This past weekend I attended the inaugural conference of the PPE Society in New Orleans – an excellent event, with lots of interesting papers on related themes. My presentation was based on my paper ‘Markets, Desert, and Reciprocity,’ Politics, Philosophy & Economics, 16, (2017): 47-69. It was called The Free Market Critique of Desert, and its Relation with Justice as Fairness; the text of the talk (lightly revised) is available on my academia.edu site, via the link above. “Free-market critique of desert” is misleading; it should really be “the free-market critique of the desert-based justification of capitalism” but that’s too long. Another possible title for the talk would be “the neoliberal foundations of liberal egalitarianism,” but that would generate too much confusion.
This fall I am visiting the Hoover Chair at UC Louvain, in Belgium. I will be back in January.
The Guardian has an article by George Monbiot on “Neoliberalism – the ideology at the root of all our problems“, an excerpt from a forthcoming book. He cites von Mises, Hayek and Friedman as the original neoliberals, which is fair enough given their roles in organizations such as the Mont Pelerin Society. What struck me is his account of the role of ideas of deservingness, or merit, in neoliberalism.
“The market ensures that everyone gets what they deserve. We internalise and reproduce its creeds. The rich persuade themselves that they acquired their wealth through merit, ignoring the advantages – such as education, inheritance and class – that may have helped to secure it. The poor begin to blame themselves for their failures, even when they can do little to change their circumstances. Never mind structural unemployment: if you don’t have a job it’s because you are unenterprising. Never mind the impossible costs of housing: if your credit card is maxed out, you’re feckless and improvident. Never mind that your children no longer have a school playing field: if they get fat, it’s your fault. In a world governed by competition, those who fall behind become defined and self-defined as losers.”
As a description of a popular belief system, this account of neoliberalism may be accurate. But since Monbiot cites Capitalism and Freedom, let’s take a look at what Friedman says. Continue reading Neoliberalism
In a previous post, I wrote about Hayek’s claim that capitalism reduces economic inequality. Milton Friedman makes the same claim about capitalism and inequality in “Free to Choose.” This claim was quite plausible in the early 70s, less so today. There’s an irony here, which is that the data upon which Friedman and Hayek relied to show that capitalism reduced or didn’t exacerbate inequality were taken primarily from the post-war period of strong unions and active government, the very economic phenomena they were trying to curtail.
Anyway, even if they’re wrong about inequality, Hayek and Friedman can still claim that capitalism benefits the poor – the claim taken up recently by so-callled bleeding-heart libertarians such as John Tomasi and Jason Brennan. Here’s Friedman, from Free to Choose:
The main bit:
“I do not know any exception to the proposition, that if you compare like with like, the freer the system, the better off the ordinary poor people have been.”
Is that true? Continue reading Friedman on Capitalism vs. Poverty
This week in my course on liberalism we’re reading Milton Friedman. I’m really enjoying watching the PBS documentary “Free to Choose.” Here is a bit where Friedman discusses gambling, and the benefits of risk-taking:
The corresponding text from the book Free to Choose:
“Still another facet of this complex issue of fairness can be illustrated by considering a game of chance, for example, an evening at baccarat. The people who choose to play may start the evening with equal piles of chips, but as the play progresses, those piles will become unequal. By the end of the evening, some will be big winners, others big losers. In the name of the ideal of equality, should the winners be required to repay the losers? That would take all the fun out of the game. Not even the losers would like that. They might like it for the one evening, but would they come back again to play if they knew that whatever happened, they’d end up exactly where they started?”
Of course one issue is that people choose to visit Las Vegas and play Baccarat; they don’t have a similar choice about whether to play the economic game, in daily life. Also they don’t necessarily start out with equal piles of chips, if children are being raised in private families. In addition, however, people may object to competition itself, to economic life being organized so that they have to compete against others in order to flourish. Milton Friedman’s teacher Frank Knight captured this sentiment in a very nice passage from his essay “The Ethics of Competition”:
“Turning to look for motives attached to production as an activity rather than to the product, the most obvious is its appeal as a competitive game. The desire for wealth takes on more or less of the character of the desire to capture an opponent’s pieces or cards in a game. An ethical criticism of the industrial order must therefore consider it from this point of view. In so far as it is a game, what kind of game is it? There is no doubt that a large amount of radical opposition to the system arises in this connection. The propertyless and ill-paid masses protest not merely against the privations of a low scale of living, but against the terms of what they feel to be an unfair contest in which being defeated by the stacking of the cards against them is perhaps as important to their feelings as the physical significance of the stakes which they lose. In a higher social class, resentment is aroused in the hearts of persons who do not like the game at all, and rebel against being compelled to play it and against being estimated socially and personally on the basis of their successor failure at it.”
