Who Are The Deserving Rich? Rentiers, Apparently.

Greg Mankiw is dipping his toe back into economic justice philosophy over at the New York Times. Ignoring Matt Yglesias's prior suggestion that he heed the wisdom of division of labor and not try to do philosophy, Mankiw has brought to this piece the same naive Just Deserts approach to economic justice that he trotted out in the middle of last year.

The structure of his argument is to identify three people who are obviously deserving of their income and then analogize those people to bankers and CEOs to show that they are deserving too.

Rentier Exemplars

Amusingly, two of three people he chooses as being obviously deserving of their income—Robert Downey, Jr. and E.L. James—make all of their money off of intellectual property monopolies. They are actually making their income in ways that Just Deserts advocates have the hardest time justifying.

The only reason Robert Downey, Jr. makes as much money as he does is because copyright law allows the people who produce the films he stars in to reap monopoly rents on the films. The only reason E.L. James makes as much as she does is because copyright law allows her to reap monoply rents on the books she produces. Their monster incomes are solely a function of our intellectual property law.

The problem this presents to the Just Deserts view is that there are no economic fundamentals that determine how much someone who produces copyrighted material deserves. Books and movies obviously add value to the world, but because they are able to be copied infinitely at minimal to no cost, each copy of them is essentially worth nothing. In a world without copyright, tons of firms would make copies of the latest Robert Downey, Jr. film and drive the price of buying a copy to nearly zero. Likewise, tons of firms would make copies of the latest E.L. James book and drive the price of buying a copy to the price of the paper the book is printed on, leaving very little surplus and none for the author herself.

This ruinous capitalist competition does not happen because of the state intervention into the economy that we call copyright. Under this law, the state hunts you down and fines you or throws you into a cage if you try to copy a movie or book. The problematic thing about copyright for Just Deserts advocates is that its specific contours are essentially arbitrary. You could have copyright law that doles out copying monopolies for 100 years, for 10 years, or for 30 days. How lucrative making a copyrighted product is depends upon these arbitrary lines that we draw. If books and films came out of copyright after 30 days, E.L. James would not receive anywhere near $95 million for "Fifty Shades of Grey" and Robert Downey, Jr. would not have received anywhere near $50 million for "The Avengers."

Rentier CEOs and Financiers

Although choosing exemplars of desert whose income is the least explainable within a Just Desert framework is very strange, they actually are not bad comparators to CEOs and financiers.

Assessing the competence of a CEO is extremely fraught. The idea that a central planner that sits atop a firm of tens of thousands of people is the primary driver for what happens in that firm is delusional at best and goes against everything conservatives like Mankiw believe about the difficulties of effectively centrally planning so many resources. What we have in the U.S. is more akin to a cult of the CEO, in which cultural norms regarding the god-like genius of CEOs drive compensation-setting for CEO "productivity" that is inherently difficult if not impossible to meaningfully assess. Other countries with other business cultures pay their their CEOs way less. It is almost certain that American CEOs are being paid more than their "marginal productivity", which runs afoul of the principles of Just Deserts.

The case of financiers is a bit more complicated to spell out, but it suffices to say that the increasing size and profitability of the financial sector suggests that it is being compensated more and more out of economic rents rather than for its especially productivity-enhancing capital allocation decisions.

Conclusion

In addition to pushing a theory of economic justice with no philosophical legs, Mankiw has managed to spectacularly bungle the application even within the confines of Just Deserts theory itself. To make his point, Mankiw would need to assemble together a group of people who are being paid incomes equal to their marginal productivity. Instead, he assembled a big group of rentiers, the class of people who are most undeserving within the Just Deserts intellectual perspective. It seems that Mankiw should heed Yglesias advice and stick to economics.

Comments