The article “Defending the one percent” by N. Gregory Mankiw (Journal of Economics Perspective-volume 3, number 27-Summer 2013-Pages 21-34) is an attempt to analyze some reasons for not having an equal distribution of income, regarding special attention to the one percent of the people with the highest income. This issue has been debated for decades and has kept the attention of many economists. Since this disparity leads to inequality, the role the Government has been subject of analysis in order to stablish the level of involvement and the mechanism to solve the problem via taxation.
The paper starts pointing out an example of disruption of a utopic economy where a new entrepreneurial ...view middle of the document...
The setback will be worse if the rising on the income of the top 1 percent were related to rent-seeking.
However, inefficiency may also be matter of education and technology. In terms of education the issue relays on the demand of skilled workers and the educational pace of a country in order to supply skilled labor. In this case, there is a particular concern about the finance industry due to the crucial role this sector play in the economy; for that reason, most of the talented and highly compensated workers belong to this group, but also some of the business activities of this group are associated to rent-seeking. Consequently, stablishing a regulatory framework that ensures the right amount of financial activity is a difficult task but a well-functioning economy requires the correct allocation of talent to be able to succeed in a socially productive way.
The third problem stated by the author is the equality of opportunities as an essential requirement, remembering that equality of opportunity is often viewed as a social goal, but economists recognize that the failure to achieve equality would lead to inefficiency. In this case, the author analyses a case where children from poor families are unable to achieve the optimal amount of human capital due to financial restrictions that stop them from continuing their education. Measuring the degree of equality of opportunities is difficult, but it can be claim that the result from underinvestment in education is not only unequal, but also inefficient.
The author cites Stiglitz’s book (2012) quoting “If America were really a land of opportunity, the life chances of success—of, say, winding up in the top 10 percent—of someone born to a poor or less educated family would be the same as those of someone born to a rich, well-educated, and well-connected family.” This means people’s incomes would not be related to those of their parents. However, beyond inequality of opportunities, the intergenerational transmission of income has a deterministic cause related to genetic characteristics from parents and children, IQ for instance.
Nonetheless, there is another study conducted by Sacerdote (2007) that estimates that 33% of the family income is explained by genetic heritability, only 11% by the family environment and the remaining 56% by other environmental factors unrelated to family. Based on this study, the concern about income inequality should not be founded on the concern about inefficiency and inequality of opportunity, but according to Arthur Okun (1975) the big trade of is between equality and efficiency.