Saturday, June 15, 2013

Mankiw defends the top 1%

Greg Mankiw writes a paper for The Journal of Economic Perspectives, titled "Defending the One Percent".

It is outstanding.  Here's an except:

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). 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.

It also points out some shortcomings in Stiglitz's recent book, which I recently reviewed.

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