According to Greg Mankiw, rising inequality is a sign of a booming economy. Therefore, if the goal is “… economic prosperity for all, they should avoid focusing on the politics of envy." The LA Times uses an analysis by Brad DeLong to claim that “Mankiw is simply wrong” about the relationship between rising inequality and economic prosperity:
Envy Them? No. Tax Them? Oh Yeah., by Jonathan Chait, LA Times: There are certainly subjects that liberals refuse to discuss without resorting to hysteria and name-calling. … But that's nothing compared to the way conservatives react when somebody brings up the topic of economic class. In recent weeks, three of the nation's leading newspapers have taken on this topic. The Los Angeles Times published a series showing how economic risk has grown in recent years. The Wall Street Journal has shown that economic mobility has declined. And the New York Times has examined various aspects of class, including the fact that the share of income enjoyed by the top 0.1% has exploded in recent years. Whenever you broach such inconvenient facts, conservatives invariably have three pat replies. One is to accuse you of envying the rich and/or wanting to kill them. Another is to suggest you want to turn the United States into a clone of some god-awful country. (The Soviet Union once served this purpose nicely. Since the fall of communism, though, conservatives have … [been] … settling on some decidedly less-frightening Western European democracy.) The third is to insist that it's good for everybody when the country gets less equal.
The first two techniques were on vivid display in a recent column by Lawrence Kudlow, the CNBC talking head, occasional GOP advisor and high priest of the cult of supply-side economics. In a recent National Review Online column in which he was forced to acknowledge the higher incomes enjoyed by the super-rich, Kudlow fired off the following sarcastic ripostes to a New York Times article by reporter David Cay Johnston on the rich: "How dare they be successful earners and investors"; "Should we go out and shoot these 145,000 [taxpayers] for their success?"; and "Germans have an 'equality sickness' that makes them dependent on the welfare state. Is that what David Cay Johnston has in mind for America?" Speaking as a member of the liberal media, I can answer the last question very certainly: Yes, yes it is. If you walk in any newsroom in America, you will find reporters whispering to each other in German, humming "Deutschland Uber Alles" and scheming to install somebody of Teutonic stock in the White House. (Making Arnold Schwarzenegger governor was just the first step in this plot. Shhh.)
A slightly less inflammatory response than Kudlow's came from Harvard economist and former Bush economic advisor Greg Mankiw. "The data show that the rich take a rising share of income when the economy is booming, such as during the 1920s and 1990s," Mankiw wrote in a letter to the New York Times, concluding that if policymakers "want economic prosperity for all, they should avoid focusing on the politics of envy." Mankiw's choice of decades to focus on is a bit strange. Although I'm not an economist, I understand that the 1920s did not end well. Moreover, Mankiw ignores the nearly three decades after World War II, when the nation enjoyed high economic growth while the share of income held by the very rich fell. It's worth remembering that period because although people nowadays tend to think of the rich getting richer and the poor getter poorer as inevitable, some of our most prosperous years coincided with rich and poor growing more equal.
Anyway, it's not just a matter of which decades you focus on. Mankiw is simply wrong. UC Berkeley economist and former Clinton Treasury official Brad DeLong ran an analysis, finding no connection between general prosperity and the share of income held by the very rich. What's depressing is that even highly credentialed conservatives such as Mankiw equate any discussion of class inequality with "envy" of the rich. The accusation is actually bizarre. Liberals want to make the rich pay higher tax rates not because they hate them. (In fact, as conservatives love to point out in other contexts, many liberals are rich.) It's because somebody has to pay for the government, and the rich can more easily bear higher rates. Moreover, there are ways of accomplishing this short of shooting the rich or imposing socialism, say raising the top tax rate to where it stood during the Clinton years. That, by the way, was the other decade of prosperity invoked by Mankiw.
Krugman said it well, “Never mind that straw man, the politics of envy. Let's try to do something about the politics of greed.”