit-ton of capital to building whole counties full of homes with stucco-covered styrofoam pediments during the last housing bubble, which culminated in the largest upward transfer of wealth in world history. From a public purpose perspective, collective decision-making by the FaceBook — heck, the MySpace — long tail might well have yielded better outcomes.
Anyhow, forget the 0.01%, the squillionaires; what could any human being, let alone a Walton, do to “deserve” controlling wealth equivalent to the income of 42% of American families? Nothing. It’s absurdly disproportionate, wretchedly excessive, a gold bar The Money God made that’s too heavy for Him to lift. So how about the 1%? Take the executives — please! What do they they do to deserve their wealth? As it turns out, exactly one thing:
Bloomberg reported earlier this year that the ratio of CEO pay to worker pay has increased 1000% since 1950. Fortune 500 companies pay their chieftans 204 times the level of average worker pay, versus a mere 20 times in 1950 and 42 times in 1980. Is it really five times harder to run a big company now than in 1980? It’s one thing if CEOs were the ones that had built important businesses and taken entrepreneurial risk. But the Bill Gates and Sergey Brins of this world got really rich on their shareholdings. CEOs, by contrast, inherit businesses with established franchises. And the idea that paying more buys you more talent is spurious. If you were to say that paying more for a house makes it a better house, you’d see how this rationalization is a form of magical thinking. Studies have found no correlation between CEO pay and results. Quite a few studies have found the correlation to be negative (here, here and here, for instance). And forget about the myth of the superstar CEO. Lucian Bebchuk, Martijn Cremers, and Urs Peyer analyzed what they called the CEO pay slice, which is the proportion the CEO took of the total pay of the top five execs that went to the CEO. The more the CEO took relative to the rest of the top team, the worse the company did. But CEO pay is strongly correlated with one metric: how many people they fire.
That one thing the 1% does to “deserve” their wealth? That’s right: Class warfare, pure and simple.
As esteemed commenter Hugh remarked:
Inadvertent vs. nefarious plot is a common strawman. A class analysis is vastly superior. It explains how members of a group can act together without specific and continuous guidance, that is with only general and intermittent points of contact. In other words, you don’t need smoked filled rooms and finely plotted conspiracies to get the result we see (which by the way is not to deny there can be a few smoked filled rooms here and there). The basic point is that while members of the rich and elites may jockey for position and sometimes work against each others’ interests (giving the appearance of lack of uniformity and coordination) they work against our interests virtually all the time.
Indeed!
NOTE [1] There are really too many fish in Mankiw’s barrel to shoot, so I skipped over “most talented and thus highly compensated.” Yeah, you know. Like Vincent van Gogh. Or Ignaz Semmelweis. Or Donald Knuth. Breathtaking.
NOTE [2] It’s never been clear to me why we regard people who accumulate great quantities of money as heroes, and people who accumulate great quantities of Kleenex boxes or old newspapers are considered lunatics. It’s a funny old world, as Maggie Thatcher said.
NOTE [3] The layperson’s understanding of “inequality” is appropriate for an Op-Ed.
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Economics is a mental disorder. Why try to argue with crazy people? It’ll just make you crazy yourself, eventually.
However, I think it’s fair to say that some rich people deserve to be rich. I can think of Adele, for one. Everybody knows who she is. Also Tom Brady, the Patriots quarterback. Also the dude who invented air conditioning. I have no idea who he is, but he deserves to be rich. maybe some financial wizard cheated him though, and he died in a single room occupancy hotel in St. Looey during a summer heatwave. I could easily see that happening. Also Madonna deserves to be rich. No doubt. Also me, if my 100 bagger hits. You can be rich just by being lucky. In fact, that’s how most of them get rich. But you’d never know it from guys like Professor Mankiw. that’s why economnics is a mental disorder. In fact, he’s so out of it he probly thinks he’s smart. haha hahaahahah
The guy who invented the fast forward and mute buttons really deserves to be rich. He saved my sanity, or what’s left of it.
The mute button!! I’ve been really chagrined that we don’t have flying cars, yet, or at least personal hovercraft, but I thank God for the mute button, at least. Also, weren’t we supposed to be soaring around at least some level of orbit, by now like in 2001? Really disappointing. All we seem to know how to do is idle in traffic while warming the atmosphere to catastrophic levels and squabble over who gets or deserves what dreck.
I agree: I deserve to be rich for inventing the mute button. But at the time (1965 in a West LA slum apartment suitable for a chem major at UCLA), people just gave me funny looks about the cord that stretched from my TV to the old salvaged-from-remodeling light switch in my right hand – which I had wired into the speaker feed. I got the idea it was weird and un-American not to listen to ads, and that far from deserving riches, I was lucky not to be reported to the HUAC.
But my kids grew up knowing they wouldn’t be watching TV if they didn’t use “the clicker” (it was a very old light switch).
Dear craazyman;
You can burn a vigil candle to the shade of Willis Carrier, who built the first commercial air conditioning plant in 1902. The application of the underlying principle goes back to 1748! We don’t know just how good we have it, do we.
As for 100 baggers, well now, I for one would have never thought of shorting the U.S. Constitution back in 1980. Just goes to show you.
ambrit, you’ve mentioned something very interesting there by accident. Willis Carrier did indeed make some huge advances in both theory (the psychometric chart) and in applied science i.e. engineering (efficient water chillers — well, efficient by the standards of the day anyway — and the use of an air washer to fully saturate a given volume of air at a specific temperature thus permitting 100% RH supply air which could be raised in temperature thus lowering the RH to any desired level). Please do say if I’m boring anyone here.
