Iron Man 4: Iron Man Fights Income Inequality

The career of famous Harvard economics professor Greg Mankiw has taken a strange detour in the past five or so years. The former George W. Bush administration economist and economic adviser to Mitt Romney’s presidential campaigns has, like many of those on the right, shifted from a moderate Republican tax-cut-side Keynesian to an outright reactionary defender of the virtue of the superrich.

In his recent defenses of the 1 percent—such as, say, last year’s paper titled “Defending the One Percent”—Mankiw turns to childish arguments to support his views that the status quo political economy and distribution of income in the United States are more or less in line with what they should be in a fair society. He does not consider income inequality a problem in search of a solution.

His latest New York Times offering confirms that Mankiw may simply enjoy making lazy arguments to provoke widespread anger, a concept known as “trolling.” Before the column even commences, we face our first of several mighty straw men with the headline: “Yes, the Wealthy Can Be Deserving.” And so he has already characterized popular and reasonable left-and-center concerns about an ever-widening gap between the wealthy and everyone else as a prejudicial assault on the notion of accruing wealth.

Mankiw’s piece cleverly begins with an anecdote about Robert Downey Jr., a rich, beloved actor. Mankiw essentially says, Robert Downey Jr. is rich; do you wealth-hating patsies hate Robert Downey Jr. too? Ehh??

In 2012, the actor Robert Downey Jr., played the role of Tony Stark, a.k.a. Iron Man, in “The Avengers.” For his work in that single film, Mr. Downey was paid an astounding $50 million.

Does that fact make you mad? Does his compensation strike you as a great injustice? Does it make you want to take to the streets in protest? These questions go to the heart of the debate over economic inequality, to which President Obama has recently been drawing attention.

[. . .]

One reason seems to be that they understand how he earned it. “The Avengers” was a blockbuster with worldwide box-office receipts of more than $1.5 billion.

Of that amount, only about 3 percent went to pay Mr. Downey. In other words, if you bought a matinee movie ticket for, say, $8, about 25 cents went to pay for Mr. Downey’s acting. If you have seen the movie, you might be tempted to say: “He gave a great performance. I’m happy to pay him a quarter for it.”

I hadn’t known that Robert Downey Jr. made $50 million for that role. But now that he mentions it, yes, it’s fucked up that actors now command such sums while the purchasing power of 90-something percent of the rest of the population has been stagnant for decades. (No offense to Robert Downey Jr., who, like the late Philip Seymour Hoffman, always turns in supreme performances, even in popcorn throwaway flicks where mediocrity would safely fulfill contractual obligations.) It’s not like movies were invented yesterday or haven’t made ludicrous sums of money before. It does seem, though, that actors’ chunks are rising ever higher. Did more sizable portions of that box office money used to go to film crews and studio employees? Are they seeing their salaries rise proportionally?

But sure, the country isn’t ever going to get all that worked up about Robert Downey Jr. or any other actor pulling in a record-smashing sum, or—to use another of Mankiw’s straw men—LeBron James pulling in $56 million from endorsements in a calendar year. A major reason for this, though, is that when Robert Downey Jr. or LeBron James turns in a rare bad performance, it doesn’t cripple the global economy for a decade.

This is where the truly grating naïveté of Mankiw’s argument comes in: he thinks that the sharp rise in Wall Street compensation in recent decades is just as deserved as that of entertainers and athletes.

A similar case is the finance industry, where many hefty compensation packages can be found. There is no doubt that this sector plays a crucial economic role. Those who work in banking, venture capital and other financial firms are in charge of allocating the economy’s investment resources. They decide, in a decentralized and competitive way, which companies and industries will shrink and which will grow. It makes sense that a nation would allocate many of its most talented and thus highly compensated individuals to the task.

In addition, recent research establishes that those working in finance face particularly risky incomes. Greater risk requires greater reward.

To be sure, some people find ways to get rich at others’ expense. Bernard Madoff most famously comes to mind. The solution here, however, is not to focus on the income distribution but to devise better regulation and oversight.

If done properly, though, focusing on “better regulation and oversight” would bring changes in income distribution, since it wouldn’t allow the financial services sector to execute whatever awful schemes it wanted to increase its share of the pie, to the eventual debt-ridden detriment of everyone else. It would shrink the sector to something more closely resembling a boring intermediary. His view of the modern finance industry as a collection of nice hardworking ho-hum fellows who just wanna allocate some capital is facile—as is his offering of Bernie Madoff, as though a one-off hustler running a Ponzi scheme had anything to do with the systemic problems surrounding the 2008 economic crash.

But hey, if you disagree with Mankiw, you must hate Robert Downey Jr. Or puppies. Why do you hate puppies?