Bryan Caplan  

Climbing the Meritocratic Pyramid

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Economics rests upon subjective value theory.  Once you take that theory seriously, how can you seriously believe that market outcomes are in any sense meritocratic?  I'll tell you, in three easy steps.

1. Let's start with the easiest case: meritocracy within an occupation.  Supply and demand determine the market price of what an occupation produces.  But this doesn't mean that all workers are equally able or industrious.  In any occupation, differences in both are easy to see.  And as long as markets are functioning normally, competition pressures employers to reward abler and more industrious workers workers with higher wages. 

Of course, this process isn't perfect.  But who can deny that abler and harder-working people tend to have higher income and status than the average member of their occupation?  (If you don't believe me, try this self-experiment: Feign lower ability, slash your work effort, and see what happens).

2. At first glance, meritocracy within an occupation doesn't get us very far.  After all, a modern economy has thousands - if not millions - of different occupations.  If each of us were randomly forced into one occupation - as in the caste system - intra-occupational meritocracy wouldn't do much to make the economy meritocratic. 

Fortunately, that's not the world we live in.  In modern market economies, people choose - and often change - their occupations.  Since some occupations require greater ability and effort than others, they pay more - and more deserving workers naturally gravitate in their direction.  Again, the process isn't perfect, but it's still impressive.  Talented, hard-working people dominate challenging, well-paid occupations - and ability and dedication at the top is often truly scary.

3. Doesn't consumer demand ruin everything?  It would if consumers were utter fools.  (That's why I'd deny that there's much genuine meritocracy in politics; irrational voters primarily reward demagoguery, not wise policy-making).  For ordinary consumer products, though, the typical consumer has a fair share of common sense.  He easily sees that for most purposes, cars are better than horses, cell phones are better than carrier pigeons, and major motion pictures are better than street theater.  In fact, he notices and rewards many far subtler quality differences.

Of course, if you have an eccentric theory of merit - such as "meritorious people avoid commerce" - you could angrily attack the market on meritocratic grounds.  Even if you hold to a common-sense view of merit, the market's not perfect.  In a true meritocracy, the Action Design would be a world-famous band.  Nevertheless, market and merit work well together - and the freer the market, the better the fit.


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COMMENTS (18 to date)
Gu Si Fang writes:

I submit the following counterexample : in the common sense notion of merit, a disabled person performing as well as another has more merit, although she will not get paid more.

Les Cargill writes:

I see your point now - you were comparing regional differences on the basis of *relative* meritocracy. Much more macro than I was thinking - I was thinking firm to firm, and on that relatively micro level, it's not as simple.

But that is cultural. When I was young, it seemed more unusual for firms to fail. I suppose as time goes by, the Schumpeterian view will become more common, and people will accept firm failure more readily - perhaps even give rotten firms a push. If people are better set up for it, save better, it won't be as painful. What we do with all those savings sloshing around is another question. This won't be kind to consumption.

Right now, there is so much rent seeking masking the subject that it's quite difficult.

Les Cargill writes:

Gu Si Fang:

Merit is a term of art here - I made exactly the same mistake in the other thread :) There are many kinds of merit. I would be open to correction, but I believe Dr. Caplan means "of productive value to the firm." In that case, "as well as" seem to imply "equals" and the pay being the same seems just.

Artturi Björk writes:

"In a true meritocracy, the Action Design would be a world-famous band."

I have always wondered how come people who hold sensible views on some things tend to hold similarly sensible views on other things. (Like economics and food, food and music, music and film etc.)

Maybe it was all just confirmation bias or luck.

agnostic writes:

You can show this using the GSS' multiple regression feature. REALINC is income, DRINK or DRUNK measures alcohol use, HRS1 is length of work week, EVSTRAY is cheating on spouse, EVIDU and HLTH5 are illegal drug use, TRUST is what it says (you have to recode it to make the values monotonic). No surprises, of course.

You should get the contrarian to make a bet on the signs or magnitudes of the effects first.

"In a true meritocracy, the Action Design would be a world-famous band."

Listened to two songs on YouTube -- seems like the bands from that genre who were good actually did get really famous in the new wave revival of 2003 - 2006. The Hives, White Stripes, Franz Ferdinand, etc. The key is being able to write a catchy melody, which hardly anyone can do anymore, including the Action Design. It's only fitting that the ones who could rose to popularity.

But at least they aren't crybaby rock or sappy singer-songwriter stuff -- their popularity is the real injustice.

Bill Woolsey writes:

The problem with this theory is that it treats merit as effectively producing what people want to buy.

I think that it is entirely reasonable that a market system allows people to utilize goods and services produced by others in relation to the effectiveness of their efforts to produce goods and services that others use.

One reason that this is a good system is that it motivates people to try to produce goods and services that others want to use. And so, each and every one of us benefits from the fact that others are trying.