But the whole history of air conditioning is a petri dish for how science (and scientists) becomes engineering which becomes industry which becomes a facet of economics that gets enmeshed in politics. In an example of how to solve a problem by working backwards, traditional economists who wish to enlighten themselves beyond the narrow confines of their (often well dodgy) theories — and this suggestion also extends to neo-Keynesians and MMT’ers — might be well advised to read
Gail Cooper’s Air-Conditioning America: Engineers and the Controlled Environment, 1900-1960 http://www.amazon.com/Air-Conditioning-America-Controlled-Environment-Technology/dp/0801871131/ref=pd_sim_b_1?ie=UTF8&refRID=1R69PZWES23VS2MZM23B which contains some fascinating examples of how advancement (through science) becomes progress (for humanity) which turns into industry (for workers and capital) then finally into, arguably, oppression (of society and for the environment) before being restored — at least in part — to the Common Good.
As a “for instance”, it’s long forgotten now, but when one of the Carrier group of companies, The Auditorium Air Conditioning Company in the 1920’s innovated — and this is a fair use of the word, innovation is what they did — and manufactured a method of air conditioning large spaces (like theatres, movie houses etc.) in an economical way (using bypass dampers) it set in train a sequence of events which traces the good, the bad and the ugly of big business.
They (Auditorium) patented their innovative design. Their enforcement of their patent enabled them to get seriously rich through operating a monopoly. Competition was ruthlessly suppressed through rigorous enforcement of those patents. Eventually, in the late 1930s a judge decided that the Carrier patents should be dissolved “for the common good”. This was because what those patents protected was too essential a service (or product) to be constrained to just being supplied by one company The riches being amassed by that company precluded further innovation by would-be new competitors’ products being introduced into “the market” (the main mechanisms for stifling competition being either patent creep where improved competing products would not be able to prove sufficient difference between theirs and Carrier’s product even if they offered incremental advances or, if they weren’t ruled to be infringing Carrier’s patent, then good old predatory pricing could probably see them off) .
That (the both bringing the matter before the courts and the courts then ruling that what had stated out as a legitimate protection of intellectual property rights had become an impediment to the ability of society to progress for the good of all) reflects I believe the thinking of the times those events happened in.
Et tu, Apple’s App Store… Amazon… The TPP… ? No, I don’t think so either. So what’s changed between the 1930’s and today ? Because something definitely has.
We need to find that 1930s judge, dig him up, and make him Chief Justice of the Supreme Court. Intellectual property law is a crime against labor.
Gee, J. Gibbs, I didn’t know that the book I wrote, or the one Yves wrote, should be free to anyone and everyone, which, without the intellectual property copyrights, they would be. (As would the books of all the anti-capitalist/anti-neoliberal writers like Naomi Klein, Chris Hedges, etc., which have served to help illuminate what is being done to us by the unholy alliance of corporate power and government.) But, Hell Ya!, let’s get rid of intellectual property laws. And if you are including patents in that, then let’s have all inventors not only not get compensated after their successes but let’s let them totally finance their research and experiments. Boy, I can see Edison inventing the telephone and the electric light bulb as charity projects.
Not.
Let me remind you that most of the labor that went into much of the software into which you keyed that sorry apologia for speculative rent-seeking was donated by individuals and organizations, with no expectation of direct return.
What book did you write, so that I can cross the street to avoid buying the words of such a craven, broken soul?
Well, books, shmooks. If you aren’t Michael Crichoton or Daniele Steele, chances are you won’t sell enough books to pay for the computer you typed them on. If you want to talk about patents, that’s a horse of a different colour, since every invention pyramids on the back of everything done previously since the first guy figured out he could kill something with a sharp stick, and sharpen the stick with a jagged rock.
If you like monopoly you should love what’s happening these days in computer software. To say that there ought to be some kind of protection for intellectual property is not to say that things are just hunky dory. The Devil is in the details.
Been a long time, but I recall reading a satirical piece written by Milton Friedman about how the invention of air conditioning was the cause of virtually all that is wrong with the U.S. Friedman reminded us of the days before AC when D.C. was way too hot and humid for most gainful activities and the city emptied out each summer. That meant that virtually all of our legislators went home to their districts every year and were not available to cause the harm that they did when they were present in town. One of Friedman’s more interesting ideas IMHO.
Quotes Dictionary credits this to Gore Vidal:
http://quotes.dictionary.com/I_date_the_end_of_the_old_republic
(but often great or always-true quotes get repeated and modified along the way by various people so Friedman could have tweaked it as you describe).
Cheers, Clive (always a reliable as a mind of useless information on A/C-related trivia)
But that’s still a good question: what has changed since the 30s? The answer lies somewhere in the capitalist dialectic you referenced about stg invented for the good of all evolving into stg so popular that its own use destroys it (or stg like that). I’m thinking that capital is the thing that is the ultimate nemesis that will destroy itself because it is so dogmatic that it refuses to change. It just puts up a lot of rationalizations like Mankiw. Why money instead of boxes of kleenex? That is also a good question. Blahblahblah.
Then there was H. Valentine Miller’s tag for the country, “The Air-Conditioned Nightmare.”
