What’s your opinion of [Gregory Mankiw’s] response to Piketty?


It’s very weak; it seems like he hasn’t read the book. Even skimming the diagrams would have helped.

First, he says “r < g could be [a problem]. If the rate of return is less than the growth rate, the economy has accumulated an excessive amount of capital. In this dynamically inefficient situation, all generations can be made better off by reducing the economy’s saving rate…we should be reassured that we live in a world in which r > g…” Yet Piketty shows that r < g was true in our world, in the postwar period— precisely the period when there was not an excess of capital; capital was at a historical low. And they were golden years, precisely because r (growth) was so high and so widely shared. (Sadly, one of Piketty’s lessons is that they were also a fluke, not easily repeated.)

Mankiw notes in passing that “the average growth rate of the U.S. economy has been about 3 percent”. Ugh, no. Krugman recently provided a chart of the last 57 years:


The average growth is more like 2%— and it’s plummeted in the last few years. Rates over 2% are generally due to high population growth or developmental catching-up; developed nations will be lucky to get 1 to 1.5% in the next century.

Next, he says that a rich person faces three obstacles to passing on his wealth:

  1. he consumes a good deal of his income
  2. his wealth is divided among his descendants
  3. governments tax estates

I don’t have Piketty at hand, but I’m pretty sure he covers all three points.

  1. He shows that capital is dramatically increasing, going back to 19th century levels and showing no signs of stopping.  So consumption does not reduce the accumulation of capital.
  2. Mankiw actually assumes that “the number of descendants doubles every generation”. Seriously, does he not remember that in developed nations population growth is negative?  Or that to have a family you have to have a couple, and thus 2 children do not double the number of wealth-holders but only maintain it? To make an error this gross is a sign of flailing desperately to avoid unwanted truths.
  3. Is Mankiw really unaware that his party is in favor of reducing or eliminating the estate tax?

He proceeds to argue against Piketty’s capital tax, again ignoring that we already have capital taxes (we call them property taxes), as well as Piketty’s argument that an enormous virtue of a tax on wealth would be making wealth visible. Mankiw is pretty sure that great capital is fine, but we can hardly know for sure since capital is so easy to hide.  Before Piketty’s research people mostly focused on income because we actually have data there. Without Piketty would it have been widely realized that there is no country where capital, as opposed to income, is widely distributed in society?  The Nordic countries come close to a fair distribution of income, but they are still highly unequal in the distribution of capital.

Finally he moves on to some moral arguments.  He says “Piketty writes about such inequality as if we all innately share his personal distaste for it.” And at least Mankiw is up front about being in favor of inequality!  He certainly doesn’t have to share Piketty’s morals. But the same can be said for the rest of us about Mankiw’s morals!  Mankiw writes about inequality as if we all innately share his personal enjoyment of it.

He doesn’t see anything wrong with the present state of plutocracy, but, well, he’s certainly in the 10% who gains enormously from it. For the 90% of Americans who don’t, we’ve been watching for 35 years as the gains of productivity no longer lift us up, but go only to the 10%.  Morally, he’s just wrong: it’s immoral to make the lives of the majority of the population crappier.  And intellectually, he’s ignoring Piketty’s carefully accumulated evidence that the situation is getting worse.  Is there really never a point where the rich have accumulated so much that it’s slightly bothersome to Mankiw?

And pragmatically, he’s a shortsighted fool.  Short-changing 90% of the population works only so long as the 10% have a really good story to fool the majority with. Maybe in 2014, when he wrote the paper, he could be satisfied that the Republican con was working.  Surely it’s a little harder to think so in 2016. A huge swath of Republican and Democratic voters are rejecting establishment answers— Trump and Sanders both speak to the people who feel they’ve been left behind by the 10%.  Is Mankiw happy with either a populist-nationalist or a socialist reformation?  And if inequality continues to rise, does he think the popular response won’t get far worse?