You would think that economists woud understand incentives.

Date: 2008.12.06 | Category: General | Tags:

Courtesy of Andrew Gelman’s blog, is an interesting discussion of an odd posting by the economist Gregory Mankiw, who’d been chair of the Council of Economic Advisors for George W. Bush. The posting is: Greg Mankiw’s Blog: My Personal Work Incentives, and, not to put too fine a point on it, it consists of whining about how he’s not going to do as much outside work for pay as he otherwise might because of how the anticipated tax regime under Obama will limit the amount of money thus earned he can pass on to his offspring.

Certainly he deserves congratulations for a) being affluent enough that he doesn’t need additional money to meet his material needs or his basic obligations to his children, and b) that his wants have not increased correspondingly as he has become rich.

On the other hand, he seems to have missed the irony inherent in the fact that this complaint about incentives comes on a blog posting, something that will not be compensated under any tax regime. By his argument, this is something he should not motivated to do. And yet he we know he was motivated to produce it, because he did.

If he actually needed the money (because of either real or subjective needs), presumably he would work harder under what he would call a more punitive tax regime (because he needed the money). Left unsaid in his analysis is why tax regimes should focus on getting him to do more work for money rather than someone who actually needs that money. I assume the argument is that because he’s brilliant and talented (presumably as reflected in the fruits of his government service and evidenced by the fact that he’s garnered the wealth he holds), someone poorer and more ambitious would do a poorer job giving the talks and writing the articles he will foreswear producing.

Color me skeptical. My guess is that his web posting would not have been better were he paid to produce it and that the talks and articles would be better produced by someone motivated by some combination of intellectual passion and the kind of real financial need that would induce him or her to put his or her heart and soul into them.

What’s wrong with the Mankiw posting isn’t the lack of incentive he had to produce it, but rather because it reflects a very shallow view of human motivation, albeit one that seems fairly standard in economics.