Tuesday, May 26, 2009
Mankiw criticizes SCOTUS nominee's personal finances
This is a little much. Judge Sotomayor has only roughly $100,000 in savings, but look, she is (I gather) a single woman with no children. She has a life tenured position where her salary is paid by the United States and which she can be fired from only with serious cause. She makes only $179,000 per year but it is as secure as a job can be. She has a generous judicial pension plan that will kick in as soon as she has enough years of service, and given that she has been a federal judge for so long, she might even be able to retire now if she wants to. Just guessing, but judging from her resume and lifestyle, she sounds like a workaholic devoted to her career and immediate family, so she doesn't have time for any ballooning vacations to the south of France anyway. I don't see any hobbies like yacht racing or wine collecting. If that changes, any day she wants to she could walk out of her current job and into a partnership at a law firm in Manhattan or DC and get paid (guessing again) maybe $2 million a year, with the potential for a lot more. In short, when you take Sotomayor's human capital and circumstances into account, there is nothing wrong with her balance sheet. Sure, she could have another $500,000 tucked away, and that would be nice. But why should she? She has no dependents, except maybe her mother, but her brother is a doctor who, let us assume, is doing well. She has a guaranteed job for life with very generous retirement and health benefits, and any day she decides she wants to be a millionaire, all she has to do is pick up the phone. She's doing a job she must love and be good at or she wouldn't be where she is, and she will probably like Supreme Court justices unfortunately tend to, work until the day she can't figure out what button to push in the elevator anymore, if not well past then. So I think Mankiw should ease off.
"Some save and intertemporally optimize their consumption plans": and there you have a summary of much that is wrong in economics. Not just the barbarous English, but the wild assumptions; someone who saves, virtually instinctively, is assumed to have Optimized something-or-other. Twit!
Posted by: dearieme | May 26, 2009 3:21:00 PM
What would be the expected market value of her pension?
In other words..... How much is her pension benefits worth?
Let's say her pension is worth $1,000,000. Which seems, to me, a low estimate.
If the good judge had had $1,000,000 in a 401(k) plan, would she be a "saver"? It seems to be that the answer would be: "Of course. She has a million dollars in her 401(k). What a saver!"
Like most economists, Mankiw is happy to make sweeping generalizations about an issue without having any understanding of the fundamentals.
What does that say about Mankiw?
Posted by: Mike | May 26, 2009 3:56:07 PM
I don't read Mankiw as criticizing her for not saving more. He's just describing what she has done, which interests him because he once wrote a paper drawing attention to the way in which people differ in their saving habits.
Posted by: Alan Gunn | May 26, 2009 5:33:03 PM
Alan-- he does say his grandmother would have been appalled, which is very like criticizing somebody.
Posted by: Tom Smith | May 26, 2009 6:50:54 PM
A Mankiw Spender is someone who spends all his liquid assets, which seems to be the case here. Whether that is imprudent or immoral depends on the illiquid assets and on what the money is spent on.
Sotomayor's financial situation reminds me a lot of Obama's. His tax returns showed a lot of labor income and virtually no capital income till he hit it big with a book. I still wonder what was going on with his finances.
I wish people would find out about both of them. The Sotomayor possibilities include a wide range: (a) She gives all her income to charity, (b) She spends all her income on fancy vacations, (c) She lies about her investments, (d) She spends everything on a Manhattan condo, (e) She is a compulsive gambler.
An interesting point is that while as Prof. Smith points out, it is rational for a single person with a good pension to consume everything he earns, we might prefer that an irrational Saver rather than a rational Spender make our public policy. Someone's personal finance tells you a lot about them.
Posted by: Eric Rasmusen | May 26, 2009 8:26:30 PM
Well I would prefer somebody with substantial private property to be making policy because that would create an incentive to follow policies that protected private property. But I suspect that is going the be the least of my objections to Judge Sotomayor. My only point is that given her very secure income, preferences to work rather than play, and few or no other responsibilities, her financial situation seems pretty unremarkable. If you live in NYC on 180K a year, having hardly any savings requires no explanation. Her tax rate has got to be close to 50 percent if she lives in NYC. She could easily spend 3K a month on housing. She probably eats out a lot. I'm actually surprised she has that much in savings.
Posted by: Tom Smith | May 26, 2009 9:19:55 PM
"he does say his grandmother would have been appalled, which is very like criticizing somebody."
Yes, but that's after he gave his grandmother as an example of someone who, though poor, saved a lot. So I'm not convinced that he meant this statement as a criticism; it strikes me more as having been a way of pointing out the contrast. I could cite my grandmother as someone who would be appalled at falling attendance in Baptist churches; this wouldn't mean that I think it would be a bad thing.
Posted by: Alan Gunn | May 27, 2009 5:11:40 AM
My grandmomma, if she read the Right Coast, would say that Alan's comment was pretty stupid.
Posted by: Mike | May 27, 2009 9:02:31 AM
*the* Brad DeLong? If you are a regular RC reader, I may have to stop attacking you.
Posted by: Tom Smith | May 27, 2009 1:45:47 PM
I doubt that he's a regular- he had a post about Mankiw's post and I noted yours (as I thought it was very good and had more detail than his did) in comments there.
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This seems to me to be exactly right. Thanks for it. Additionally, I don't know Sotomayor's address, but $179K/year isn't the sort of thing that lets you live high on the hog in much of the second district. This doesn't mean it's not a very nice living, especially for someone without many dependents- it is quite a nice living. But, in New York City it wouldn't be hard to spend that on living arrangements that many would find to be modest in other parts of the country. When one takes in the factors you mention about retirement possibilities and other ways to earn money, it's quite reasonable to decide to devote a larger share of one's income towards current expenses in such a place.
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