BUSINESS
02/18/2014 01:10 pm ET Updated Feb 18, 2014

Former Romney Adviser Explains That The Rich Are Basically Superheroes

ASSOCIATED PRESS

Robert Downey Jr. is wealthy, therefore all wealthy people are Robert Downey Jr.

If you submitted that argument to your logic professor, you would get a big, red "F." But Harvard economics professor Gregory Mankiw essentially made the same argument in The New York Times this weekend, part of his long-running campaign to convince the world that the super-wealthy are simply better than all the rest of us.

Mankiw, the former economic adviser to President George W. Bush and Lord Mitt, the Second Earl of Romney, observed that Downey got a $50 million paycheck for playing Iron Man in The Avengers in 2012.

"Does that fact make you mad? Does his compensation strike you as a great injustice? Does it make you want to take to the streets in protest?" Mankiw asked, clearly expecting the world to answer "No, no and no."

One could in fact argue that it is kind of ridiculous for a person to make $50 million playing a comic-book character in a movie. But Downey was arguably the best part of a film that has made $1.5 billion and counting. So, no, I am not mad at Robert Downey Jr.

Mankiw suggested, correctly, that the reason very few people are mad at Downey is because we can clearly see Downey's value. The same goes for Beyonce, LeBron James, Steve Jobs and the other A-list wealthy people that Mankiw name-checked.

But then Mankiw took an Iron Man-sized leap of logic and suggested that ALL of America's super-wealthy people -- with the exception of a few bad eggs like Bernie Madoff -- are as talented and obviously valuable as Downey, Beyonce and Jobs.

That is just demonstrably untrue.

As Paul Krugman noted in a blog post responding to Mankiw, most of the wealth at the very top of the income scale has gone to top corporate executives and bankers. Your Downeys and your Beyonces and your LeBrons make up only a tiny sliver of the top 0.1 percent of earners.

Bankers might play "a crucial economic role," as Mankiw claimed. But they have too often been crucial in exactly the wrong way, lately -- by wrecking the economy with the same lightly regulated gambling that caused their pay to skyrocket in recent decades.

As for those corporate executives, they are not generally paid gazillions of dollars because of their unique skill in running companies. In fact, studies show that the highest-paid executives typically oversee lagging corporate performance, as Ryan Grim and I wrote last week. Instead, corporate pay is set by compliant boards made up of well-paid directors who are often highly paid CEOs themselves.

Mankiw might as well have been responding to our piece when he wrote: "Critics sometimes suggest that this high pay reflects the failure of corporate boards to do their job. Rather than representing shareholders, this argument goes, those boards are too cozy with the chief executives and pay them more than they are really worth."

To counter this, Mankiw pointed to the private-equity industry, for some reason. Private-equity executives are well-paid, too, he argued, therefore it's just wrong to blame high CEO pay on corporate boards.

"In light of this, the most natural explanation of high C.E.O. pay is that the value of a good C.E.O. is extraordinarily high," Mankiw wrote.

This is dumb for so many reasons. For one thing, science has told us that the higher the CEO pay, the lower the performance, generally. And private-equity firms don't live in a vacuum. Their executives read The Wall Street Journal and know what executives of public companies get. They're going to expect the same kind of pay.

As ridiculous as Mankiw's argument sounds, it is the gospel of many of the uber-rich percent and their caddies like Mankiw. Some of them might even believe it. But it is an argument that desperately wants us to forget how much financial deregulation and huge tax cuts for the rich have boosted their wealth, and inequality, in the past 30 years.

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