From the Classroom to the White House

Economics According to N. Gregory Mankiw

Mark Maier

This article is from the July/August 2003 issue of Dollars and Sense: The Magazine of Economic Justice available at http://www.dollarsandsense.org/archives/2003/0703maier.html


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This article is from the July/August 2003 issue of Dollars & Sense magazine.

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"Let those who will, write the nation's laws if I can write its textbooks," Paul Samuelson, author of the one-time leading economics textbook, once boasted. Now N. Gregory Mankiw (pronounced "Man-kew") is about to do both. He's the newly confirmed chair of President Bush's Council of Economic Advisers, the three-member group that gives direct economic advice to the president. And he is author of a best-selling college economics text. Thus, Mankiw is powerfully positioned, bringing his highly regarded academic credentials to the Bush economic plan, while his new-found political prominence will likely fan sales of his book.

Press coverage of Mankiw's May 2003 nomination focused narrowly on the ways his work appeared inconsistent with some of the more patently absurd tenets of Bush economic policy—like the idea that cutting taxes will increase government revenue. The Associated Press reported that Maryland Senator Paul Sarbanes accused Mankiw of "twisting like a pretzel" during his confirmation hearing to reconcile his prior writing with administration policies. The coverage cast Mankiw as a reasonable critic and a moderate.

Less often recognized is the fact that Mankiw's writing consistently supports nearly all of the Bush conservative agenda, including tax cuts for the rich, deregulation, and reduced government spending. Mankiw's textbook, hailed as a breakthrough for its slimmed-down, high-tech approach, tilts so much toward the right that college professors interviewed for this article fear that students learn a particularly biased view of modern economics—far more so even than students who use other mainstream texts.

The Big Money

Known in the economics community as a rising star—Harvard tenure at age twenty-nine—Mankiw gained national recognition and raised eyebrows when he was paid a $1.4 million advance for a new introductory textbook, Principles of Economics, in 1997. Favorably reviewed in USA Today and the Wall Street Journal, the book is among today's best-selling college economics texts.

With over one million students taking an introductory course every year, the market is highly profitable. Actual textbook sales numbers are a closely guarded secret. Mankiw's publisher, Thomson South-Western, puts the book at the top, a claim disputed by competing publisher McGraw-Hill/Irwin. Whether the text is number one or two, it has unquestionably done well, far better than another entry ten years ago by Nobel Prize winner and Clinton advisor Joseph Stiglitz, and ahead of texts by other Bush appointees John Taylor (undersecretary of the Treasury) and Ben Bernanke (Federal Reserve governor). Paul Krugman, sharp critic of the Bush administration in his New York Times editorials, will go head-to-head with Mankiw when Krugman's new textbook hits the market next year.

The success of Principles of Economics is attributed to its clear writing style, its high-tech ancillary support materials, and most of all its slimmed-down presentation. Unlike bulky texts such as Mankiw's main competitor, the 800-page, double-column textbook by Campbell McConnell and Stanley Brue, Mankiw chose to emphasize a limited set of key ideas. Such brevity is welcome news to economics students required to buy hefty, expensive books that include more arcane mathematical theory than could possibly be learned in a one-year course. But Mankiw's choices about what content to leave in skew the book in a conservative direction, a bias that is reinforced by his selective use of examples, all of which support policy recommendations put forward by his new White House employer.

What's In, What's Out

Mankiw proudly claims that his Harvard students couldn't guess his political viewpoint. Obviously, they weren't keeping up with his Fortune magazine opinion pieces supporting school vouchers, privatization of Social Security, and an end to inheritance taxes. But more troubling, this attitude suggests that Mankiw believes his book to be politically neutral when in fact his textbook goes even further than most mainstream competitors in singling out conservative policies for study and selectively choosing illustrations that support a conservative agenda. By contrast, textbooks usually labeled "liberal" in their orientation by and large go out of their way to present a balance of arguments and to reveal the author's own point of view.

In his discussion of the 2002 Microsoft settlement, under which the company agreed to minor restrictions on its business practice, Mankiw fails to disclose that he was a paid consultant for Microsoft. Political transparency is not only honest, it also models for students how a social scientist can take a stand while still recognizing the need to understand opposing arguments.

