The Seductive Temptations of Meritocracy

I am very tired of people holding up meritocracy as the standard toward which a society should strive.  Pretty much every Republican extols its merits and even Obama’s speeches endorse it obliquely with emphasis on equal opportunity and income mobility as if the problem is merely that the cream doesn’t rise to the top.  Sadly, the general populace endorses it too.  It seems to be tied up in that fallacious American Dream.  However, meritocracy is inherently and overwhelmingly a terrible way to operate a society and I don’t mean that in the same was the old adage “democracy is the worst form of government, except for all of the other.”  No, meritocracy is wrongbad.

First off, the idea of meritocracy only became really popular recently and I believe mostly as a way to justify the vast gulf between the rich and everyone else.  Income inequality doesn’t sting quite as much if that income is just rewards for talent or hard work.  It leaves open the possibility that you too could get rich and a little bit of hope breeds a lot of resilience.

In the Belle Epoque they didn’t justify the even larger disparities in wealth and income by saying they earned it.  No that was just the way of the world and they usually looked down upon those that managed to earn their way into high society.  This appears to me a much more realistic view of the situation.  I don’t want to rehash the debate over whether the rich earned their wealth; I talked about it a bit in my posts on Piketty and education.  Except that I will point out that the really rich earn their income from capital, that is they give their money to financial types that then invest it for them and then they get the payoff.  It’s very hard to see how they earned that money from capital beyond already having a bunch of money.  Let’s put it this way, if I could take a loan of a billion dollars at say the prevailing mortgage interest rate (5% or so) for a year I could give it to a financial team who would make maybe 10% returns due to economies of scale and I would be up 50 million dollars at the end of the year for doing nothing.

I think further evidence is to take a look at the Forbes 400 list and realize that a third or so of the list is inherited wealth.  There is only one black billionaire according to Forbes, Oprah Winfrey.  Do we really believe that black people, from around the world, are somehow of less merit such that only one of them is a billionaire?  I don’t and that fact reveals a lot about the long reach of history in determining wealth.  This ties into the compelling arguments recently made on behalf of blacks by Ta-Nehisi Coates. The best study on this analyzed surnames in Sweden, what is now a relatively egalitarian country, and found lasting correlations over centuries of noble surnames and higher wealth and common surnames and lower wealth.

For the sake of argument lets ignore whether we actually have a meritocracy and dissect whether we actually want one.  Now I subscribe to a Rawlsian view of how to arrange society.  For those unfamiliar with his A Theory of Justice the basic idea is that we are all behind a veil of ignorance about out standing on Earth: our talents, our family, our location.  Given that situation how would we order society and its institutions?  Or to reframe it, what if we were about to roll some metaphorical dice that would determine who we are, who our parents are and where we live, how would we like to weigh the odds for each outcome?  There are many criticisms of his later principles that follow, but I think this gedanken experiment is the best starting point as it asks us to, impossibly, discard the advantages of our position in life when thinking about policy.  Sadly, the imagination and empathy to even attempt such a thing seems beyond much of humanity.

Rawls formulates a principle that complete egalitarianism should be the starting point and that any inequalities of say income or other variables must only be allowed if they make the worst off better.  Colloquially this would be a rising tide lifts all boats.  This is a very conservative view, the minimax strategy in game theory.  If we took a completely rational person it seems a better principle would be to maximize the expected value of your time on Earth.  To see the difference start from a world where wealth is equally divided, everyone gets $50,000 to give a number.  Now lets say we change the odds so that 99% of the people on Earth get a million dollars but 1% of the people get $45,000.  By Rawls view this is unacceptable, but I think every person on Earth would take the second world over the equally distributed one.

However, much research has been done on the non-rational (in contrast to irrational which suggests that we are crazy) economic decisions of human beings.  Of particular relevance is research on loss aversion.  We feel losses more than gains and thus we will gamble more often to avoid a loss and take a sure gain over the chance of a larger gain.  We are also more sensitive to probabilities near 100% or 0%.  Finally, all of this depends on the framing of the gamble as a loss or a gain.  The question becomes should we analyze this as a strictly rational being or account for our human preferences?  Including loss aversion would put us closer to Rawl’s principle than that of expected value and the entire point of the construct is to arrange gambles that we find optimal to our human psyche.  Yet, at the same time we never actually make these gambles as we do in loss aversion experiments.  It’s an interesting question I cannot answer either way.

But I digress.  The point was to introduce the veil of ignorance to analyze meritocracy.  If we were behind the veil would we want to order society as a meritocracy?  Well that depends on how we define meritocracy.  Usually it seems to be shorthand for saying that your position in society is determined solely by your talents and efforts and not your connections or inheritance or anything else.  But this raises numerous questions about rewards and talents.

