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Tuesday, June 24, 2014

'More Capital is Good is Not a Helpful Contribution'

Paul Krugman:

Sympathy for the Trustafarians: A number of people have asked me to comment on Greg Mankiw’s defense of inherited wealth. It’s a strange piece... But let me focus on two key problems... – one purely economic, one involving political economy.
So, on the economics: Mankiw argues that accumulation of dynastic wealth is good for everyone, because it increases the capital stock and therefore trickles down to workers in the form of higher wages. Is this a good argument? ...
In fact, what we’re really talking about here is taxation of wealth, and the question is what would happen to that revenue versus what happens if the rich get to keep the money. If the government uses the extra revenue to reduce deficits, then all of it is saved – as opposed to only part of it if it’s passed on to heirs. If the government uses the revenue to pay for social insurance and/or public goods, that’s likely to provide a lot more benefit to workers than the trickle-down from increased capital.
The point is that you can only justify Mankiw’s claim that inherited wealth is necessarily good for workers by insisting that the government would do nothing useful with the revenue from inheritance taxes. I’d call that assuming your conclusions...
But the larger criticism of Mankiw’s piece is that it ignores the main reason we’re concerned about the concentration of wealth in family dynasties – the belief that it warps our political economy, that it undermines democracy. ...
If Mankiw wants to argue that the costs of any attempt to limit wealth concentration would exceed the benefits, fine. But “more capital is good” is not a helpful contribution to the discussion.

    Posted by on Tuesday, June 24, 2014 at 11:35 AM in Economics | Permalink  Comments (50)



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