Dear Clive;
That’s the kind of tome I enjoy. Thanks for the link. As to whaty’s changed between 1930 and today, I must speculate, not having been around then. My guess is that the definition of “common good” has been perverted from capital C commons to capital C capital. The Great Depression was a slap in the face for one and all. Unrestricted capitalism had shown itself to be very dangerous. Dangerous to the ruling elites especially. The “Bonus March” had shown just how fragile civil government in America was. As the Craig Paul Roberts listed elsewhere today shows, Posse Comitatus Act or no, the Army is there for a purpose. Whos’ purposes it serves, that’s politics for you. thus, MacArthur sent the troops into the Anacostia Flats and drove the Bonus Marchers out with fire and blood and steel. My guess is that a lot of the Thirties’ judicial activism was in response to that brief flash of naked force unleashed by Hoover. So, today, we’re doing as Santayana predicted; reliving history.
Errrmm… I think General McArthur showed that the rich really didn’t have to worry about protesters after all. See also Steinbeck’s description of how the California Highway Patrol dealt with refugees (Grapes of Wrath).
Dear Procopius;
I beg to differ. MacArthurs raid of the Anacostia Flats community was an admission of political and moral failure. If my reading serves me, authoritarian systems fail early and regularly whenever the population stops accepting the elites as legitimate. Then there is the problem of competing elites. Hitler was an exact contemporary of Roosevelt. He followed an overtly authoritarian path, and ended up badly, with the help of not one, but two major competing elites: Hybrid Capitalist Anglo America, and the State Socialist Soviet Union.
As to your reference to “The Grapes of Wrath;” what about the ending? Plus, look what happened to MacArthur at the end of his life.
As the song says; “When you’ve got nothing, you’ve got nothing to lose.”
I think it was encapsulated best in that timeless rubric: JUMP YOU FUCKERS.
We really need the pillory and the stocks for economists like this Gregory Misprint.
And the Times can be very useful; just don’t read it. Save it for cleaning your shoes when tiptoeing through the economics bog.
“The basic point is that while members of the rich and elites may jockey for position and sometimes work against each others’ interests (giving the appearance of lack of uniformity and coordination) they work against our interests virtually all the time. ”
I disagree. They got people to work against our interest, and unfortunately very often those people are us.
I don’t see any real disagreement. The fact that the plutocrats have employed others to deceive us into working against our own interests is consistent with them also working against our interests. What’s so tragic is how many of us are duped into believing that we too have an “opportunity” to “succeed” in this rigged system, and that we should therefore defend and preserve it.
While some folks are actually paid enough to serve the plutocrats that this delusion is at least understandable, most folks are not. Yet the mere miniscule possibility of winning the PowerBall, someday, keeps many poor folks firmly against raising taxes on the rich.
On a level they do work agains the rest, indirectly. My point is, that once the rest (i.e. us) know that it’s indirectly, that we’re in vain looking for that lottery ticket, the 0.01% can’t work indirectly anymore.
Say when you look at the graph, the relative position of the 0.5% (ex the last
datapoint) now is not that different from what it was in 90s. So getting them to support bringing the 0.01% down (and spread that evenly for those below) would be in their interest. But only if it’s very clear that they could never really get to that 0.01% – if you can “aspire”, the hope blinds.
I’d even say that the 1% meme is serving the super-rich more than anyone else. Don’t know how in the US, but in the UK a GP or a good lawyer will easily by in 1%. It takes about 150k to be in top 1% (family income, not single-person income), which a family of two successfull IT people can get (10% of IT salaries in the UK are above 75k a year, 60k is the 75th percentile).
None of the above will feel super rich and or detached from the guy on the street (they will be still making about 3.5 times median, so not unreasonable multiples – for being in 1%)- but pushing them forcibly into 1% WILL alienate them (it’s hard not to get alianated when people attack you).
Didn’t the finance a$$holes just take huge risks a few years ago, and blow themselves and the rest of us into smithereens, but unlike Humpty Dumpty, were put back together again, with non finance “folks” paying the bill?
Reward for risk? For a financial crime wave! For an “industry” that destroys wealth.
Stealing Matt Taibbi’s line, Mankiw is a plutocrat’s ball gargler.
Would you be willing to risk wrecking the economy and immiserating millions just to make a few extra bucks? No? See, that’s why you don’t make the big bucks…
The rich deserve justice – nothing more and nothing less – and so do the REST of us.
But a government-backed credit cartel whereby those with equity (especially a lot of equity such as the rich have) can borrow the stolen purchasing power of those with less or no equity is NOT justice – it’s THEFT by proxy – especially from the poor.
“sorry for the redundancy” – that cracked me up. Lambert you are the best. (sorry for the redundancy)
And they say Americans don’t do irony ! “they” should read Lambert.
I’ve given up on irony…now I just make sure to buy ‘wrinkle-free’ shirts…
Honestly, I’ve got a couple pair of wrinkle free khakis from Brooks Brothers and it feels like somebody greased them with cooking oil. The cotton has a weird clammy cold stiff feeling to it. You wash them and put them on and it feels like you need to wash them, but you just washed them. Then you sit down and it feels like you’re wearing cardboard pants. Cold cardboard. Wrinkle free shirts aren’t as bad, I’ve got one on right now in fact and it’s almost like a normal shirt. But if I think about it, the cotton feels like somebody sprayed it with water repellant. If it brushes your arm, you think “chemical coating”. All this because people decided wrinkled shirts weren’t socially acceptable in business settings. That’s ridiculous. Some things shouldn’t be acceptable, like control fraud and butt-ass sucking, but wrinkled shirts and khakis? I mean really.
Where’s the economists on this one? Nowhere. that’s where. They should be on this already and get that cooking oil coating off the pants and off the shirts. What use are they?
