Do the rich deserve their wealth? Greg Mankiw believes they do. But Mankiw is asking the wrong question. Suppose everyone had as much wealth as today's 1 percent. Undoubtedly, some would not "deserve" such wealth. But so what? Everyone's rich; let's just enjoy our wealth, right?
A better question would be, do the poor "deserve" their poverty?
Much depends on what we mean by "deserve." Like most moral language, "deserve" and related words are equivocal. We often use "deserve" in a utilitarian sense. When we say, for example, "The rich deserve their wealth," we might mean that the everyone is better off with what wealth and income inequality we have. Arthur Okun makes an implicitly utilitarian argument in his "leaky bucket" theory. Okun argued transferring wealth from the rich to the poor always involved some inefficiency; we might become more equal after a transfer, but we have less stuff overall. Whether or not Okun was correct, and whether or not the utility of equality outweighs the overall loss of stuff, Okun is making a utilitarian argument. Similarly, when we say that criminals "deserve" punishment, we often mean that punishing criminals deters others from committing crimes, thus making the world better off. That the criminal himself suffers is the price we must pay, and because the whole problem arises because of the criminal's choices, we are less troubled by his own suffering. We use this sense of "deserve," with its utilitarian implications, all over the place, mostly unproblematically.
But Mankiw spends considerable ink denying the utilitarian argument. His argument against utilitarianism is not very good, but that's not my concern for today; what matters is that Mankiw argues that the rich "deserve" their wealth on grounds other than utilitarianism. It is inherently wrong, regardless of effects on utility, to confiscate the wealth of rich people, precisely because they "deserve" it. But if that's true, if we reject utilitarianism, then if (most) rich people deserve their wealth, then (most) poor people deserve their poverty.
It is therefore equally wrong, regardless of the utilitarian consequences, to give money to poor people. Not only must this money be taken from rich people, violating their rights, but the overall argument is that people should get what they deserve, and giving them something other than what they deserve, whether they deserve wealth or poverty, is inherently wrong.
If we take Mankiw's argument to its logical conclusion, then a society with tremendous economic inequality is not merely tolerable, it is mandatory. The highest moral imperative is that people must get what they deserve. If the poor deserve poverty and misery, it is immoral to alleviate their misery, even if we could do so without diminishing anyone else's happiness. (Which would blatantly contradict economists' usual endorsement of Pareto efficiency.)
Mankiw he probably does not, at least consciously, intend this interpretation: he admits the utility of some transfers. But without this interpretation, the argument is pointless. The claim that it is immoral to be rich — that no one should ever be rich, regardless of our economic circumstances — almost by definition is immune to an argument from positive deservingness. No one would argue, for example, that anyone deserves to murder, rape, or steal. Even apologists for murder, rape, and theft don't argue that doing so is a reward for merit; they argue that the victims deserve to be killed, raped, and expropriated by force. Arguments from deservingness always work to justify the lack of a privilege or right.
I think a democratic communist must fundamentally reject the concept of deservingness, except in the trivial sense that everyone "deserves" to be happy, and no one "deserves" to suffer. That everyone cannot all be happy, and that some will in fact suffer becomes a practical problem rather than a fundamental problem. Notwithstanding the enormous practical problems, the fundamental role of all our social systems should be to make as many people as we can as happy as we can. To do otherwise is simply to dress the legitimate grievances against capitalism in robes of red rather than green.