Jousting over the One Percent

Robert Solow vs. Greg Mankiw, jousting over inequality. What more could those who enjoy academic blood sports desire? Their exchange is in the "Correspondence" section of the Winter 2014 issue of the Journal of Economic Perspectives.  Solow is writing in response to Mankiw's article in the Summer 2013 issue of JEP, called "Defending the One Percent." (All articles in JEP are freely available and ungated, courtesy of the American Economic Association.) Here's a quick taste of the exchange, to whet your appetite for the rest.

Solow's opening paragraph:

"The cheerful blandness of N. Gregory Mankiw’s “Defending the One Percent” (Summer 2013, pp. 21–34) may divert attention from its occasional unstated premises, dubious assumptions, and omitted facts. I have room to point only to a few such weaknesses; but the One Percent are pretty good at defending themselves, so that any assistance they get from the sidelines deserves scrutiny."

Mankiw's opening paragraph:

"Robert Solow’s scattershot letter offers various gripes about my paper “Defending the One Percent.” Let me respond, as blandly and cheerfully as I can, to his points."

Solow's closing paragraph:

"Sixth, who could be against allowing people their “just deserts?” But there is that matter of what is “just.” Most serious ethical thinkers distinguish between deservingness and happenstance. Deservingness has to be rigorously earned. You do not “deserve” that part of your income that comes from your parents’ wealth or connections or, for that matter, their DNA. You may be born just plain gorgeous or smart or tall, and those characteristics add to the market value of your marginal product, but not to your just deserts. It may be impractical to separate effort from happenstance numerically, but that is no reason to confound them, especially when you are thinking about taxation and redistribution. That is why we may want to temper the wind to the shorn lamb, and let it blow on the sable coat." 

Mankiw's closing paragraph:

"Sixth, and finally, Solow asks, who could be against allowing people their “just deserts”? Actually, much of the economics literature on redistribution takes precisely that stand, albeit without acknowledging doing so. The standard model assumes something like a utilitarian objective function and concludes that the optimal tax code comes from balancing diminishing marginal utility against the adverse incentive effects of redistribution. In this model, what people deserve plays no role in the formulation of optimal policy. I agree with Solow that figuring out what people deserve is hard, and I don’t pretend to have the final word on the topic. But if my paper gets economists to focus a bit more on just deserts when thinking about policy, I will feel I have succeeded."

Full disclosure: I've been Managing Editor of the JEP since 1987, so there is a distinct possibility that I am prejudiced toward finding the contents of the journal to be highly interesting.