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Defending the One Percent

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  • N. Gregory Mankiw

Abstract

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. The new product makes the entrepreneur much richer than everyone else. How should the entrepreneurial disturbance in this formerly egalitarian outcome alter public policy? Should public policy remain the same, because the situation was initially acceptable and the entrepreneur improved it for everyone? Or should government policymakers deplore the resulting inequality and use their powers to tax and transfer to spread the gains more equally? In my view, this thought experiment captures, in an extreme and stylized way, what has happened to US society over the past several decades. Since the 1970s, average incomes have grown, but the growth has not been uniform across the income distribution. The incomes at the top, especially in the top 1 percent, have grown much faster than average. These high earners have made significant economic contributions, but they have also reaped large gains. The question for public policy is what, if anything, to do about it.

Suggested Citation

  • N. Gregory Mankiw, 2013. "Defending the One Percent," Journal of Economic Perspectives, American Economic Association, vol. 27(3), pages 21-34, Summer.
  • Handle: RePEc:aea:jecper:v:27:y:2013:i:3:p:21-34
    Note: DOI: 10.1257/jep.27.3.21
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.27.3.21
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    References listed on IDEAS

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    1. Cronqvist, Henrik & Fahlenbrach, Rüdiger, 2013. "CEO contract design: How do strong principals do it?," Journal of Financial Economics, Elsevier, vol. 108(3), pages 659-674.
    2. Alberto Alesina & Andrea Ichino & Loukas Karabarbounis, 2011. "Gender-Based Taxation and the Division of Family Chores," American Economic Journal: Economic Policy, American Economic Association, vol. 3(2), pages 1-40, May.
    3. Steven N. Kaplan, 2012. "Executive Compensation and Corporate Governance in the U.S.: Perceptions, Facts and Challenges," NBER Working Papers 18395, National Bureau of Economic Research, Inc.
    4. repec:hrv:faseco:30752834 is not listed on IDEAS
    5. Lester C. Thurow, 1971. "The Income Distribution as a Pure Public Good," The Quarterly Journal of Economics, Oxford University Press, vol. 85(2), pages 327-336.
    6. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    7. N. Gregory Mankiw & Matthew Weinzierl, 2010. "The Optimal Taxation of Height: A Case Study of Utilitarian Income Redistribution," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 155-176, February.
    8. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality in the United States, 1913–1998," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 1-41.
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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