Having already given my thoughts on Mankiw’s column, I merely have a few things to add/emphasize.
1. Cowen frames the arguments in terms of the “status” of George Bush, Greg Mankiw, Barack Obama, and their proposed policies. I hadn’t thought of the arguments as being about status, but I think I see what Cowen is saying. By being a well-known economist and having a column in the New York Times, Mankiw is trading some of his status for political advocacy (just as Krugman does, from the opposite direction). If Mankiw didn’t have the pre-existing status, I doubt this particular column would’ve made it into the newspaper. (Again, ditto with many of Krugman’s columns.) So it makes sense that arguments about the substance of Mankiw’s remarks will get tied into disputes about his status.
2. Neither Cowen nor Mankiw address the problem that Mankiw estimates his current marginal tax rate at 80%, whereas only two years ago he estimated his marginal tax rate under a hypothetical Obama administration at 93%. Again, that means he’s keeping 290% of the money he was expecting to keep, based on his calculations from 2008. These calculations are so unstable as to make me doubt any policy implications that would be drawn from them.
3. One might argue that, whether the marginal tax rate is 93%, 90%, 80%, or even 70%, it’s still a lot–it’s a drag on the economy and a disincentive for productive people to work. This might be true, but that gets back to my original point from two years ago, that Mankiw is still working despite these tax rates. In fact, before his recent column came out, I was thinking that Mankiw was working despite what he judged as a 93% marginal tax rate.
4. I agree that, ability to pay aside, there’s something demoralizing about knowing that a large fraction of your marginal income goes to the government, much of it for programs that you don’t approve of. When I do $1200 worth of statistical consulting, I find it a bit frustrating to know that I’ll only take home half of it–so I can only imagine how irritating it would be to feel that you’re only getting 7 cents on the dollar (or even 20 cents, per Mankiw’s latest calculation).
In Mankiw’s case, though, there is a solution: he could use his marginal income (which, as he said, he doesn’t need right now) to hire some research assistants. I don’t know the details of the tax law, but I’m sure his marginal rate would be much much less than 93% or 80% or the other numbers he’s talking about.
5. The discussion of Mankiw’s column seems to have caused him to rethink one of his ideas. Two years ago, he framed his decision as follows:
On a regular basis, I am offered opportunities to make some extra money. It could be giving a talk, writing an article, editing a journal, and so on. . . . The bottom line: If you are one of those people out there trying to induce me to do some work for you, there is a good chance I will turn you down. And the likelihood will go up after President Obama puts his tax plan in place. I expect to spend more time playing with my kids.
The choice was clear: make money or play with the kids. At the time, I suggested that perhaps Mankiw is working not for the money but for the fun and also out of some sense of moral obligation (for example, to do his part to stop a proposed government policy that he opposes).
For whatever reason, Mankiw has added some of these motivations into his calculus and now writes:
I [Mankiw] face a choice among a wide range of activities, each of which offers some combination of pecuniary and non-pecuniary benefits. . . . When the government taxes pecuniary benefits, I spend more time on those activities that yield non-pecuniary benefits. Some of those activities may look like leisure, but others may be better described as “fun work” rather than “income-producing work.”
I think he’s most of the way there. But he still needs to recognize that he does some things for motivations that are neither familial (saving money for his kids), pecuniary, or for fun. Again, I think his formal framework is too narrow and I would find it refreshing if he were to state that he does some things (such as column-writing) because he thinks they will benefit the public good. I’m not saying he needs to be taxed at 93% on these efforts, though; he could perhaps set up a special cookie jar for his extra income and spend it in a productive way on his research so it won’t get swallowed up by inheritance taxes in 30 years. He could, for example, set up a nonprofit foundation for economic analysis, or endow a fellowship at the American Enterprise Institute, or something like that. This could have the effect of furthering his advocacy and policy goals and give him the sense that his extra money is going somewhere useful.
P.S. Cowen argues that details-oriented commenters like me are missing the point: the issue is not Mankiw’s particular circumstances but rather the larger issues of the efficiency and morality of high tax rates. I take Cowen’s point, but, as a statistician, I’m not impressed with an argument when it doesn’t work on the example it’s been applied to.