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Home Publications Blogs Beat the Press Greg Mankiw: When the Columnist Misframes the Issue

Greg Mankiw: When the Columnist Misframes the Issue

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Sunday, 23 March 2014 05:44

In his column "when the scientist is also a philosopher," Greg Mankiw tells us about his preference for not having the government interfere in consensual exchanges between individuals. He warns readers that economists who advocate such interventions also have a political philosophy about achieving certain outcomes (i.e. less inequality).

The wisdom of not interfering with consensual exchanges implies that is possible to have exchanges in which the government has not already played a huge role in setting the terms of the exchange. This is clearly not true.

For example, the number of jobs is very directly determined by government policy. We would have millions more jobs in the economy today if the government had not decided to run a high unemployment policy by reducing the size of the budget deficit. One can argue for the merits of deficit reduction, but this was a political choice where a lower deficit number was judged to be more important than letting millions of people have jobs.

In the same vein, we could have pursued policies to get the trade deficit closer to balance. If we had emphasized reducing the value of the dollar in our negotiations with trading partners, instead of things like patent protection for prescription drugs, copyright protection for Microsoft and Hollywood, and access to financial markets for Goldman Sachs, we would also have millions more people employed.

Furthermore, we could have structured trade agreements to put our doctors and lawyers in direct competition with their counterparts in the developing world (who would train to our standards) then globalization would not have been a factor increasing inequality. Instead it would have brought down the wages of the most highly skilled workers, while producing huge economic gains by lowering the cost of health care and other services. This would also have improved the bargaining situation of most of the workforce at the expense of business.

Mankiw is misleading readers by implying that we have the option to have consensual exchanges that are not shaped in very large ways by the government. (This is the topic of my free book, The End of Loser Liberalism: Making Markets Progressive.) In the last three decades, most of that shaping has been done to redistribute income upward.

Comments (26)Add Comment
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written by Tom, March 23, 2014 6:38
Mankiw says, "Paul may be forgoing a higher income for a job that requires fewer hours or offers more personal satisfaction because he doesn’t care as much about money. In this case, equalizing incomes by moving a dollar from Peter to Paul could reduce total utility."

Contrary to what many people think, Paul does not get Peter's money unless he applies for it through the government. I would think if he applies for it then he is not getting that personal satisfaction and money does mean more to him than what Mankiw may think.
horrible article
written by djb, March 23, 2014 7:35

1. Mankiw calls economists who want intervene "utilitarians" who would throw a fat man in front of a trolley killing him to save some children and who would take the organs of a healthy man to give his organs to people who need organ transplants

( I must admit that he did know we have two kidneys)

Then he implied that the affordable care act and minimum wage increase are sort of like that givinf usual disinformation about how increase minimum wage will close businesses and eliminate jobs...... and how the affordable care act is bad because it causes people to lose their garbage current health insurance.......

He says the standard for any government intervention should be "do no harm" like doctors are taught but find impossible to achieve in practice

So no matter What good a program does.... any onewho has to pay more for something are harmed and the policy should not be implemented as it fails the "do no harm test"

He implies progressive economic policies are mostly a weak science.....they are philosophy of the economists............who want take money away from the full time worker and give to some one who chooses to work less

And therefore we should not interfere with consensual dealings which I interpret as NO FINANCIAL TRANSACTION TAX (no sales tax for traders)....... and no other government regulations while you're at it

But as Dean points out he ignores the fact that government is constantly intervening with regulations to help the rich
2 thoughts:
written by Alex Bollinger, March 23, 2014 8:06
1. Markets don't exist without government intervention because government intervention creates markets. Without a system of property rights and the ability to enforce it, there are no free markets. This is why places without governments, like pre-colonialism hunter-gatherer peoples, don't have anything resembling markets.

So the "natural rights" stuff is just silly. We're not in the 18th century; we know that humans never lived in a state of nature as individuals who met only every now and then for the purposes of procreation and trade. We have the benefit of modern anthropology to help us avoid a-scientific fallacies like that.

And, either way, a right is an obligation that others have towards you, so you can't really discuss rights in the context of atomized individuals.

