Economist Talks Income Inequality

Gregory Mankiw, former economic advisor for President George W. Bush and Mitt Romney, spoke about tackling income inequality in the United States to a nearly-full 280-seat White Hall auditorium on Friday.

“One question to leave with is, what makes the typical rich person rich?,” Mankiw said in his lecture “Income Inequality: Facts, Hypotheses and Policy Prescriptions.” “That’s the right versus left debate,”​ he said.

The Robert M. Beren professor of economics at Harvard University served as the 21st chairman of the Council of Economic Advisers under President Bush and as an economic advisor to Romney during his 2012 presidential bid. Mankiw authored two introductory economics textbooks and an intermediate one, all of which are widely used by the Emory faculty.

He began by discussing the introduction of the working-class stereotype “Joe the Plumber” during President Barack Obama’s 2008 presidential campaign. Comparing the period between 1947 and 1973 with the period between 1973 and 2005, Mankiw showed that the lowest income groups have faced the greatest decrease in household income growth.

Still, the international rate of extreme poverty — referring to those who earn less that $1 a day — has decreased since the 1970s, Mankiw said.

While Africa has seen little improvement in the area, East Asia has seen major reductions in extreme poverty, he added.

There is only some truth to the theory that income inequality in the U.S. is due to the country’s income inequality, according to Mankiw, who showed a model conveying the positive correlation between child and parent income rank.

The model finds that the children of the ultra-rich tend to do slightly worse than their parents while those of the extremely poor tend to do better.

Mankiw said that problems in the data that he uses play a part in his calculations of the country’s economic inequality. For instance, fringe benefits, such as employer-provided health benefits, which have risen since 1960, influence income in ways that skew the data.

Mankiw said he believes that income inequality is largely the product of “the race between technology and education,” a hypothesis presented in a book by that title and co-written by Claudia Goldin and Lawrence Katz.

He explained that skilled jobs — those performed by highly educated people — produce the greatest economic return.

Low-skilled jobs are increasingly less necessary because of technology, while those who work with technology tend to be skilled. Since 1964, the wage gap between varying education levels has reached an all-time high.

Moreover, globalization can play a part in extracting unskilled jobs from the Unites States but is not the main factor, Mankiw said.

Mankiw turned to economist Sherwin Rosen’s superstar exceptions. As technology increases our access, many of us are willing to pay for the products that experts create. For instance, actor Robert Downey Jr. may receive a very small portion of the revenue from movie tickets that Americans buy to see Marvel’s “The Avengers.” When tens of millions see the movie, however, Downey makes millions himself, Mankiw said.

Additionally, Mankiw offered the women’s movement and assortative mating — in which people gravitate toward potential spouses similar to themselves — as hypotheses for increased income inequality. In the 1960s, he said, women often stopped working when their husbands reached a certain income. Today, while the wealthy may be less likely to marry another member of their social class than they were in the past, Mankiw said similarly intelligent and motivated people tend to end up together now.

A top university, he added, takes the first step in filtering out students’ unmotivated and unintelligent potential spouses.

“If you want to help inequality, marry a poet,” Mankiw joked.

It is unlikely that the country will be able to stop the increase in technology, reverse globalization or alter assortative mating, Mankiw said, adding that it is possible, however, to increase the supply of skilled workers. He said that this process can begin with improvements at the preschool level as well as more national openness toward skilled immigrants.

Additionally, Mankiw proposed an alternative to loans for students who cannot afford a college education. Equity financing, in which someone could fund a student’s education in exchange for a certain percentage of that student’s post-graduation income, would spread the risk of the investment, he said.

Rather than addressing the direct causes of income inequality, it can seem easier to treat the symptoms, Mankiw said.

“We have to think deeper than Republican versus Democrat tax policies,” he said.

The optimal tax system is a normative or subjective economic debate, Mankiw said. The British philosopher Jeremy Bentham proposed utilitarianism — the widely-accepted theory that the moral action is the one from which the greatest good follows, Mankiw said.

Still, utilitarianism can be taken too far and has flaws, Mankiw said.

“How can we compare different people’s tastes?,” he asked.

Utility for one person may not mean the same thing as utility for another. Moreover, Mankiw described “trolley problems” — hypothetical questions that test the basis of ethical ideals.

Utilitarianism, he added, can lead to “tagging” — which is the use of traits other than income in determining taxation. For instance, based on the correlation between height and income, Mankiw created a table of how much one ought to be taxed based on the two variables. According to his calculations, if a 69-inch tall person and a 73-inch person each made $100,000, the taller person would be taxed over $4,000 more.

Robert Nozick’s “Anarchy, State and Utopia” can be simplified to say that there are two sorts of “rich guys,” Mankiw said. Good rich guys, such as Downey, create their wealth by benefiting the other members of society. Bad rich guys, like Bernie Madoff, unfairly divert the wealth from those who deserve it.

College junior Connor Crum, who attended the lecture, which was hosted by Emory’s economics department, said Mankiw appeared far less conservative than he had expected.

“The thing that really impressed me was how much less conservative than I thought he’d be based on some of the policies he’s implemented,” Crum said. “Also, I heard he was kind of a jerk, but he was funny and very nice.”

Still, Crum said he felt that Mankiw’s topic of income inequality missed the mark.

“It’s not so much that there’s growing inequality, but growing poverty,” he said. “[Mankiw] didn’t address the root problems of poverty.”

Although the questions Mankiw answered at the end of his lecture pushed the event 20 minutes past its planned end time, the auditorium remained full to the end, and students and faculty lined up to speak with the professor one-on-one.

“[Mankiw] was very clear, breaking complicated issues to their core in a way that is easy for everyone to understand,” said Hugo Mialon, the director of undergraduate studies in economics at Emory. “No matter which side of the isle you’re on, I think everybody could get something from his talk.”

---