On the rewards side, how on Earth do we determine how much your abilities are worth?  There are 1.8 million employees of McDonald’s, how much did each contribute to that tasty burger in your mouth?  It certainly seems like the people behind the counter at your local restaurant did most of the work, but there were a lot managers that had to get things to the right place to construct your sandwich.  It’s not really clear.  Yet the CEO, who probably did the least to actually provide you with a burger gets paid far more than the people more immediately responsible for your burger.  I mean if McDonals’d CEO retired for a month you would still get a burger, but if the staff at your local restaurant went on strike I guarantee you would not be able to sate your lust for that juicy cow flesh.

Another example.  Is there any reason a hair stylist in America should make multiples of one in China?  The only difference is location.  I actually got the best and cheapest haircut of my life in China. So it is clear that apportioning a person’s value is impossible and that the market is not any more savvy when it comes to figuring such things out either.

In writing this I came across a very good economic discussion of the problem of apportioning just deserts here.

But again lets set that problem aside and ask about talents.  Maybe Mark Zuckerberg really did earn his billions based on a better idea, a better product, a better coder.  Nevermind, that there were other similar products that just as easily could have replaced it.  However, all of that skill and creativity relied on a lucky turn of events.  He was lucky to be born in America, to be born white, to be born with some set of genetic material that was ripe for creating Facebook.  He was lucky his family was relatively well-off, that his dad taught him to code, that he likely went to better schools and that he was born at the right time that Facebook could take off and the list goes on.  Where does the deserving talent begin and end?

A society that is strictly meritocratic is really then a society based on the luck of the draw.  I suspect most people espousing meritocracy believe that such a society would be the ideal of just and fair, but does pure randomness really fit those criteria?  If you were behind the veil of ignorance would you take this bet?  I would not if it looked anything like the current society.  The top 1% of income in the world is only $34k which is only slightly above full time minimum wage in the U.S.  So you have a 99% chance of living a life that is at or below minimum wage levels and that really obscures the fact that most of the world is actually much poorer.  The bottom half of the population owns less than 1% of global wealth or to put it another way, the 50 million richest people on the planet have as much wealth as the poorest 2.7 billion.  Considering the risk aversion of most human beings, these kind of odds would be anathema to them: tiny chance to be fabulously wealthy, large chance of being in desperate poverty.

Of course, we don’t have a very good meritocracy because we allow things such as inheritance.  The irony is that the proponents of meritocracy are often the same people decrying the estate tax (i.e. rich people) but a true meritocracy would have a 100% estate tax.  There is nothing less meritocratic than being given a bunch of money for no reason.  Nobody would defend lottery winnings as meritocratic (though studies of lottery winners find they become more conservative and supportive of the idea that hard work is important to get ahead), but that is exactly what an inheritance is: a lottery of parents.

Similar to meritocracy is this vague idea of equal opportunity.  What does it mean that there is equality of opportunity?  As I have already demonstrated, there are many factors that will always influence the opportunities of an individual, most of which are not up to them.  Even Rawls falls into this trap saying that offices and positions must be open to all under conditions of fair equality of opportunity.  He adds the stipulation that everyone must have a reasonable opportunity to acquire the skills needed for said offices and positions.  Unfortunately, short of some cruel program of taking all the children away and raising them in government run facilities with  exacting standards of uniformity, you can’t evaporate all of the differences in opportunity.

That is why any fair system must not be solely focused on the inputs into the economy, on the equality of opportunity or whether its meritocratic, etc., but must also equalize situations at the outputs, i.e. some kind of social insurance.  We take from the lucky in order to ameliorate the bad luck of others as part of our social pact.  Anyone that thinks that this is unfair because they earned all of their money “fair and square” is not looking far enough backward to see their good luck.  This is also why the veil of ignorance is an important tool as it allows one to empathize with the unfortunate rather than being able to rationalize one’s success after the fact.

I think a good example of the insanity of equality of opportunity and meritocracy is admission into Harvard.  Whatever you think of people bribing Harvard to get their kids in, admissions are probably very meritocratic.  It just so happens that all the best and brightest are from high income families.  A black student from an inner city school has as much equality of opportunity to get into Harvard (I am going to assume they aren’t racist), but the odds of him having the same merits as his white and wealthy peers is essentially nonexistent.  Such a pure meritocratic setup just calcifies the existing structure of society.

Income mobility does not help with this problem; it is a red herring.  I could have a lottery that rearranges who is rich and who is poor in a country and have perfect income mobility.  But this would not in anyway be helpful.  What is important is the causes of income mobility.  Is it because poor kids have an easier time breaking out of their economic destiny of also being poor?  Or is it because rich people steal other rich people’s money knocking some of them down the totem pole?  And even with meritocratic income mobility we still have to deal with the injustices of an income distribution based on meritocracy which I have argued is really a distribution based on luck.

So any time you see someone argue for a meritocratic society, basically any politician on TV, shake your head and grimace.  They are arguing for a society that rewards the lucky and curbstomps the unfortunate.

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