Tuesday, February 18, 2014

Motivations of the One Percent

Greg Mankiw generated a lot of buzz with his defense of high earners recently. I think it's pretty good up until the last paragraph in which he claims:
Unlike the superheroes of “The Avengers,” the richest 1 percent aren’t motivated by an altruistic desire to advance the public good. But, in most cases, that is precisely their effect.
The problem I have with this conclusion is that Mankiw unnecessarily ascribes greedy motives to the one percent and implicitly ascribes generous motives to the 99 percent. Many 99 percenters vote for government handouts because they are greedy, regardless of their income. Many Defenders of the 99 percent are motivated by personal gain. Many one percenters are altruistic or want to improve the world, regardless of their income, and happen to be very good at what they do. The point isn't that competitive markets work because of greedy people, it's that they work in spite of greedy people. Competitive market economies are robust to greed.

Competitive markets reward people for providing goods and services that others need and want, such as labor. The information about what others need and want, and how badly, is contained in prices, such as wages. By participating in a competitive market, you could be helping people you don't even know exist! Providers are paid regardless of the personal motives for providing the product or service in the first place.

This "regardless" is where some people have problems. In a competitive labor market, Greedy Guy will make just as much as Altruistic Alice if they produce the exact same things. Motives don't matter. Rewards are based on doing good, not being good. You can't look at Greedy Guy's salary and tell if he is a good person or a bad person. Did he become a doctor to heal thousands or for the high salary, healing thousands along they way? Did Mr. Macy and Mr. Gimbel demand their companies provide better customer service out of a desire to improve people's lives or for profits?

Does it matter to those being helped?

Related Posts:

Christmas Spirit?
"Toward a Moral Economy"