2. Mankiw is seriously becoming the George Will of the economics profession. Kinda sad, really, considering how he could have been remembered for his research instead of his wingnuttery.
blood letting
written by Peter K., March 23, 2014 8:23
"In some ways, economics is like medicine two centuries ago. If you were ill at the beginning of the 19th century, a physician was your best bet, but his knowledge was so rudimentary that his remedies could easily make things worse rather than better. And so it is with economics today. "

Yes the conservatives' policies of austerity and inflationphobia are like using leeches.
Ignorant and Stupid
written by Jennifer, March 23, 2014 8:28
An increase in the minimum wage would disrupt some deals that workers and employers have made voluntarily.


Considering the state of the economy, the high employment rate, the difficulty of organizing a union--all which the government plays a significant role in--I would certainly argue the appropriateness of the word "voluntary" here.

The Affordable Care Act has disrupted many insurance arrangements that were acceptable to both the insurance company and the insured


It would be a challenge to determine the most ignorant statement in this piece but this has to be close. As anybody who as been paying any attention to the health care debate knows, the ONLY reason the ACA happened is because a critical mass of participants in the health care economy realized the status quo was untenable, and change was required. This included millions of people who either had no insurance or had really poor insurance. One could argue how successful the ACA has been/will be at solving the problems it was designed to fix but to suggest that there was not a problem before is just stupid. Also, of course, for the vast majority of people with employer-sponsored health insurance, which is most people, nothing in the ACA changed those plans.

As Alex points out:

"Markets don't exist without government intervention because government intervention creates markets. Without a system of property rights and the ability to enforce it, there are no free markets."

This really can't be said enough, since as Dean is forever pointing out, the government is always intervening, usually for the 1%.
...
written by aba, March 23, 2014 8:59
worth pointing out that for 99% of transactional legal work (which makes up about 50% or more of the legal market), there is nothing to stop a company from hiring a foreign lawyer - yet this doesn't happen very often. If you want to hire a foreign lawyer to draft your contracts you have the right. If you want a foreign lawyer to research your legal remedies and obligations, you have the right. Even for litigation which makes up the other 50% of the legal business, you can hire foreign lawyers to do a great deal of the work, you just can't hire them to sign the briefs/motions or show up in court. Yet nobody uses foreign lawyers for American legal work. Blame bias or inferior training or inability to speak and write absolutely perfect english (every little word matters in a contract, so english as a second language is a big handicap) BUT DO NOT BLAME GOVERNMENT POLICY.
...
written by skeptonomist, March 23, 2014 9:00
In actual hunter-gatherer societies, there is a great deal of communalism. Food is shared and competition is restricted. Governance tends to be by direct democracy, with weight in decisions given to the elderly or others considered to be more experienced or wiser. Society without big government looks a lot like communism.
Were Plants and Animals Philosophers Before They Became Economists, or Just Anarchists?
written by Last Mover, March 23, 2014 9:06

Anarchy is an alternative to government. Plants and animals use it a lot to establish survival of the fittest through natural selection.

An invisible hand works to decide which plants and animals survive and which don't, which maximizes total Wealth of the Plant and Animal Kingdom according Adam Smith, the great Darwinian naturalist.

Whenever tradeoffs must be made between selected groups of winners and losers, predators at the top of the food chain who have no natural predators themselves, decide who wins and who loses below them by using sophisticated Pareto models to separate winners from losers.

This is why the economic playing field is so level and fair today while providing maximum growth at the same time. Because anarchy - not government - rules to decide who must lose in order that others may win to maximize total output.

If effective government was allowed to exist then top economic predators would have to actually face the free market competition they preach to everyone but themselves.

Without government they can practice anarchy as the invasive species of top predators they are while calling it free markets in action.

As Greg Mankiw would say, it's ok to rob Peter to pay Paul as long as one of them is better off and the other is no worse off.
Thanks for the patience
written by Dave, March 23, 2014 9:39
Thanks for having the patience to repeatedly shoot down these insane, right-wing, looney-tune arguments.

Mankiw should watch "12 Years a Slave."

Many of the slaves appear to be behaving in a very consensual way most of the time. If you ignore the occasional but brutal violence, it almost looks like a typical US workplace.

Much of what people like Mankiw see as consensual agreement between 2 parties is set up by the framework of government, and sometimes it is also affect by a framework of unspoken laws. People appear to the tyrants to be acting voluntarily but that is only because the tyrants don't see the internal workings of the mind of the worker, the unwritten laws, the implicit threats to the body and soul that hang over the relationship.