Occidental College professor Peter Dreier complains, "When students who have used the Mankiw text in Economics 101 show up in my urban policy seminar, many of them have a lot of misconceptions about the way the real world works. Mankiw's text presents the inefficiency of government regulation as a proven fact, not as one perspective subject to debate and verification with evidence." Perhaps Mankiw's favorite issue—he examines it four times in the book—is the income tax's alleged drag on work effort. Of course, rolling back tax rates for high earners is the Bush's administration's top priority—big cuts on top income tax rates passed in 2001 and were accelerated with this year's tax cut. As evidence in favor of the tax cut, Mankiw points to a study from Iceland showing that people worked more when marginal taxes temporarily were reduced to zero—hardly a strong empirical foundation for his support of the administration's plans to lower the income tax rate for the rich by 3.6 percentage points and reduce taxes on stock dividends.

Conveniently ignored by the book (and the Bush administration) is the payroll tax, although it is the number-one tax for many U.S. households and is extraordinarily regressive in its impact, hitting the poor and middle class much harder than the rich.

Mankiw's chapters on "Earnings and discrimination" and "Inequality and poverty" ignore the most important causes of pay disparities and poverty in the United States. For instance, they give practically no attention to gender bias, race discrimination, or businesses' anti-union activity. Yet the text finds space to analyze the trivial problem of bias that favors those with good physical looks and to present an argument for why employer discrimination against blondes would put some firms at a competitive disadvantage. No evidence is provided for this imagined discrimination scenario, while real race and ethnic relations merit only two brief case studies—one on segregated streetcar seating and another on sports star salaries. The message in both examples is that employers suffer at the hands of racist customers who demand that they discriminate, a conclusion that's at odds with overwhelming historical evidence of employers gaining from suppressed African-American pay and businesses manipulating racist attitudes for profit.

Alternative Texts

While few textbooks provide truly balanced introductions to economics that include critical perspectives along with mainstream economic theory, there are exceptions. Alternatives to Mankiw include a new entry by Goodwin, Nelson, Ackerman, and Weisskopf called Microeconomics in Context (Houghton Mifflin) and Economics: A Tool for Critically Understanding Society by Riddell, Shackelford. Stamos, and Schneider (Addison Wesley Longman).

Mankiw's only analysis of gender inequality is to point out that women's rising pay causes greater income inequality among families because high-income women are likely to marry high-income men. This is only a relatively minor consequence of the women's movement, and far less important than its equalizing impact on individual male and female pay. Taken out of context, Mankiw's observation is a convenient excuse for growing inequality that discounts the women's movement and ignores far more important causes of inequity, including the tax cuts advanced by George W. Bush and his ideological predecessor, Ronald Reagan.

Mankiw omits discussion of the benefits of public spending whether for European-style social welfare programs or less ambitious programs such as Social Security and interstate highways, and he disregards positive examples of government intervention and regulation. By my count, the textbook uses 37 examples to underscore the dangers of government intervention while only 12 examples acknowledge any benefits of government spending or regulation.

Even seatbelt requirements come in for criticism on the grounds that riskier driving by less-vulnerable, buckled-up drivers offsets the higher number who survive auto accidents—never mind that several research studies dispute this claim. Mankiw also ignores the historical context in which automobile manufacturers fought against seat belt rules and even made seat belts difficult to use when they were first introduced.

Real-world cases where government intervention has worked—in areas like environmental improvement, workplace safety, and civil rights—have no place in the textbook. Discussing air and water pollution control, where economists can readily document environmental improvements from Environmental Protection Agency (EPA) intervention, Mankiw sidesteps current political debate over the Bush administration's rollback of environmental protection. Instead, he limits his analysis to the fictional case of "glop" dumped in a river, concluding that "market forces, properly redirected, are of the best remedy." Occidental College economics professor Jennifer Olmsted points out that "once again Mankiw's political view slips into the book. Students relying on the textbook cannot analyze the most pressing environmental concerns, global warming and ozone depletion, because Mankiw addresses neither the link between global income distribution and the environment nor the need for countries to work together." Not coincidentally, disregard for equality and international cooperation also are hallmarks of Bush administration environmental policy.

Mini-Macro

Although macroeconomics is Mankiw's research specialty (see sidebar, "Mankiw's Contribution to Macroeconomics"), in comparison with other textbooks, issues like employment and recessions receive relatively scant attention. The lengthy microeconomic preview on markets comprises nearly 40% of the macroeconomics version of the book. The pared-down macroeconomics chapters are far more in line with Bush administration thinking than press reports suggest. For example, the Laffer curve theory that cutting taxes increases tax revenue, relegated to a historical Reagan administration curiosity in many textbooks, receives a sympathetic three-page treatment by Mankiw.

Mankiw's contribution to macroeconomics.

