Mark Thoma writes:
Economist's View: Questions for Prominent Economists: A couple of things from Greg Mankiw and George Borjas caught my attention, so I want to make sure I understand what they are saying. First, Greg Mankiw says:
Brooks on the Economy, by Greg Mankiw: A prominent Harvard economist emails me to recommend David Brooks's column from a few days ago. He calls it "truly fantastic and obviously correct." With such a strong recommendation from a colleague, I ... read Brooks. ...[T]he Brooks piece is well worth reading. It is far more informed by cutting-edge economic research than most things you find on the op-ed pages...
[M]y question is if Greg (and "prominent economist") stand behind all the claims in Brooks article (see here for a list of posts questioning the claims)? If not, if this isn't a blanket endorsement, could you please give us more guidance as to where you agree or disagree so we can better evaluate your position?...
Here's the start of Brooks:
Brooks on the Economy: If you've paid attention to the presidential campaign, you've heard the neopopulist story line. C.E.O.'s are seeing their incomes skyrocket while the middle class gets squeezed. The tides of globalization work against average Americans while most of the benefits go to the top 1 percent.
This story is not entirely wrong, but it is incredibly simple-minded. To believe it, you have to suppress a whole string of complicating facts. The first complicating fact is that after a lag, average wages are rising sharply. Real average wages rose by 2 percent in 2006, the second fastest rise in 30 years.
The second complicating fact is that according to the Congressional Budget Office, earnings for the poorest fifth of Americans are also on the increase.... [B]etween 1991 and 2005, "the bottom fifth increased its earnings by 80 percent, compared with around 50 percent for the highest-income group and around 20 percent for each of the other three groups."
The third complicating fact is that despite years of scare stories, income volatility is probably not trending upward. A study by the C.B.O. has found that incomes are no more unstable now than they were in the 1980s and 1990s.
The fourth complicating fact is that recent rises in inequality have less to do with the grinding unfairness of globalization than with the reality that the market increasingly rewards education and hard work...
My reaction is that none of these first four are "obviously correct," let alone "fantastic."
Brooks's first two facts are cherry-picked and unrepresentative--note the limitation of the first "fact" to an average--not a median--number over a very short period, and note the restriction of the second to "earnings" rather than "incomes." Brooks's third "fact" appears to be wrong: at least as I read the studies http://www.cbo.gov/ftpdocs/80xx/doc8007/04-17-EarningsVariability.pdf http://www.cbo.gov/ftpdocs/77xx/doc7777/01-31-Volatility.pdf, individual earnings volatility increase from the 1960s-1970s to the 1980s-1990s-2000s, but shows little change within that latter period, while family earnings volatility rises from the 1980s to the present. But as Peter Orszag says, "the number of studies on the topic is limited, however, so it is too early to reach firm conclusions about the precise timing or magnitude of any [possible] increase."
And Brooks's fourth "fact" is simply incoherent: increased rewards to education and to hard work and to luck and to choosing the right parents is not an alternative to the grinding mills of globalization but is, instead, the channel through which the mills of globalization grind.
I realize that when one says that David Brooks is "far more informed by cutting-edge economic research than most things you find on the op-ed pages," he means to give faint praise: the bar is indeed low. But surely there is at least one other New York Times columnist whom one should praise first for the economic sophistication of his arguments, even if one does find his points politically unpalatable?
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