Mankiw has become a tyrant.
Humans are Social
written by jonny bakho, March 23, 2014 9:48
The evolutionary history of humans is social. Individuals don't thrive or survive outside a social group. Interactions between individuals have effects on the social group as a whole. There have always been social input on individual interactions. Individual acts cannot be entirely divorced from the social group. The social cannot be denied. The human community has standards. Mankiw may not like the standards but there are always standards.
...
written by JSeydl, March 23, 2014 10:18
The incredible irony here is that Mankiw routinely argues for policies on utilitarian grounds. Here's a post where he argues that the long-run income implications from keeping minimum wages low outweigh any short-run wage gains to workers: http://gregmankiw.blogspot.com...-will.html
Is 'Consensual' the Right Word for Asymmetric Relationships
written by Jesse, March 23, 2014 10:37
It is a huge error to ignore the monopolies and oligarchies in modern business, including healthcare, often created by government action, and inaction.

Is a transaction 'consensual' when the power relationship between the parties is not close to equal? Or is one of the parties merely succumbing to a 'Hobson's choice?'

Mankiw and his ilk know the answer to this, but they do not care because they are offering ideologically based rationalizations, and not sound public policy founded in the 'general good.'

Sad, but true.
Laissez Faire by any other name
written by John Parks, March 23, 2014 12:25
After a few re-reads, I see a lot of self administered fluff hiding his bias toward an unrestrained "the deal" or as Mankiw explains it, the "private transaction." He may just as well used the term "free trade". As Jesse, above, describes these transactions so well, they are often between parties who are not consensual. The "deal" becomes "an offer he could not refuse."
For those advocating this type of predatory relationship
I created a special web page.
http://www.tractorparts.com/STFU.htm

...
written by watermelonpunch, March 23, 2014 4:26

What is a CONSENSUAL EXCHANGE?

Well, if my neighbor pulls a gun on me and says I have a choice between giving my neighbor my house & my land, or he shoots me... The police intervening would be a case of interfering in consensual exchanges, wouldn't it?
I mean after all, without the police, I would consent to have my house & land taken over getting shot.

Seems extreme, but isn't it the same kind of "consensual" exchange if a low wage worker agrees to work for less & less & less, because the workers is desperate for a job because he's desperate to survive? Until he's agreeing to less than he can even survive on. And then where are we?

Okay... so what's the difference?

Well, you can DEFINE "consensual"... but that would take laws to define consensual.
You know, the kind of laws that give people rights that can't be taken away by a contract.

Like minimum wage laws!! DUH.

Seems to me this sort of argument is a Catch 22 and Mankiw has painted himself into a corner that is inescapable.
.........
written by dajobr, March 23, 2014 7:10
But remember mankiw is head of the economics dept at haaaaavard
http://frominsidethetincan.blogspot.com/
written by Larry Signor, March 23, 2014 7:16
Greg Mankiw fails the "do no harm" test with this article. He gives us his cure via stylized examples of the ACA and minimum wage, but then says "they [economists] are relying on forecasts from a far-from-perfect science". What else could he possibly base his analysis on? Philosophy? Harvard is full of philosophers...for the 1%. The entertainment factor (utility) of Mankiw is not equal to George Will or Thomas Friedman, but he is getting there.
Self Fulfilling Progressivism, Low-rated comment [Show]
@ dajobr
written by Capt. J Parker, March 23, 2014 11:09
There no R in Haavaahd.
Obama's conservatism killed the party
written by Dave, March 24, 2014 2:36
We're in for rough times.

If they are wondering why Democrats lose in the midterms, it is because people who vote democrat don't actually like the party. They only vote for it begrudgingly and only care to get out when it means the presidency.

Contrary to all political punditry, the problem always was caused by moving too far right. Nobody actually likes the party because it doesn't stand for anything except compromise.

Good luck. I foresee absolutely dismal times for the world in the next 5 years. It could get really ugly. And it was all predicted.
...
written by reason, March 24, 2014 4:30
"He says the standard for any government intervention should be "do no harm" like doctors are taught but find impossible to achieve in practice " djb, March 23, 2014 7:35

I found this interesting. Surely the best way to do no harm, is to do nothing. (Like the saying - show me the man who has never made a mistake and I will show you a man who never made anything.) It really is a poor ethical guide for action in a world that is in any way stochastic.
...
written by watermelonpunch, March 24, 2014 6:54
@ Capt. J Parker

What advances in human achievements have come about without humans organizing in groups?

