BUSINESS

Greg Mankiw Discovers the Math and the Arithmetic on the Same Day

January 2, 2013   ·   0 Comments

Source: New Economic Perspectives

Above: Gregory Mankiw, who was an adviser to Mitt Romney in the 2012 presidential campaign, is a professor of economics at Harvard.

By Dale Pierce:

Raising taxes is a good idea after all. In fact, it is now quite necessary, according to former Romney flack and alleged deep thinker Greg Mankiw of Harvard University. (Whose introductory textbook in economics may go down in history as the single greatest disinformational success of all time.)

In this Sunday’s New York Times, Prof. Mankiw bravely challenges what he takes to be the newly prevailing group-think in Washington – namely, the bi-partisan idea that “taxes on the middle class must not rise.” This is “Bad Math”, we are told. This does not accord with the “laws of arithmetic” – at least not as Prof. Mankiw understands them. It is, he concludes, our government’s stubborn reluctance to tax the non-rich which explains why “the political process has become so dysfunctional.”

The set-up is familiar – formulaic, even. For the “next several decades”, thanks “largely to entitlement spending”, the ratio of U.S. government debt to G.D.P. will rise “substantially.” If this account seems a little vague, don’t worry – it gets vaguer still. The increased ratio of debt to GDP “can happen for a while, or even a long while, but not forever. At some point, investors… will start questioning our ability to pay debt service without creating steep inflation. It’s hard to say precisely when this shift… will occur, and even whether it will strike in this president’s term or the next, but when it does, it won’t be pretty.”

On that possibly far-off, but still unpretty day, Mankiw concludes darkly, the nation will “find itself at the brink of an unprecedented financial crisis.”

On one level, this entire exercise begs the question: when is a prediction so imprecise – so hedged round with ifs, ands, buts and other qualifications – that it fundamentally ceases to be a prediction, becoming, instead, the sort of brooding, shamanistic incantation we might more likely associate with the reading of some unlucky sacrificial sheep’s entrails? Would the New York Times publish anything remotely this vague as “informed commentary” in any other field of investigation except economics?

It would be completely fair to paraphrase Mankiw was follows:

“At some indeterminate, and largely indeterminable, future point in time, which may occur within four to twelve years, but which may very well not happen until substantially later on, and all the while assuming that U.S. government policies do not change significantly during that time, it is inevitable that investors will begin questioning the capacity of the U.S. government to service its debts.”

The most interesting thing about this familiar invocation of financial doom may be its sheer banality. It has acquired the status – even the cadence – of ritual. None of it needs to be explained or demonstrated anymore. No math – no arithmetic – need any longer be set forth. It is enough to simply pronounce the magic spell, and genuflect. And, sadly, Prof. Mankiw is only too right in this. There is probably not one politician, pundit or dry-behind-the-ears policy wonk in all of Washington who would take issue with one word of it.

Of course, it doesn’t particularly matter what policy or set of policies Greg Mankiw happens to be selling today. Just yesterday, he was selling the Romney/Ryan line that all of the Bush tax cuts, without exception, should be made permanent as a matter of bedrock moral principle – along with an additional 20% across-the-board cut (also permanent) . The good professor was unconcerned, just a month ago, that these much, much larger tax cuts might somehow lead to “unsustainable” deficits later on. But then, the Romney formula would still have skewed tax benefits wildly toward the ultra-rich. And that is the game: give “everybody” a tax cut, but then notice that since middle-class benefits are the ones which are thereby starved, why then it is only natural – only fair – that middle-class taxes rise to cover “their own” costs.

As an extended exercise in the fuzziest of fuzzy math, Mankiw’s argument soon settles on just one or two statistics. But he can’t resist a small side trip over to fuzzy aesthetics along the way. “Fairness,” Prof. Manki intones, is, “like beauty, in the eye of the beholder. Unfortunately, peoples’ judgement is often based on anecdotes that distort rather than illuminate…” He then proceeds, unaware of any irony, to recount exactly two anecdotes which, well, rather do tend to distort more than they illuminate.

“In 2009… the richest 1% of of Americans paid 28.9 percent of their income in federal taxes… (That includes income taxes, both individual and corporate, and payroll taxes.)” Of course, leaving aside whatever calculations attribute *corporate* taxes to rich *individuals*, the whole point of the Romney tax return escapade was was to peel back the terminology whereby a large percentage of the money billionaires take in every year is not counted as “income” *at all*. Are we supposed to believe that Mitt Romney is an aberration – some sort of particularly-good-at-tax-evasion guy, who can whittle his tax liability down below 13% when the rest of his class bites hard and pays almost 30%? Is there a smell test in the house?

Anecdote (or damn lie) number two concerns “the middle fifth of households”, who, according to Mankiw, pay about 11% of their income in federal taxes. And what could be more reasonable than this, in describing the lightness of middle-class taxation – to focus on this very middle-of-the-middle – the middle fifth of households? Of course, all the rest of the political class, and all of the rest of the political debate, defines “middle class” as families making less than $250,000 per year. But such a cut-off point, as the debate over our fiscal-cliff follies never ceases to remind us – means that the “middle class” extends far up into the very top quintile, extending as high as 97% of households – almost all of which are vastly more affluent, and pay significantly higher taxes than the narrow group Prof. Mankiw focuses on. Focuses on, that is, in order to make his argument sound just a tiny bit less specious than it quite obviously is.

Conclusion: anyone who trusts Greg Mankiw to fairly state an argument about taxes, math, arithmetic or anything else has either not been paying attention or else may be severely challenged, aesthetically. Beauty may be in the eye of some mere beholder. Fairness belongs to us all.

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