Caplan is arguing that the status quo system effectively rewards this trying to effectively produce goods and services for others. This would be as opposed to mostly rewarding efforts at rent seeking (taking what others have produced) or else distributing goods randomly--according to luck.


However, I am sure that "merit" doesn't necessarily mean "trying to effectively produce what others want to buy." And I don't believe it does mean that.

Caplan gets involved with the issue of whether or not personal characteristics are deserved. So, for example, would a system in which everyone was assessed for personal attractiveness--how symmetrical is their face, and then given an annual stipend for having the good quality of beauty, count as merit? No, the Rawlesian would say, because we don't deserve our pretty or ugly face. Caplan says, that's crazy. Of course we deserve a pretty or ugly face because that is who we are (or something.)

Of course, the market doesn't do this. But since showing one's pretty face is valuable to others, it may well be rewarded with the products of others.

We can imagine seeing intelligence as being something that is rewarded. Give tests to people and giving stipends to the smart ones as a reward for being intelligent.

Of course, markets don't reward being intelligent, but being able to intelligently seek to produce what others want to buy is pretty clearly something that is likely to result in actually producing what others want to buy effectively, which is rewarded.

I think the problem with merit-based thinking is that intellectuals, especially, might accept that an artist that spends much time with their art and produces beautiful work, perhaps has merit. But artists working hard to produce beautiful work are not especially well rewarded by the market system. And those few that are, don't appear all that more meritorious than the vast majority who receive next to nothing.

Then there is also the issue that people like Mother Teresa, serving the needs of others, are very poorly rewarded. I think she had a reputation of rising early in the morning and being very devoted to this work. Where was her reward from the market?

Leaving aside these issues (and I don't think "hating commerce" is required to see the tortured artist or saint as doing meritorious things,) the issue of whether the status quo rewards effectively producing what others want to buy or rent seeking may have something to do with the high profile of law. No doubt successful lawyers are diligent and smart. But it is very much tied to rent seeking. And what profession would philosophers be nearest? And when lawyers deal with commerce, what aspect of commerce is involved?


Paul Zrimsek writes:

If moral admiration is going to people who don't deserve moral admiration, maybe we've got a problem. And if money is going to people who don't deserve money, maybe we've got a problem. But if money is going to people who don't deserve moral admiration, so what? Money and moral admiration are two different things.

Nick writes:

Bill Woolsey,

Thank you very much for so clearly and eloquently saying what I clumsily tried to put forward in the other thread.

Bryan Caplan:

For ordinary consumer products, though, the typical consumer has a fair share of common sense. He easily sees that for most purposes, cars are better than horses, cell phones are better than carrier pigeons, and major motion pictures are better than street theater. In fact, he notices and rewards many far subtler quality differences.

I believe this is naive. Heinz ketchup and store brand ketchup are very likely made in the same factory, by the same workers, with the same ingredients, but heinz is rewarded with a premium price for nothing more than their advertising. Is this rewarding quality?

For the last few years Toyota Corollas sold for a premium over Hyundai Elentras even though every major car magazine ranked Hyundai several slots better in nearly every category. The consumers incorrectly rewarded Toyota because of a perception about the brand (reward for marketing), not because it was empirically a better car.

hacs writes:

Market value is an important factor in any merit rule, but it is one among many others.

Another point about market based meritocracy is the parents (relatives) banking account heritability.

A gedankenexperiment explains better the point.

Assume that there is a social ranking function f assigning a level (based on a vector of exclusively individual factors x) for each person (at his/her 25 years, for example) in a society. Assume, also, that any vintage of newborns is grown, nurtured and educated in a place totally isolated from any known person until his/her 25 years. A "colony" of quasi-citizens where everybody receive exactly the same incentives, challenges, education (wide sense), opportunities, etc., and their respective performances (x) are meticulously recorded. The bequests of these quasi-citizens are merged in a unique booty which will be divided in agreement with the levels are assigned by f to each of them at their 25 years old (based on x). After that, with their respective bequest they are restored as citizens to society.

Does somebody really believe that such imaginary society would be similar to actual society?

I believe that intergenerational social mobility (up and down) would be much more intense.

jgo writes:

Actually, BW, people are rewarded for having a pleasant appearance. I've seen multiple articles reporting that "beautiful people" tend to have much higher than average life-time incomes, and "ugly" brilliant people not so much.

The teen-age psych experiment of each person sticking a card with a rank number on it (chosen at random and not visible to the person on whose fore-head it is stuck) and turning them loose to try to pair up with the highest numbered other, does an excellent job of making close matches between the members of the resultant pairs.

Bu the real-world lesson is that every individual measures merit and value by his own criteria, weighting, etc. (E.g. personally, I think a certain software firm's products are down around a 10 on a 0 to 100 scale, but apparently there are millions of others to whom their products are satisfactory 50-60, or even great 90-100.)