They are of no use whatsoever!!
Appearances are more important than reality. You can be a crook and a cheat, but look snappy! That’s what counts.
You forgot to mention it only takes five minutes to iron a shirt. I did this five days a week for twenty odd years. Probably saved enough to retire if I had just put the money in BRK. I didn’t.
Mankiw as “fluffer for the 1%” is brilliant, just inspired.
Other likenesses: personal attorney to Louis XVI; chauffeur to Paul Castellano.
I know – it was classic Lambert. Enjoyed it totally.
Mankiw’s position is quite effective. He’s reinforcing the (misleading) narrative of the 1% vs the rest. The issue isn’t the super rich – it’s the people who enable their excesses, the educated technocratic class in the top 20% or so in law and medicine and academia and journalism and so forth.
Until the people not in the top 1% start arresting the people in the top 1% instead of the people in the bottom 50%, Mankiw is quite correct. We collectively are saying that the banksters and other predators are highly valuable members of society. After all, they’re protecting us from the dangerous millions of ruffians and vagabonds while making our 401ks increase in value and holding inflation at all time lows. Since politicians won’t allocate resources, the financiers have to.
I have always enjoyed Mankiw because he’s got the willingness to just lay it out there and dare people to challenge the underlying narrative, to actually offer an alternative. He’s the Scott Boras of rightist economics.
Well, actually it’s the top .1% or .01% we are talking about who are the capos in our society. But you’re right about the upper-middle class enablers which may be a bit less than 20% but something like that. For example, if it was not for the fact the news business was filled with courtiers to various princes maybe we’d get some valuable information from the mainstream. At present most of what they write, about anything involving real power-relations is deliberately misleading at best and outright fabrications at worst.
Being stuck on Clive’s dialectic, I’m thinking this is a reversion to noblesse oblige. And the reason Mankiw and his noble clients want to make this point is that they want us to assume that they are the best arbitrators of the future and the future depends on financing, etc. Like Mankiw is saying, the rich know best about the present dangers the world faces. And it’s OK if they make an exorbitant profit while they are at it! He just pretends there is a free market out there competing. What a hypocrite. How dumb is Mankiw that he doesn’t yet know there is no such thing as a “free market?” If we only had democratic representation we could make these decisions as a society. But as we learned yesterday, when the Vietnam inflation (the equivalent of something like the use of an invention turning bad) hit congress in 1970, Congress – in all its cowardice – dropped the ball and handed over all decision making to “the market.”
“…If we only had democratic representation…”
Yeah, that seems to be the tricky part.
Mankiw has been economics slime, well paid by the rich to widen the gap between the rich and the rest, for many, many years. Way back in 1998, he and Douglas Elmendorf wrote about how federal spending was “unsustainable.” (http://mythfighter.com/2010/04/27/the-federal-debt-is-unsustainable/)
No reason ever is given as to why the federal government, which has the unlimited ability to create its sovereign currency, and never, never, never can run short of dollars, would find spending unsustainable.
This whole bit of nonsense is based on ignorance of the difference between Monetary Sovereignty (the U.S., Canada, Australia, China, Japan et al) and monetary non-sovereignty (cities, states, counties, euro nations, you and me).
@RMM No reason ever is given as to why the federal government, which has the unlimited ability to create its sovereign currency, and never, never, never can run short of dollars, would find spending unsustainable.
Do you agree, Rodger, that the USG has earned seigniorage only on the $42B of coins the Treasury has issued, not on the $1.2T of Reserve Notes in circulation? Do you believe that Federal Reserve Banks ever credit balances to the USG without a reciprocal surrender of assets to the private sector?
Bank credit money has a debt deflation characteristic; it vanishes with every payment to a bank, be it principal, interest or fees. Hence there is no hyperinflation from the creation of money, but, rather, relentless cost-push inflation and financialization. MMT has the effect of making taxation seem a problem to the left, because it is said falsely to destroy money and diminish aggregate demand. Its very purpose is to exacerbate economic inequality. That’s why it’s now embraced by a Forbes columnist (h/t someone on Amnesty Day.)
http://www.forbes.com/sites/johntharvey/
MMT’s sponsor is an industrialist in a tax haven who provides patronage to economists in Kansas City. If Mosler didn’t exist, Heritage would have to invent him. Congratulations to MMTers for perpetuating this scam upon progressives, and for your essential role in turning the US into the Zimbabwe of inequality.
EconCCX – As per usual,whenever somebody with a modicum of intelligence mentions one of the basic principles of MMT,Zimbabwe gets a run.
Mankiw is a known scumbag. What is your claim to fame?
@Podargus EconCCX – As per usual,whenever somebody with a modicum of intelligence mentions one of the basic principles of MMT,Zimbabwe gets a run.
I specifically explained why hyperinflation does not result, as it would in a printing press currency. Debt deflation is a characteristic of a deposit currency; money is destroyed as debts to banks are paid. Not paid down, paid as they grow. The consequence is financialization, rent-seeking, runaway inequality.
The ad hominem classiness and lack of reading comprehension in your post belong to you, not other MMTers, who would no doubt have the sense to recoil at such shoddy representation.
My apologies for butting in – EconCCX, why make things so much more complicated than they really are? What do you mean by “seignorage”? – a not very meaningful concept. The USG earns “seignorage” on every bond or dollar it issues. It creates them all out of nothing, like all money, everywhere, at all times.
