Can you guess who said the following?
The concept of success leads me to consider so-called meritocracies and their implications. We have been taught that meritocratic institutions and societies are fair. Putting aside the reality that no system, including our own, is really entirely meritocratic, meritocracies may be fairer and more efficient than some alternatives. But fair in an absolute sense? Think about it. A meritocracy is a system in which the people who are the luckiest in their health and genetic endowment; luckiest in terms of family support, encouragement, and, probably, income; luckiest in their educational and career opportunities; and luckiest in so many other ways difficult to enumerate–these are the folks who reap the largest rewards. The only way for even a putative meritocracy to hope to pass ethical muster, to be considered fair, is if those who are the luckiest in all of those respects also have the greatest responsibility to work hard, to contribute to the betterment of the world, and to share their luck with others. As the Gospel of Luke says (and I am sure my rabbi will forgive me for quoting the New Testament in a good cause): “From everyone to whom much has been given, much will be required; and from the one to whom much has been entrusted, even more will be demanded.” [My emphasis-MS]
This was said by Ben Bernanke, the head of the Federal Reserve, in his commencement address to Princeton University back in May.
Some people make the argument that the US is a meritocracy, and thus that those who are successful (at least in material terms like wealth and possessions) must therefore, almost by definition, be the most gifted and hardworking. Of course I think this is rubbish. Much of our success in life is due to sheer luck and so was pleased to get support for this view from a somewhat surprising quarter.
Paul Krugman also approves of the sentiments of the speech and examines the consequences for tax rates. How much should be required from those who have been lucky to get the most?
The question then becomes one of numbers. In particular, how high should we set the top tax rate? From a Rawlsian perspective, the key thing about very high incomes is that making them a bit higher or lower basically doesn’t matter — if you are lucky enough to find yourself in the top 0.1 percent (say), the marginal value of a dollar to your welfare is trivial compared with the value of that dollar to almost anyone else. So the top tax rate should be set solely with regard to the amount of money it raises for other purposes; essentially, you should soak the rich up to the point where any further rise in the tax rate would actually reduce revenue.
And we have a pretty good idea, based oncareful statistical studies, of where that optimal top rate lies; 73 percent, say Diamond and Saez, maybe 80 percent, say Romer and Romer.
I would like to see a much more progressive tax scale with top rates of the size he recommends. But it is going to take a long time to get there.
But it is going to take a long time to get back there.
FTFY.
That’s true. People forget that the top rates were around 90% as recently as the 1960s.
And just think about how low that could make taxes on the middle class. That’s money in people’s pockets. That’s time and leisure in people’s pockets.
Which was, as we all know, a time of terrible economic hardship and rampant unemployment.
Or not.
I remember my disbelief, way back when Reagan was elected Prez, that anyone could take seriously the idea that “giving more money to rich people” would result in everyone else becoming more wealthy. It would require a complete failure to have ever read anything about any history, to think that if the rich and powerful are given even more power and money, the poor will just magically also have more power and money, because the Invisible Hand will stop pressing down on their wages or something.
Or an unreasoned devotion to Ayn Rand’s Solipsism-for-me-but-not-for-thee ideology. That could make it happen too.
Which, in turn, since the poorer you are the more likely you are to put money back into the economy instead of hoarding it, means a brighter, faster-growing economy. Trickle-up? Is a thing. Trickle-down? Is what urine does.
To be fair, none of the rich actually paid that much back in the 60s. However, they definitely contributed more back then than they do today.
Interesting. Opportunity cost of taxes to society, in other words. Pretty ironic, coming from Bernanke’s mouth.
Also, I think a meritocracy (inasmuch as is possible) would value labour more than capital gains. The capital gain tax rate in the US is ridiculous.
Well, the rich also weren’t nearly as rich back then.
It’s kind of sad about the destruction of the American Dream. It used to be this idea of a white picket fence and a modest middle class lifestyle. Nowadays, the American Dream is taking whatever you can with apathy toward others. The American Dream has become “trying to make as much money as possible.”
Err… what’s the irony?
The term meritocracy, if it wasn’t actually invented by him, was popularised by the British social scientist Michael Young in a book- The Rise of the Meritocracy which satirised and criticised the concept and its supposed virtues.
Oh, you mean that terrible time of hardship for the middle class when my mother’s father was the sole income provider and somehow managed to own a vacation cabin for their family of 5? Granted, he was a white collar worker -- an accountant to a firm that provided abrasives to defense industry manufacturers on Connecticut’s Long Island Sound.
Huh. I was going to guess John Rawls until he mentioned his rabbi…
The one thing that’s struck me about the concept of meritocracy: if we want an absolute, actual meritocracy, where everyone is judged on their own merits rather than the merits of their parents, all children need to be raised by the state from birth.
Somehow I don’t think that’s what the loudest advocates of meritocracy have in mind…
No, there is another way that it might pass ethical muster, and it actually does pass on this standard. The basic idea is that by allowing unfairness, by allowing wealth inequalities, you can generate so much additional wealth so that even the worst-off person in the meritocracy is better off than under some alternative “fair” system. By and large, I think this is largely true, although we could do a lot better introducing more fairness while retaining the essential nature of the meritocracy of generating additional wealth.