Mankiw’s evolution on income inequality
Republican presidential candidate Mitt Romney doesn’t seem troubled by income inequality, but his economic advisor, Harvard professor Gregory Mankiw, says he is worried.
“Widening income inequality is a real and troubling phenomenon, albeit one without an obvious explanation or easy solution,” Mankiw wrote in the New York Times earlier this week. The comment was part of a longer column on a walkout by some of the students in his introductory economics course last month. They claimed Mankiw’s course was biased, and “symbolizes the increasing income inequality in America.”
I tried to interview Mankiw about income inequality earlier this year for our special issue on the American Dream, but the former chairman of George Bush’s Council of Economic Advisers begged off, saying he would be busy for the next couple months. I suspect he didn’t want to talk because his position has been evolving.
The Occupy protesters have pushed income inequality to the political front burner. President Obama has jumped on the bandwagon, calling for higher taxes on the very wealthy and saying in a Kansas speech this week that “this kind of gaping inequality gives lie to the promise at the very heart of America: that this is the place where you can make it if you try.”
Mankiw has acknowledged rising income inequality in the past and given an explanation for it. In one post on his popular blog, he said, “most economists attribute the trend primarily to changes in technology that reward skilled workers relative to unskilled workers. Education and other skills are more valuable now than they were in the past.”
That theory has been espoused by two of Mankiw’s Harvard colleagues, Claudia Goldin and Larry Katz, whom he credited in an interesting 2010 paper in which he argued against imposing greater taxes on the rich. Foreshadowing Romney’s political stance, Mankiw wrote: “A person who contributes more to society deserves a higher income that reflects those greater contributions.”
There is just one problem with Mankiw’s analysis. Goldin and Katz make a convincing case that a technology-education gap is responsible for a significant portion of income inequality, but even they don’t suggest that the top 1 percent of earners got there simply because of a better education. As Katz told my colleague Michael Jonas: “Our explanation is pretty good for the bottom 99.5 percent. The top half percent has obviously much more to do with the massive growth of finance, with the politics of corporate governance, and changes in the norms up there.”
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