That’s from pp.603-4 of the version that’s in the Quarterly Journal of Economics, Vol. 37, No.4, 1923.
Knight was no fan of socialism, but he showed a keen understanding of the sources of opposition to capitalism.
Here is the draft course description for a course I’m teaching in Winter 2016:
Social Justice and Desert
One of the standard criticisms of the welfare state is that social provision of income, housing, etc. rewards the imprudent, the irresponsible, the feckless, the lazy – in short, the undeserving. Recent increases in high-end inequality have raised similar questions about whether the market system itself rewards the undeserving; what have the top 1% done to deserve their enormous share of total income and wealth? Are CEOs today really so much more deserving than they were in the 1970s? The association between justice and desert has a long history, and is an important part of common sense thinking. However, the main political theories of the 20th century assign little or no fundamental importance to desert. The classical liberalism of Friedrich Hayek and Milton Friedman, the libertarianism of Robert Nozick, and the egalitarian liberalism of John Rawls – none of these views hold that in order to be just institutions must match shares with individual merit. The purpose of this course is to get a better understanding of this disconnect between theory and common sense. The first part of the course covers the free market critique of the “just deserts” interpretation of marginal productivity, Rawls’s rejection of the common sense position on desert, and the criticisms this rejection led to on the part of people such as Miller, Nozick, and Sandel. The second part of the course examines theories that attempt to accommodate the intuitions about desert that motivated the critique of Rawls and the welfare state without explicitly appealing to desert. So-called luck egalitarians emphasize the importance of responsibility, and of people “paying the costs” of their choices. An interesting alternative is to appeal to the idea of reciprocity, connecting liberal egalitarianism with social democratic thinking from the first part of the twentieth century. The final part of the course will focus on specific issues that present challenges for a theory of justice-as-reciprocity: disability, global justice, and economic incentives.
Reading that over, I see that it might suggest that Rawls was a welfare-state liberal, as if his theory would be satisfied by the formula ‘laissez-faire + enough social provision so that the poor don’t starve and the system remains stable’. Will have to work on that.
- Queen’s has a new collaborative MA in Political Thought. This new program makes it easier for students to concentrate in political theory by combining courses from politics and philosophy.
- Kevin Vallier reviews my book at the Notre Dame Philosophical Review.
- I comment on a chapter of his book and he responds in a symposium on the blog Public Reason.
“Let me propose the following principle: People should get what they deserve. A person who contributes more to society deserves a higher income that reflects those greater contributions. Society permits him that higher income not just to incentivize him, as it does according to utilitarian theory, but because that income is rightfully his. This perspective is, I believe, what Robert Nozick, Milton Friedman, and other classically liberal writers have in mind. We might call it the Just Deserts Theory.”
Mankiw goes on to say that a competitive market equilibrium is not just efficient but fair, since it gives people what they deserve:
“[T]he Just Deserts Theory… gives a new normative interpretation of the equilibrium of a competitive market economy. Under a standard set of assumptions, a competitive economy leads to an efficient allocation of resources. But we economists often say that there is nothing particularly equitable about that equilibrium. Perhaps we are too hasty in reaching that judgment. After all, it is also a standard result that in a competitive equilibrium, the factors of production are paid the value of their marginal product. That is, each person’s income reflects the value of what he contributed to society’s production of goods and services. One might easily conclude that, under these idealized conditions, each person receives his just deserts.”
But that’s not at all what Nozick or Friedman said! I want to set the historical record straight.
First, a preliminary about Friedrich Hayek. Hayek was a noted classical liberal, and he rejected “just deserts”. Hayek distinguished merit from value. Merit and value diverge because of luck. No one can predict with any precision how the distribution of tastes and technology will evolve, but we each make choices about career, investment, where to live, etc. and some are luckier than others. Two people could work equally hard, with exactly the same degree of diligence and prudence and responsibility, but one gets lucky and the other doesn’t. The price signals in a free market reward such luck (and punish bad luck), and must do so if they are to send the right signals i.e. the signals that will shift resources to where they can be best used.
Nozick cited Hayek’s rejection of desert approvingly, but argued that Hayek didn’t go far enough.