Nathan Wagner writes:
I believe this is naive. Heinz ketchup and store brand ketchup are very likely made in the same factory, by the same workers, with the same ingredients, but heinz is rewarded with a premium price for nothing more than their advertising. Is this rewarding quality?

For the last few years Toyota Corollas sold for a premium over Hyundai Elentras even though every major car magazine ranked Hyundai several slots better in nearly every category. The consumers incorrectly rewarded Toyota because of a perception about the brand (reward for marketing), not because it was empirically a better car.

You're neglecting search costs and risk.
Heinz and the store brand may be the same.
Or they may not be, a purchaser may not
know, and the price differential may not
be worth the effort required to find out,
and the purchaser may not want to take the
risk on an unknown product. So purchasers
may be rewarding the manufacturer for the
brand, whether or not this is "incorrect"
depends on their time and risk preference.

Loof writes:

Bryan begins: “Economics rests upon subjective value theory.” And, ends with: “Nevertheless, market and merit work well together – and the freer the market, the better the fit.”

Bryan rests on one foot in the beginning and the end. The other footing for subjective value theory (maximizing utility and scarcity) is the maximizing objective value (self-interest and greed) that fits so well with the movement of selfishness. What’s missing in the end is that the freest free-for-all markets are subjectively foul when fitted and geared for greed – a system that can justify million dollar bonuses in the end for guys with Golden Sacks to begin with.

There is a key difference between self-interest working in free and fair markets; and, selfish-interests that work freely in foul markets. The markets are mixed for better and worse. The likes of Warren Buffet, Bill Gates and Li Ka-shing work hard with modest self-interest freely in fair markets, as far as L can tell. In contrast, Burma incorporated illustrates the work of greed in free-for-all foul markets and is telling.

As such, the pyramid of meritocracy appears somewhat about the rule of greed as a top dog keeping himself going up, up and away by keeping people going down, down and out; but definitely not entirely and maybe not mostly. Thankfully the meritocracy of Buffet, Gates and Ka-shing is still going strong.

MD writes:

Loof:
"The other footing for subjective value theory (maximizing utility and scarcity) is the maximizing objective value (self-interest and greed) that fits so well with the movement of selfishness."

The topic is the "subjective theory of value", which you've indicated here you don't understand. What "maximizes utility" according to this notion is subjective, and therefore it could be greed, altruism, meditation, or whatever, that provide someone with the greatest perceived sense of satisfaction. This is elementary to the discussion of the subjectivity of value, and your assumption that it is equivalent to greed just reveals your faulty prejudgments and inability to appreciate the topic for what it is.

Tip: next time, do your homework and try to restrain yourself from layering your biases onto situations you barely comprehend.

Loof writes:

@MD
Wow, a huffy puffed up put down with two left feet!

There are two footings for value presented: one subjective; one objective. Greed and self-interest was tied to the maximizing objective value seen fitting for the movement of selfishness: not assumed, not equivalent, nothing to do with satisfaction, not tied to the subjectivity of value at all - simply a right foot to balance the left foot.

MD writes:

Loof,

You're changing your claim.
Claim #1: "The other footing for subjective value theory [...] is the maximizing objective value"
Claim #2: "There are two footings for value presented: one subjective; one objective"

The second claim makes the trivial point that *a theory of value* is based on the subjective or the objective. Not really interested in that.

The first, the one that I responded to, says that *a subjective theory of value* has basis in "maximizing objective value". Go back and check it out if you like, it's right there. Since that is your (original) claim, then yes you have "tied to the subjectivity of value", "maximizing objective value" and thence to "self-interest and greed", since that's how you've defined "maximizing objective value" in the brackets. QED.

The figurative circumlocutions about feet are not helping you any either.

Loof writes:

MD,
No claim change seen. Not subjective “or” objective as you say. It’s subjective (as in bias) AND objective (as in purpose). That’s the balance. No balance with the invisible “or” implying an absolute bias one way or the other.

Went back, found “other footing”; nothing as you say: “*a subjective theory of value* has basis in “maximizing objective value”. See the “basis in” pertinent to the two left feet metaphor.

Circumlocutions use many words to be vague when fewer would do. If anything L use too few words. Thought, still think, the “footing” and “foot” metaphor apt for grounding two values: one subjective and one objective.

hacs writes:

There is one more "problem" with market based meritocracy; it narrows the goods' space (wide sense) to those marketable goods (wide sense), and so the idea of merit, occasionally giving rise to an amoral idea of merit (to be free to follow our own conscience in moral matters should not be misconceived as moral free lunch). Somebody can assert that it is a common ground value, but often it is faced as the idea of value of an amoral society (in opposition to the concept of moral society in Adam Smith).

hacs writes:

"There's no such thing as moral free lunch" can be claimed under "naive" religious values or, if you are not as conservative in science as me, and more intellectualized also, under "Unto others: the evolution and psychology of unselfish behavior" by Elliott Sober and David Sloan Wilson.

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