The Economist Jun 17th 2013, 20:18 by M.S.
APPARENTLY someone, perhaps John Kenneth Galbraith, once said that the way to debate Milton Friedman was to wait for him to say “Let us assume…” and then immediately interrupt and say “No, let’s not assume that.” (Via Clay Shirky, via Dan Davies.) I thought of this quip on Saturday while reading a draft paper by Gregory Mankiw entitled “Defending the 1 Percent”. Mr Mankiw begins with a thought experiment: “Imagine a society with perfect economic equality…Then, one day, this egalitarian utopia is disturbed by an entrepreneur with an idea for a new product. Think of the entrepreneur as Steve Jobs as he develops the iPod, J.K. Rowling as she writes her Harry Potter books, or Steven Spielberg as he directs his blockbuster movies.” Everyone wants to buy the entrepreneur’s product, which results in a hugely unequal distribution of income. Should the government shift to a progressive tax system to reduce the inequality?
Obviously Mr Mankiw discovers that the answer is “no”, because that’s the answer he has built his analogy to produce. But you don’t even need to say “No, let’s not assume that” to see what’s wrong with this analogy, because Mr Mankiw has done a strange job of selecting his John Galt figures. Let’s go along with Mr Mankiw’s thought experiment: Steve Jobs, J.K. Rowling and Steven Spielberg are about to create their staggeringly popular products, which will increase inequality because everyone wants to buy them. But now let’s imagine that just before these geniuses are able to bring their creations into the world, they die. No iPod, no Harry Potter, no Jaws. What happens then? Continue reading
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