“Hayek argues that we cannot know enough about each person’s situation to distribute to each accord to his moral merit (but would justice demand we do so if we did have this knowledge?)… Hayek concludes that in a free society there will be distribution in accordance with value rather than merit: that is, in accordance with the perceived value of a person’s actions and services to others [without regard to merit, e.g. how much or how little effort the person in question put in – ADL]… Distribution according to benefits to others is a major patterned strand in a free capitalist society, as Hayek correctly points out, but it is only a strand and does not constitute the whole pattern of a system of entitlements (namely, inheritance, gifts for arbitrary reasons, charity, and so on) or a standard that one should insist a society fit” (Anarchy, State, and Utopia, p.158)
Nozick’s point is that even distribution according to value is not justice. Justice in holdings, accruing to Nozick, is simply a function of just initial acquisition of unowned resources followed by just transfer, indefinitely iterated (leaving rectification of injustice to one side).
So Nozick wasn’t a believer in Just Deserts. What about Friedman?
In the chapter on the distribution of income in Capitalism and Freedom, Friedman examined the “the ethical principle that would directly justify the distribution of income in a free society,” which was “‘to each according to what he and the instruments he owns produces’.” The “ownership” bit is crucial, but leave that aside for today. Friedman directed most of his critical fire against the common view that there is an important moral difference between inequalities in inherited talents and inequalities in inherited wealth. “Is there any greater ethical justification for the high return to the individual who inherits from his parents a peculiar voice for which there is high demand than for the high returns to the individual who inherits property?” But Friedman recognized that this inconsistency could be resolved either by saying that there is nothing wrong economic inequalities that are due to fortunate family circumstances, or that there is something wrong with economic inequalities due to innate talents – or at least no positive reason to think that such inequalities are fair, in and of themselves. It is perhaps for this reason that Friedman concluded that distribution according to productive contribution “cannot in and of itself be regarded as an ethical principle… [but] must be regarded as instrumental” (165). In other words, the reason for having institutions that distribute income more or less according to productive contribution (and hence in part according to natural talent and social class at birth) is not that the result is fair or unfair but that it is efficient in allocating resources and hence in generating wealth.
Friedman’s final remarks express a remarkable degree of scepticism about “deservingness.”
“Most differences in status or position can be regarded as the product of chance at a far enough remove. The man who is hard working and thrifty is to be regarded as ‘deserving’; yet these qualities owe much to the genes he was fortunate (or unfortunate?) enough to inherit” (165-6)
Friedman even notes that inequalities that are perceived as being due to chance are more easily tolerated than those that are perceived as being due to merit (166), an issue Rawls would confront in his discussion of the objection that his (Rawls’s) theory would lead to a “meritocratic” society (Section 17 of A Theory of Justice, p.91 Revised Edition – meritocracy being an objection! Rawls cites Michael Young’s 1958 The Rise of Meritocracy; Hayek also cited Young on this point, in The Constitution of Liberty, though he said that he hadn’t yet read Young’s book).
So: Nozick and Friedman (and Hayek) all explicitly reject “just deserts” as a theory of just distribution. In particular, they deny that distribution according to productive contribution is a matter of justice. Mankiw’s idea of “just deserts” can’t be what they had in mind.
Not me. But I do live in Ottawa.
In the second volume of his Law, Legislation and Liberty, which is entitled The Mirage of Social Justice, Hayek makes the following claim:
Though it might seem reasonable so to frame laws that they will tend more strongly to improve the opportunities of those whose chances are relatively small, this can rarely be achieved by generic rules. There are, no doubt, instances where the past development of law has introduced a bias in favour or to the disadvantage of particular groups; and such provisions ought clearly to be corrected. But on the whole it would seem that the fact which, contrary to a widely held belief, has contributed most during the last two hundred years to increase not only the absolute but also the relative position of those in the lowest income groups has been the general growth of wealth which has tended to raise the income of the lowest groups more than the relatively higher ones. (p.131, emphasis added)
In the footnote to this paragraph, Hayek adds:
The chance of all will be increased most if we act on principles which will result in raising the general level of incomes without paying attention to the consequent shifts of particular individuals or groups from one position on the scale to another… It is not easy to illustrate this by the available statistics of the changes of income distribution during periods of rapid economic progress. But in the one country for which fairly adequate information of this kind is available, the USA, it would seem that a person who in 1940 belonged to the group whose individual incomes were greater than those of 50 per cent of the population but smaller than those of 40 per cent of the population, even if he had by 1960 descended to the 30-40 per cent group, would still have enjoyed a larger absolute income than he did in 1940. (p.188, emphasis added).
I think Hayek is comparing the mid-point (average income) of the 50-60 decile with the mid-point of the 30-40 decile. I couldn’t find data for 1940 on deciles, but the data on quintiles for the U.S. are readily available back to 1947. The picture they present is very interesting.
Continue reading Hayek on Inequality