Greg is, one hopes, paying royalties to Ayn Rand’s estate, because, while DTOP is shorter than The Fountainhead, it isn’t any better. Greg’s expansion of Ayn’s old argument is that in today’s modern world—we are modern these days, aren’t we?—it’s all about the smarts. The smarter you are, the richer you are, and the dummies of the world have naught but themselves to blame.
There are, um, a lot of things wrong with this argument. It’s been pointed out before that there was similar period of monster fortunes—the “good old days” or the “Robber Baron Era,” depending on who’s doing the talking—when people like Andrew Carnegie and John D. Rockefeller made fortunes that, in comparison with GDP, are the equal of the Gates/Bloomsberg fortunes of today, not because they invented anything but because they were intensively ambitious managerial geniuses. So Greg’s explanation of why the rich are so very rich today pretty much falls to the ground.
Furthermore, a good one third of the one percent don’t make their cash by being either managerial or creative geniuses. They make it the old-fashioned way: they inherit it. Is Greg proposing a 100% inheritance tax on these unjust deserts? I suspect, rather, that he’s one of the 0% guys, because, well, because rich folks all deserve to be rich. When it comes to cash, possession is justification, for Greg and his kiss-ass ilk. I mean, would you want Paris Hilton to have hock her Louboutins just to satisfy some pissant IRS bureaucrat who earns $120,000 a year and isn’t worth twelve? I should fucking hope not!
Okay. Anyway, Larry Mishel, president of the Economic Policy Institute, is a bit calmer than I am, and he has a possibly less hysterical riposte to Greg in the following chart, comparing the growth of the “college wage premium” (which has been substantial) with the growth of the “top 1% advantage.” Larry’s comparison suggests, not too surprisingly, that the one percent is not getting rich by being creative, but by having money, which they can invest. Notice, in particular, the massive peaks in 1999 and 2007, when the stock market was soaring, as it is now once more, though we can’t see it on Larry’s chart, because he doesn’t have 2013 data. As Larry points out, it has been explicit tax policy to reward investors—to reward them, in effect, for being rich, because only the well-off can afford to invest at all, and only the rich can afford to invest to the extent that they can obtain a substantial income (as opposed to a “nest egg”) from their investments.
But Greg has another arrow in his quiver, so he thinks, taking on an argument that’s clearly been rankling him for some time, John Rawls’s “veil of ignorance” argument, which he describes, and, to his satisfaction, refutes, in the following manner:
A common thought experiment used to motivate income redistribution is to imagine a situation in which individuals are in an “original position” behind a “veil of ignorance” (as in Rawls, 1971 [A Theory of Justice]). This original position occurs in a hypothetical time before we are born, without the knowledge of whether we will be lucky or unlucky, talented or less talented, rich or poor. A risk-averse person in such a position would want to buy insurance against the possibility of being born into a less fortunate station in life. In this view, governmental income redistribution is an enforcement of the social insurance contract to which people would have voluntarily agreed in this original position.
Yet take this logic a bit further. In this original position, people would be concerned about more than being born rich and poor. They would also be concerned about health outcomes. Consider kidneys, for example. Most people walk around with two healthy kidneys, one of which they do not need. A few people get kidney disease that leaves them without a functioning kidney, a condition that often cuts life short. A person in the original position would surely sign an insurance contract that guarantees him at least one working kidney. That is, he would be willing to risk being a kidney donor if he is lucky, in exchange for the assurance of being a transplant recipient if he is unlucky. Thus, the same logic of social insurance that justifies income redistribution similarly justifies government-mandated kidney donation.
No doubt, if such a policy were ever seriously considered, most people would oppose it. A person has a right to his own organs, they would argue, and a thought experiment about an original position behind a veil of ignorance does not vitiate that right. But if that is the case, and I believe it is, it undermines the thought experiment more generally. If imagining a hypothetical social insurance contract signed in an original position does not supersede the right of a person to his own organs, why should it supersede the right of a person to the fruits of his own labor?
As for the “fruits of his own labor” shtick—the notion that our incomes are as much a part of our persons as our internal organs—well, already I’m laughing. In addition to all the previous objections to the notion that rich people get rich off their own labor, consider the following argument. The creative geniuses cited in Dr. Mankiw’s article—Steven Jobs, J.K. Rowling, and Steven Spielberg—as well as any others he could care to mention, did not get rich off their own labors (in what way did Steven Jobs “make” an iPhone?) but rather by either owning a corporation or having one (in fact, many) at their effective beck and call. All modern economies are built on corporations of some sort, which are “artificial persons”—creations of the state, endowed with as many or as few rights, powers, privileges, and immunities as the state sees fit to allow. In actual fact, of course, the definition of corporate powers is insensibly shaped by practice and corporations themselves—from the Catholic Church to Standard Oil to Crazy Eddie’s Chop Shop—often have substantial freedom to define themselves. What succeeds becomes accepted, even long after it starts to fail. But without the massive framing power of the state, which lays the basis for the legal existence of corporations and all contractual rights and all property—real, personal, financial, intellectual, and otherwise—the fruits of one’s labors would be purchased exclusively by the sweat of one’s brow and could be taken away at any time, by the simple application of superior force.
Afterwords
I won’t omit noting that the illustrious Dr. Mankiw served as chair of President Bush’s Council of Economic Advisors from 2003 to 2005, during which time the Bush Administration embarked on both the Second Iraq War and the expansion of Medicare to include prescription drugs, two endeavors that will ultimately involve the expenditure of trillions of dollars. The Administration declined to propose a mechanism to help pay for either program. “To spend is to tax,” said Milton Friedman. By that standard, Dr. Mankiw is quite the taxer.
*Actually, it’s “N. Gregory Mankiw,” which does sound classy. Not only is Greg a Harvard professor, he’s author of the best-selling economics textbook in the country.