Do you believe that Federal Reserve Banks ever credit balances to the USG without a reciprocal surrender of assets to the private sector? Whenever the Fed buys bonds from the Treasury. It did it openly in large quantities during WWII – and this helped keep down inflation, contrary to the Mainstream Martian illogic. It does it all the time nowadays – having someone in the private sector flip the bonds on the way from the Treasury to the Fed is a joke – they just take a vig – get free money from Uncle Sam. And the distinction between the Fed & the Treasury is a moronic distinction, with no purpose but deception, between one pocket of the government and another pocket, in Abba Lerner’s words.
MMT has the effect of making taxation seem a problem to the left, because it is said falsely to destroy money and diminish aggregate demand. Taxation is a problem to the guy who is taxed. The position that taxes “destroy money and diminish aggregate demand” is not special to MMT. MMT & MS say it for the simple reason that it is true and makes sense, and the alternatives are false and don’t make sense, and usually contradict accounting. Basically all economists and ordinary people and politicians believed this truth during the heyday of Functional Finance and the Keynesian (postwar) era – particularly the earlier you go, like the 40s, before the rot of deceiving yourself and others with incoherent, fake mathematics took over.
So a more sensible accusation against MMT is plagiarism :-) – e.g. as Dean Baker asks – what’s the difference between MMT & good old Keynesian economics? The answer to that is – nothing – but what is now called Keynesian economics, including many beliefs that even a fine economist like Baker holds, is riddled with lethal doses of mainstream illogic.
I am a very rabid MMTer, and I am all for increasing taxes on the wealthy. It would help equality, increase the demand for and value of the dollar, remove power from the stupidest and most destructive class in history etc. But what it would not do is provide money to the government, because that idea makes no sense and isn’t true.
” But what it [ paying taxes ] would not do is provide money to the government, because that idea makes no sense and isn’t true.”
That statement is nonsense on the face of it .
@Calgacus, Federal Reserve Banks, the owners of those bonds, are themselves owned by the banking industry. You’re trading in metaphors and reiterated assertions, not evidence. Whatever your own standing in the MMT industry, I was responding to Rodger, who is vehemently anti-tax.
Treasuries are a highly specialized, low velocity, narrow money. In a recent discussion, you objected to my use of the word “permanent” as signalling a gold-standard understanding. Treasuries are as eternal as the republic; deposits are extinguished from the media of exchange with the next credit card swipe. Funding via treasuries is an engine of inequality and financialization. Debt deflation is an engine of stagnation. That’s the state of play in our era.
(Sorry for the Q&D, but tasks call; I’ll be offline for a day or two.)
And even though California is a monetary non-sovereign, one can’t help but wonder why poverty still exists in a state which produces so much revenue for their state’s government.
Jerry Brown is an austerian http://www.nytimes.com/2014/01/23/us/in-speech-brown-balances-good-and-bad-facing-california.html
I’d argue that “inequality” is not at all the right term (unless your object is to conceal, rather than investigate, relations between classes)
Wholeheartedly agree. And use of such inaccurate framing of a debate, once it takes hold, can cause problems in future discussions.
Take, for example, the abortion “debate.” To this day, those who defend a woman’s right to make her own individual reproductive decisions struggle against an opposition that calls itself “pro-LIFE.” An opposition that is overwhelmingly MALE with no experiential stake in the issue at all. Use of the word “life” allows them in.
With regard to the issue of “inequality,” a preview of the future was provided by Chris Christie in a speech to a conservative group a week or so ago. The problem is not “income inequality” he said, because what would the solution to that be? Income EQUALITY–everyone makes THE SAME.
And you KNOW what that is–the potent, infamous derailer of all economic justice arguments–the dreaded SOCIALISM. Case closed.
An aside: As the homosexuality/gay marriage issue recedes in importance, the search is on for a new, equally divisive wedge with which to split the “electorate” every two years. This could be just the ticket, so tread cautiously.
I think you nailed it Katniss and we should see it coming. Redefining it relentlessly as exploitation and outright theft is a good idea. When the pols go to the podium and pretend like it is some lesser inequality, maybe they will be booed off the stage.
Ignaz Semmelweis, nice connection there with how the nobles in the 1800’s felt about how their hands were clean and today’s modern nobles can do no wrong.
Mankiw makes a rational argument about the importance of allocating capital and resources–it is a very important job that should be given to people uniquely skilled to do just that and they should be compensated for it; however, that is not what the people actually do. They, in fact, try to make as much money for themselves as possible through virtual piracy by any means necessary–they lack all moral bounds and routinely game the system, bribe or otherwise influence public officials and regulators to look the other way.
Mankiw and others start with the fallacy of “the invisible hand” applied to public policy. Society is an organism that requires social institutions to function. The current model of finance capital cannot function as a social institution–it is like looking at marriage as two people purely following their self-interest–usually there the results aren’t so good. Society requires public institutions that seek the welfare of the society first. Allocating resources is a social policy job not a job for people who are speculators and I suspect Adam Smith may have agreed with me. He would have seen that financial markets are vastly different than the market for pins.
We need to progress from the Invisible Hand to the Uplifted Finger.
As the poet said: The middle finger flips, and having flipped, moves on.
Yes.
I am still reading Smith’s Theory of Moral Sentiments. It turns out his idea of the truly good man is someone who never ever does anything knowingly that might harm any one else. I doubt he would place today’s CEOs in that bracket.
I’d like to hear more about The Theory of Moral Sentiments. That sound positively Buddhist.
Nope, Smith is not even remotely Buddhist. For one thing he thinks periodic war is a requirement for society so that young men may learn morality throught encountering danger, challenges, and learning camaraderie.
