Does the one percent deserve what it gets?

The rich are not like you and me. They contribute far more to society than everybody else, so argues Harvard University economist Gregory Mankiw in his essay “Defending the One Percent.” Mankiw’s praise for talented superstars such as Steven Jobs, J.K. Rowling, and Steven Spielberg quickly blooms into a more general argument that competitive labor markets pay workers what they deserve. This is music to the ears of high earners, and it sings to a very human desire to believe that the world is fair.

But this argument is based on neoclassical economic theories that define the domain of human choice in narrow terms, minimizing the effects of bad luck, bad markets, and bad inequalities that often predetermine market outcomes. Mankiw’s argument leaves room for corporate bad behavior defined in narrow terms as “gaming the system.” But what he most deplores is government meddling with the system.

Most economists do not explicitly endorse such views. But years of schooling in neoclassical economic theories predispose them to the view that perfectly competitive markets yield equitable as well as efficient outcomes. As a result, they often assess “rent seeking,” or efforts to get rich at someone else’s expense, by comparison with hypothetical market outcomes.

Rent seeking becomes just another name for interference with the magic meritocracy of the marketplace. From this perspective, efforts to increase the minimum wage can be considered just as unfair as efforts to challenge compensation practices for corporate chief executives and other well-heeled top managers.

Like neoclassical economic theory in general, this approach is too narrow. Competitive markets comprise a relatively small part of an economy dominated by large multinational corporations—marketplaces and firms that are embedded in a global environment of unpriced goods and services.

Efforts to get rich at someone else’s expense, which fall under the academic rubric of distributional conflict, are multidimensional. Forms of collective bargaining power based on citizenship, class, race and ethnicity, and gender, as well as other aspects of group identity, influence the resources that individuals bring to the labor market. They also influence the power that individuals possess to modify labor market outcomes.

Some of us contribute more than members of the top one percent to the economy, and some of us contribute less. None of us gets exactly what we deserve. One difference between the rich and us is that they have more money. They also enjoy—both as cause and effect—a lot more power.

—Nancy Folbre directs the Program on Gender and Care Work at the Political Economy Research Institute at the University of Massachusetts Amherst. Her working paper on this subject is in our working paper series.