Greg Mankiw Gets It Partly Right
By David Henderson
In a blog post titled “Who is the prototypical rich person?” Greg Mankiw responds to a pretty bad New York Times op/ed by Emmanual Saez and Gabriel Zucman. I was waiting for someone to spot a pretty big error in Greg’s piece, but no one has. So I’ll point it out.
Greg wants to argue that it matters how one becomes rich. He and I agree that that really matters. But check out how he illustrates the point.
Saez and Zucman seem to think that rich people are like Henry Potter, the conniving banker in It’s a Wonderful Life. Mr Potter makes his money dishonestly and uses it to control the instruments of the government to further enrich himself and impoverish the lives of those around him.Another kind of rich person is someone like Taylor Swift. She is fabulously wealthy (net worth > $300 million) but earned that wealth by enhancing the lives of others through great music. As far as I know, she does not have significant political clout.
I agree with Greg that Taylor Swift has earned wealth by enhancing the lives of others.
Where Greg gets it wrong is his comment about Henry Potter. Potter is conniving. But we have no evidence in the movie, other than his wrongly holding on to $8,000 that was not his, that “he makes his money dishonestly.” Potter provides a service: rental housing. There’s no evidence that he cheats his tenants. There’s also no evidence that he uses his money “to control the instruments of the government to further enrich himself and impoverish the lives of those around him.”
The people around him do better by dealing with George Bailey. That’s the nature of competition. But that’s a separate issue.
Why does Greg get it wrong. I think it’s because he makes the mistake of conflating how nice or pleasant someone is with whether the person came by his wealth honestly. That’s an important mistake. Of all the wealthy people who came by their wealth honestly, I expect that Greg and I would find a substantial number of them unsavory, although I think it would be under 25%.
For better or worse, to defend the rights of people to make wealth honestly, you will occasionally find yourself defending the rights of people you don’t like.