Allocating resources is so tricky. I mean, do we build a bridge across that river we keep getting wet in or spend the town’s funds on a weekend bender in Prague? No problems there then Banger, tickets in the post. All economic educational evaluation I’ve seen says money spent early is 4 times more effective that higher education and promotes equality of opportunity whereas HE stymies it. Easy allocation there then, let’s send the big cheques to vice chancellors and cut costs on school meals (UK schools are so bad we think feeding kids properly would do more for brain development than sending them there). Those VCs really know how to allocate; they only spend 10% on teaching. A real long term rationality there, when most HE could be organised and delivered by new technology, and use other civic provision.
Mankiw hasn’t got a rational bone in his body. His spine went first, I understand.
Well done Lambert. You’ll get a couple of hits on this after I teach it on Thursday afternoon. I’m off for a pint now after being relieved of the need to prep. I keep one of Manky’s books to toss into the waste bin at the start of 101 each year. Refreshingly few students know who he is. I tell them he’s some Harvard type whose students walk out in protest. I don’t suppose you have any Powerpoint slides?
One of my beefs concerns how we get to the position of this mainstream crankery. I do a thought experiment rolling my dog’s ball over my table to be caught by the prettiest girl in class (no not really) after it has dropped two inches. Then I ask where the ball might be if it was a photon emitted from a sodium chloride lattice. The answer, more or less, is ‘Australia’. Apart from getting me branded as Mad Einstein, the purpose of this is as a run-in to sums that demonstrate the speed money travels at to the rich and the difference between evidence used by Manky and Einstein. Some of the kids end up thinking money disappears to Australia from their pockets after a night clubbing, but most get the point that root metaphors like ‘greed is good’ don’t travel in the same medium of intellectual honesty as assumptions about the speed of light. The greed is good merchants remind me of burglars caught in their Aladdin’s cave claiming to be re-distributor’s of wealth, charging only a small collection and storage fee (the basis of bank involvement in commodity warehouses).
In science we wear many crazy speculative explanations (is that an electron or a positron travelling backwards in time? – wolves are responsible for Lyme’s disease), but sooner or later we treat them as one liners in stand up comedy if the evidence doesn’t stack. The wolves keep down the coyotes that don’t ten eat the mice that share territory with the deer carrying the disease sort of stuff. Anyway, we start by getting class explanations of positions on greed is good. This reveals a lot of entrenched ideology and almost nothing we can describe as evidence.
I’ll stop here as I’m already of your view. The issue to me is less on the facts and more on why we divide so passionately on such as greed is good, capitalism is the only game in town and so on. Evidence doesn’t have much to do with it. I’ll be using these from World Economic Review: http://wer.worldeconomicsassociation.org/files/WEA-WER-3-GalbraithHale.pdf – http://wer.worldeconomicsassociation.org/files/WEA-WER-3-Birks.pdf
Some of the kids will get as far as accusing me of being a leftie and only putting left-evidence forward. This is great as it lets me tell everyone to get out and find the real evidence for a debate next week. The real reasoning, of course, concerns another week of no prep for me. Most of the students will be quite shocked by Lambert and won’t even know cops are so far down the risky job ladder. I hope to get them asking how they got in that condition. The mainstream crankery doesn’t happen by accident.
Mankiew is like a person who wears a copper bracelet insofar as his slavish beliefs on the relationship between his methodology and the relationship of his theories are about as reliable as one’s “belief” that wearing the bracelet leads to good health. When economists of Maniew’s ilk talk about “taxing the rich” they are purposely using a false argument so that we lose focus on the real issue. The vast majority of super rich follow the proven concept, coined by the financial industry, and that is exploiting “mis-priced assets”. (The banking industry actually wrote the book on that idea!) What I mean by that is that bankers take advantage of the franchise granted by the U.S. government that allows they to administer our financial payments system. They are no less a public utility than the electric or the water company, with the principal difference being that the franchise granted by us is massively under-priced. This is the reality of their success and without it, none of them would be in the 1% club without winning the lottery. As part of the franchise granted to the bankers by us, one feat for which they claim greatness is, in addition to the fees the are able to charge us for the mis-pricing of administrating our payments system, banks are allowed to create money and pay rates subsidized and controlled by us. I can’t help thinking that the bankers are just as George W. Bush was described: “One who was born on third base and thinks he hit a triple.” Yes, there are those who are so talented (lucky?) as to rise to the top of the exploiters of our mis-priced franchises but the only reason for that is that someone has to. Go through the list of the 1% ers and in each case you can see how they do it. Just a few: Broadcasting companies: The air waves belong to the people (that’s the law!) but they become super rich because we charge too little for the rights to broadcast; Walmarts – They pay their employees sub-subsistance wages with no benefits and the taxpayers pick up the tab or the difference. You get the picture. Contrary to these mis-priced assets being the principal source of these businesses’ greatness, look at the airline industry. They are also granted a franchise. But because they are so highly regulated (notwithstanding the claim that they are not, they can only take off and land at places controlled by the government) the industry is nothing more than a zero sum game, (Airline like to say that the way to make a million dollars in the business is to start out with $2,000,000) and it has never been a question of if an airline will file bankruptcy but when. Obviously, I would argue that the airline franchise is priced for perfection. So the discussion should not be about taxing the rich and Mankiew should know better. How many of us could prosper if granted a public right that is mis-priced? (A real economist would argue that very definition of a public mis-priced franchise is where the grantees become vastly wealthy.) The question is and always has been, how do we fairly price these franchises without which virtually all of the 1% ers would be nothing more than the rest of us?
