David F. Ruccio — Mankiw’s knowledge problem

...in his defense of his defense, Mankiw does make a curious admission: capitalism is fatally flawed....

...“speculative excess and its ramifications” are in fact “an inherent feature” of capitalist economies. But then, Mankiw adds, “preventing them entirely may be too much to ask given our current knowledge.”

What Mankiw sees as a problem of knowledge is what the rest of us see as a problem of economic institutions. It’s precisely because the economic system is arranged so that a tiny minority at the top is able to continue to capture the surplus that financial crises occur on a regular basis.

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Mankiw’s knowledge problem

David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

The institutional problem is the assumption that in order to save the system, the parts of the system that resulted in a crisis need to be saved at the expense of the rest of the system "because they are indispensable to the system as a whole." So we see the top tier rescued while the rest of the economy, that is, the rest of the people, take the hit instead. Time after time. But, hey, that's capitalism.