Ironically, Mankiw gained his reputation as a "New Keynesian." (The New Keynesian school of thought aims to provide microeconomic foundations for traditional Keynesian theories.) Mankiw's most famous research looked at the idea of "small menu costs"—the costs of adjusting prices, such as printing new menus and informing suppliers, when demand rises or falls. Classical theory argues that the economy will gravitate naturally toward full employment and that government spending is not an effective tool for stabilizing the economy because higher prices offset the impact of additional government spending. New Keynesian theory raises the possibility that business firms will not respond to every change in demand by adjusting prices. According to New Keynesians, prices (including wages) are "sticky"—they adjust slowly. This "micro-foundation" is one explanation for the economy's inability to maintain full employment as well as a rationale for government intervention because, contrary to theory put forward by conservatives, prices will not rise to offset additional demand when government spending is used to stimulate a stagnant economy. As Colgate University macroeconomist Tom Michl points out: "The downside of the New Keynesian approach is that by putting all that emphasis on micro underpinnings, you reinforce the naive belief that a complex whole is just the sum of its parts. Some of the most important insights in macroeconomics require thinking about the structure of the whole economy."

On the issue of unemployment, Mankiw departs from the traditional textbook approach, looking not at the economy's ups and downs, but instead blaming unions and the minimum wage (for the fourth time in the book) for unemployment. The chapter is titled "Unemployment and its natural rate," and leaves students with the notion that substantial—5.5%—unemployment is normal and non-controversial within economics.

Not only is the existence of a natural rate of unemployment subject to debate, but Mankiw's presentation is even more at odds with the mainstream view in assuming an unchanging rate for the last 45 years. As economist Tom Michl, author of a textbook on macroeconomic theory explains: "There is strong evidence that if there is a natural rate, it must have declined substantially in the 1990s. Mankiw's text says that some of the unemployment at the natural rate exists because unions and minimum wage laws raise wages too high. Union membership as a percentage of the workforce and the real value of the minimum wage have both declined a lot since the 1960s. Why hasn't Mankiw's natural rate declined along with them?"

Unemployment caused by the economy's overall rise and fall is dismissed until the end of the book as a "short run" problem. In chapter 20 (out of 23 chapters) Mankiw celebrates President Bush's tax cuts for ending the 2001 recession, but later invokes the natural rate of unemployment as a limit on the impact of government intervention. Supposedly, conservative economists Milton Friedman and Edmund Phelps proved that there is no long-term trade-off between inflation and unemployment. As a result, Mankiw argues that the economy will return to its "natural" unemployment rate even if the government attempts to nudge the growth rate upward with fiscal or monetary policy.

Mankiw is adamant on the point: "By 1973, policymakers had learned that Friedman and Phelps were right." However, Michl counters, "Mankiw's treatment of the Friedman-Phelps hypothesis is one-sided. In the 1990s, the unemployment rate fell well below 5.5% and inflation did not rise. From a pedagogical point of view, a much sounder approach would emphasize the enormous difficulty of using historical data to prove or disprove economic hypotheses." But this would require that the textbook author take seriously the idea that there exist different and competing economic hypotheses. Mankiw does not.

The concluding chapter on "Debates over macroeconomic policy" is limited to a narrow wish list of conservative recommendations like "Should the tax laws be reformed to encourage saving?" and "Should the central bank aim for zero inflation?" It leaves out the progressive policy options implied by long-established and widely accepted Keynesian economic theories.

Keynesians and other liberal and progressive economists are concerned about the rising inequality of income, opportunity, and wealth over the last two decades, and would like to see more attention paid to crafting policies that level the playing field in our society. By omitting these perspectives, Mankiw's book does not prepare students very well for the current debates about changing the tax system, labor laws, or social welfare programs, or even for debates over economic stability, which you'd expect from a textbook by the new chair of the Council of Economic Advisors.

Former Harvard College student Ben McKean looks back on the Mankiw textbook as "not one of the livelier intellectual encounters of my college career. It was an indoctrination tool that didn't help me to think critically." Over the past year, more than three hundred Harvard undergraduates petitioned the economics department to offer a course with more diverse readings and opinions. (See Harvard Students Demand Alternative Economics Course.)

Even though many instructors supplement the Mankiw textbook with additional readings so that students gain a broader view of economics, as Peter Dreier points out, "the fact that Mankiw's big, expensive book is 'the text' gives it the ring of authority." Mankiw's new-found political prominence will drive book sales and legitimize the text's one-sided content. And, as chair of the Council of Economic Advisors, Mankiw brings to the Bush administration a narrow view of economics that is wholly consistent with his new employers' laissez-faire, anti-environment, tax-slashing agenda.

Mark Maier teaches economics at Glendale Community College in Glendale, Calif. He has written ancillary material for some of the textbooks mentioned in this article.