The payment transfer system needs to be completely separated from the banking system as we know it. Controlling it allows the Banks to take hostage of the rest of the Economy.
Yep. So should risk-free deposits. Only the monetary sovereign can properly provide both if we’re talking fiat.
Individuals in charge of allocating resources for the economy?
Is this guy joking? Hey! Call 911 for emergency psycho care, maybe he turns dangerous after being extremely fool.
much fool.
Simple solution but the working poor – the 99%- are either too stupid or too afraid to implement the obvious!
Change the TAX CODE.
It’s the TAX CODE – stupid- it’s always the TAX CODE that decides who’s stays or becomes RICH and who will labor to insure the RICH get RICHER and LORD over the ignorant fearful starving masses!
Stupid is as stupid does and the RICH insure it stays that way!
TAX ALL Income or Net Worth over $10,000,000 at 100% and no one will have enough to decide what’s best for the 99%!
You are correct . The Taxcode is the starting point and most important factor in getting a fair distribution of wealth as a result of the one and only ” fair ” tax – a flat rate income tax – the same rate for everyone except perhaps below poverty incomes and such . Overtaxing the ” rich ” ( ie. progressive taxation ) will eventually destroy prosperity since , if for no other reason , it is not ” fair “. The current reality of the taxcode is such that the rich can get out of actually paying their fair share ( or progressive share ) for government . The rich bought and paid for the taxcode we are subjected to in order to insure staying rich and getting richer at others expense .
There’s no need to tax away ill-gotten gains if they’re not allowed in the first place – see the government-backed credit cartel as a prime means of concentrating income and wealth unjustly.
If throwing the mighty Mankiw at the Times’ OpEd pages is the best the 0.01% can come up with in reply to the s**t storm unleashed by Perkins/Zell/Armstrong et al then, maybe, there’s a scintilla of a whisper of hope here. So, far from slamming him and his ilk, we should be encouraging more of them to come out into the open where their Gecko-Class allegiance is plain for all to see.
In that contrarian spirit maybe we should invite him to put his views to the NC commentariat?
Apparently not only do the rich deserve to be rich, but they’re also entitled to bankrupt the rest of us, corrupt political systems, evade accountability, instigate genocidal wars of conquest, and render various ecosystems unliveable to ensure their enrichment is maximally pointless and pestilential.
Billionaires don’t persist in their avarice because they need the money by any stretch of the imagination. They persist in their avarice because they’ve established obsessive-compulsive hoarding disorders and will do literally anything to avoid treatment, the same as any other hoarder who is unable to part with boatloads of useless belongings. And it’s a fatal mistake for the rest of us to allow them to indulge their sickness to our destruction.
What does he mean by saying they are “good” with money? These are the people taxpayers had to bailout with at least 23 trillion. They will be asking for another handout soon enough. Does Greg mean if you snort a lot of coke and manipulate politicians to do your bidding, rigging the system in your favor so you can’t lose no matter what you do? Is that what being good with money means?
Risk? How risky is it to be TBTF by design. Jeez, these people get a bailout for every scam they come up with. How is that risk?
Benefiting the economy? Again, by burning the village to save it?
The original Rothschild ( circa 1780 ) has been profusely quoted as saying ” give me control of a nations money supply and I care not what laws are made “. The Rothschild empire ( warburgs , schiffs , rockefellers , morgans , vanderbilts , et. al. ) owns , on legalistic papers and otherwise , much of the western world and many governments – including the USA . It would be very dangerous for the sheeple to attempt to snatch that suspicious ownership from the empire . As they say ” posession is nine tenths of the law “.
Lambert, reading this was an absolute pleasure. Thank you very much! Also, Hugh.
I’m always hesitant to chime in with what is essentially “me too” but here I go. This is the best Lambert piece I can recall. Liked, faved, +100, reblogged etc. And though I have little else to add, what more need be said? Oh yes, that old deriving an ought from an is. As in, so what do we do now? Somehow I don’t see MoveOn as a player here.
You’re going to need more than that. He’s driving the Honey Wagon.
Lambert, At first I thought you were bashing Nick Mankiw for some Onion-esque satire. Then, I took the time to go to his blog. Dear me, you are right. If Mankiw is not paid to spew such garbage, then he’s a fool. If, on the other hand, and as seems far more likely, he is pulling down a bit of “friend” money from the 0.0001, then he is an adept tool and well beyond redemption, for: ““It is difficult to get a man to understand something, when his salary depends on his not understanding it.” – U. Sinclair
While Lambert sheds some light on inequality, one might well ask: Does it really matter what Mankiw has to say? After all, its so predictable.
Anyone that can understand and appreciate the class analysis that Hugh offers, should be able to connect the dots to include those who shrill for the uber-rich, TBTF leeches, the security state that protects them, etc.
Anyone whose income relies on industry (especially FIRE) and/or wealthy benefactors is likely to talk up the rich. In this way, establishment economists, are ‘owned’ as much as corporate MSM. As such, they will wring their hands over obvious abuses, while remaining respectful and solicitous of the rich and those individuals and institutions that serve powerful interests.
Furthermore, Mankiw’s Op-Ed is not coming out-of-the-blue. What is going on now is a massive ‘appreciate the rich’ campaign and an effort (especially by the Obama Administration) to push easy and self-serving ‘solutions’ like increasing the minimum wage so that the ‘deserving poor’ can live without too much hardship. Although Lambert mentions Larry Summers and others who have recently talked about “inequality” this point is not really conveyed here.
