This is the second part of my discussion of N. Gregory Mankiw’s column asserting that governmental competition is desirable for the same reason that private competition is. Mankiw was Chairman of President Bush’s Council of Economic Advisors from 2003-2005. He was one of the principal architects of the perverse incentive structures that proved so criminogenic and drove the ongoing financial crisis. He gave no useful warnings of the necessity for containing the developing crisis – even after the FBI’s September 2004 warning that mortgage fraud was become “epidemic” and would cause a financial “crisis” if it were not contained. He is now Mitt Romney’s principal economic advisor. His column favors the “competition” argument that led him to support crippling financial regulation even as private sector competition led to endemic fraud. Mankiw is a moral failure as well as a failed economist. His infamous response to Akerlof and Romer’s 1993 paper (“Looting: the Economic Underworld of Bankruptcy for Profit”) was that it would be “irrational” for CEOs not to loot “their” corporations. He ignored all of the prescient warnings we made about how accounting control fraud drove our crises and he continues to ignore those warnings and the reality of our recurrent, intensifying financial crises. He wants the U.S. to move even more rapidly downward in the “competition in regulatory laxity” that is driving those crises. Mankiw is serving as Romney’s propagandist in chief. He is writing columns trying to defend Romney’s vulnerabilities, e.g., claiming that Romney should pay a marginal income tax rate that is lower than the marginal rate his secretary pays. In the column I am responding to, Mankiw chose this frame for his analysis: “SHOULD governments — of nations, states and towns — compete like business rivals?” (The capitalization is in the original.) He answered his question in this self-referential manner.
“[K]nowing that I have to keep up with the Paul Krugmans and the Glenn Hubbards of the world keeps me on my toes. It makes me work harder, benefiting the customers — in this case, students. The upshot is that competition among economics textbooks makes learning the dismal science a bit less dismal.
For much the same reason, competition among governments leads to better governance.”
The title of Mankiw’s article reflects his claim: “Competition Is Healthy for Governments, Too.”
It is inevitable that Mankiw thinks that competition makes his textbook superior. I leave analysis of that claim to future columns to be written with the aid of readers. I am announcing a competition among readers of our New Economic Perspectives blog at UMKC. I will provide “Mankiw Mendacity and Morality” t-shirts to the providers of the three top suggestions from readers of our blog (and Mankiw’s textbook) for the worst predictive and policy follies contained in that textbook. See details on our website.
Suffice it to say here that Mankiw’s belief that his ability to sell a textbook famous for its failed predictions and theories demonstrates the success of private markets in helping students learn actually constitutes proof of the market’s folly.
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