Read about Neanderthals, and their tendency toward small isolated groups, and the humans who came in and had large community networks stretching miles... who replaced them.

I think it's clear that some form of cooperative effort by people is responsible for all great achievements of humanity.

What other mechanism is there besides government to achieve those things of civilization?

And what mechanism besides a government for the people, by the people, is there to attempt to make sure that the benefits of the civilization is shared by the majority of society, rather than just a few?

Hunter gatherers on the savannas would never have spontaneously produced an iphone or anything that we depend on in modern life.

If you want to go back to being a hunter gatherer... please walk the walk, and cease commenting on the internet. LOL ;)
Economics is NOT science, its Political Economy - Duh!
written by Brian P Woods Snr., March 24, 2014 8:06
Since when is Economics become a science? There is no internationally agreed protocols that apply to making quantitative (economic) measurements. Does the good professor actually know the difference between a Fundamental and a Derived Unit? Appears not. So if you cannot conduct statistically reliable quantitative measurements, how can you arrive at any meaningful consclusions? You cannot. But that seems to be of no academic concern whatsoever.

Economists often refer to 'multipliers'. Has anyone ever seen a multiplier? Can anyone even identify a real (or even a virtual) multiplier? How about the vexatious realtionship between 'money' and 'price'. You could (given the required information) measure the amount of the former. But the latter? You can't - but do not let this stop you!

Do our dopey economists actually know and understand the difference between the 'amount' of something, and the 'rate' of something? Perhaps they do, but they seem to make an awful hash of understanding the unpleasant economic consequences of exponential functions. Of course, there is also the concept of the Meaningless Mean, which seems to get regular outings.





The Times knew this Mankiw column is a turkey.
written by John Wright, March 24, 2014 9:39

One can click on the Business Day link above Mankiw's op-end and find other pieces, for example, "Selling a Poison by the Barrel:Liquid Nicotine for E-Cigarettes" (http://www.nytimes.com/2014/03...f=business) with comments allowed.

Comments were NOT allowed for the Mankiw piece.

The Times may have been concerned about well-reasoned and disparaging comments from offended scientists, philosophers and Hippocratic oath quoting doctors in response to Mankiw's piece.

The Times saw no need to burn a valuable elite source.

Mankiw can state "Our recommendations are based not only on our understanding of how the world works, but also on our judgments about what makes a good society".

Mankiw did not see fit to include that economic recommendations might also be influenced by an economist's own self interest(academic advancement, political advancement, academic/think-tank grant or access to power).

While this may not apply to Mankiw, it is surprising he seems not to be aware pursuing self-interest could apply to OTHER economists.

He views a purity of purpose in the economic profession that I fail to see.

Government, how do I love thee, let me count the ways..
written by Capt. J Parker, March 24, 2014 10:03
@Watermelonpunch
Government “of the people and by the people” was originally constructed as a limited government. I’m sure you and Baker are all hot and bothered over Mankiw’s reference to Natural Rights. From where I sit it’s really quite awesome. All one need do is calmly and quietly point out, as Mankiw did, that there are limits to government’s competence and that understanding these limits and maintaining a healthy respect for individual liberty just may, in some circumstances, result in better outcomes for society and what happens? You get a full blown progressive freak-out complete with a history lesson full of Neanderthals and hunter-gathers. How come you dudes never bring up the iron-curtain, WWI, WWII, Casto, Venezuela, North Korea or The Heart of Darkness? Since government facilitates all, didn’t it facilitate all that stuff as well.
...
written by watermelonpunch, March 24, 2014 5:49
@ Capt. J Parker

If the choice is between going the way of the Neanderthals OR having had many humans, including many of my family members having gone to war, and much legitimate suffering throughout history and until today...

Um, yeah, I vote go human survival... warts & all.

And that's only done through cooperation & civilization facilitated by some sort of officially respected governance.

Is there no downside?

Well, none as big as the Neanderthal outcome downside!!! ;o)
@watermelonpunch
written by Capt. J Parker, March 24, 2014 9:31
Today Neanderthals thrive. They run FDA, DoE and HHS. ;-D

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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