Lastly, the theoretical constructs that allows economists like Mankiw to spout this nonsense should not be ignored. Why do economists allow other economists to distort economics such that it becomes propaganda? Whatever happended to academic integrity? For example, pollution, the poor, etc. are treated as indeo-syncratic failures that can not be incorporated in a model of rational actors and rational markets. Accordingly, government is left to deal with such failures by social policy and regulation.
Economists have no business commenting on matters that they explicitly ignore. Any who do attempt to ‘move beyond the models’ should do so honestly. Mankiw’s “income variability”(1) and Krugman-Summer’s advocacy of bubbles are shameful distortions that transparently serve wealthy interests. As long as economists continue to meekly allow fellow economists to do such harm to the social/policy discourse, they ALL share the blame for that harm.
(1) Of course bankers have a higher degree of income variability. Their incomes are so high that a small amount of turnover in the industry is going to make their incomes seem much more variable than those whose incomes are much less. Those who enjoy higher incomes generally EXPECT such variability and have substantial savings and other resources to manage it.
We need to ask how such a clown as Greg Mankiw achieved such a high and honored place among our elites. It was not some great miscarriage of intellectual justice. It was not some terrible gaffe in the system. It was not the tragic degeneration of a once great mind. Mankiw does what he was carefully vetted and credentialed and, of course, well paid to do. He is part of the apparatus of kleptocracy, one of its chief defenders and apologists.
He gives from Harvard’s hallowed halls academia’s imprimatur to the kleptocratic enterprise. He wrote the textbook that trained, and misinformed, a generation of budding economists and shaped the public perception about what economics and the economy were. The rich and elites could have paid him a dozen times what they have given him and heaped even more accolades on him, and the services he has rendered them would still be cheap at the price. And now that some of us are on to him he performs yet one more service to them. His absurd, pathetic defenses distract attention away from their criminality. Mankiw the loyal footsoldier of kleptocracy to the end. If he ever has a rendez-vous with a lamppost, I can not help but think he will feel both horribly ill-used and validated at the same time.
Lampposts are cool, but our friend Boots and his group makes a good case here for another way for kleptocrats and their loyal minions to rendez-vous with destiny: http://www.youtube.com/watch?v=acT_PSAZ7BQ
If the truth hurts, this comment will really skewer him. Bravo!
Ah, yes: Wall Street.On the case since the early 19th century. Thank goodness that our cocaine-fueled betters are ceaselessly allocating capital to its most efficient uses!
All kidding aside, the defensive tone of this Mankiw hackery is amusing. Back to basics, what what?
If the wall street 1%ers are so valuable nowadays in Mankiw’s perspective, how is it that they allocated capital more efficiently (ie, less frequent financial crises) back when the kids didn’t routinely get paid these obscene multiples of what Everyman makes? Hmmm?
Rounding out the riskiest jobs to an even dozen are soldiers, the cannon-fodder for imperial wars, of which the maimed and lobotomized become fodder for nauseating SOTU speeches about the glory of patriotic self-sacrifice. Such human ammunition is made cheaper, more plentiful and ill-informed by the wizards of Wall Sreet. Despicable just doesn’t begin to describe the masters of this universe.
The problem is that the game is rigged. Winners who produce real value, OK. “Winners” who are basically gamblers, not so OK. The real problem is not income but its integral, wealth. Let Bill Gates and Steve Jobs and Warren Buffett make all the money they can during their lifetimes, but do not allow that wealth to be passed down in perpetuity to people who didn’t earn it. This is especially necessary because wealth inevitably includes political power, which further rigs the game in favor of the “winners”, ultimately producing a hereditary aristocracy that is the antithesis of the fundamental principles this country was founded on. Make all you want (throw the cheaters in prison) and enjoy it during your lifetime, just don’t allow it to buy political power. But not your descendents. A strong estate tax that can’t be gamed as at present it the key. There is no reason the grandchildren and great-grandchildren of Sam Walton should be billionaires without contributing anything themselves.
Lambert does his cause a disservice: “…the chart also makes crystal clear that, for those with no access to capital (Chart 1′s “bottom 90%”, in purple), their income has been flat not merely since the neo-liberal dispensation began, in the mid-70s, but forever.”
The chart does not make this crystal clear. The outlandish scale of the increase in takings of the .01%, and even the top .1%, make it appear so. However, the 90% enjoyed a significant increase in their well being from the 1940’s through the first part of the 1970’s, before the neo-liberal dispensation. If you go to the original source: http://topincomes.g-mond.parisschoolofeconomics.eu/#Graphic: and play with the interactive chart a bit, ( Country = US, Years = 1913-2012, Category = Average Incomes, Variable = Bottom 90%) you can see this. From about 1940 to 1973, average income for the bottom 90% more than tripled. Since the dispensation, there has been no progress for the 90%, and indeed a steep decline since the beginning of the 2007 recession.
From your link:
In the original version of that story, printed in Esquire magazine in 1936, Hemingway wrote: “The rich…were dull and they drank too much, or they played too much backgammon. They were dull and they were repetitious.”
http://nymag.com/daily/intelligencer/2014/02/i-crashed-a-wall-street-secret-society.html
Why yes, and they still are. Listen to the audio recordings.
(On the plus side, at least the worst of it elicited a chorus of “boo”)
That would be an excellent point for a rational debate,
which of course is the opposite of the Greg’s purpose.