Markets, Chance, and Moral Desert

Haven’t you taken those classes that teach you to write by rewriting sentences in as few words as possible?

“The global intellectual climate is resolutely against free market economics at the moment in the wake of the worst economic recession since the Great Depression”
=
“Following the recession, pundits are reconsidering the merits of free markets”

(The “global intellectual climate” isn’t “resolutely against” anything. Intellectuals disagree on anything and everything.)

And so on. Get someone to edit your stuff or it’s just unreadable.

First of all, this is just a lie: “JK Rowling was not exceptionally skilled at writing fantasy novels…” The fact that her books resonate with such a wide swathe of people does speak to her talent. I’m not saying she’s Tolstoy, but give credit where credit’s due.

More generally, the problem with your argument is that luck is not just an innate component of the free-market but of life. Government as something inherently composed of us is thus subject to the same underlying critique: shit happens, and desert is a tricky thing to met out. As any quick listen to talk radio will illustrate, government screws up moral desert too (the Native Americans anyone?). Government is not—as liberal theories of justice like to suggest—something ontologically superimposed above the vicissitudes of society (rendering the only interesting question how to tweak the state towards utopia–the proper “redistributive” scheme in your terminology), but is subject to the same exigencies of existence, including the constraints of particularity and randomness of which you speak.

So it’s not that I necessarily disagree with any of your claims (or Rawls’ for that matter), but I find yours (and his) entirely uninteresting. You mean luck plays havoc with moral desert? You mean we should have political equality and structure society so that it benefits everyone? Alright, well let’s talk about the real stuff (http://www.economist.com/books/displaystory.cfm?story_id=14164449).

Patrick,
Of course government is a part of society and of course it screws up (who would ever claim otherwise?). But you can’t deny the claim that more wealth redistribution mitigates the role of luck in one’s economic fortunes. If the connection between economic fortunes and moral desert is weak (as I claim and as you seem to accept), it seems reasonable to do more to help those at the bottom of the economic ladder who suffer from their lack of resources.

In all honesty what differentiates luck from everything else? Everything is in the end “luck.” Being born smart, being born rich, having good parents, being born into environment that interacts with your genes in such a way as to make you hard-working…it’s all “luck.” They linchpin of your argument is some sort of free-will that differentiates what is earned from what isn’t. But that’s a pretty nebulous foundation…

I agree with the above post for the most part. The essential idea that luck plays a large part in life then brings us to those who luck seems to have frowned upon. From a realpolitik standpoint, we need the redistribution of wealth not to mitigate the effects of an unjust system to create a world of equal outcomes but to ensure that those who end up the losers don’t decide to do away with capitalism entirely. Through lax transparency and regulation, we created an economic environment where it became easy for businesses to take advantage of the average American. In order to keep making our millions, we need to ensure that the average American has some sense of security, otherwise our economic policy will become increasingly socialist as the public starts to feel like they are left with less and less of the pie.

Disclaimer: These aren’t my ideas, they were first laid down in Joseph Schumpeter’s seminal work, Capitalism, Scoailism, and Democracy.

I have read prophet of innovation. In the book Capitalism, Socialism and Democracy, Schumpeter is pointing out that if we are not careful, we will let socialism win. What I am saying is that we need to allow for some security for those most likely to be hit hardest by creative destruction so that they do not vote in a socialist system, completely destroying the apparatus of capitalism. There must be some regulation in order to keep the rich from taking too much advantage of the poor, otherwise we get what we have in this recession. The mortgage companies were allowed to sell people loans that they did not understand and thanks to the repeal of Glass-Steagall, the shadow banking industry crept up and became too powerful. If too many people are hurt by unrestrained capitalism, we will lose it. I am an ardent capitalist, but I am of the opinion that in a democratic society, we cannot have so many people dissatisfied with our economic system that they vote in a socialist system, which is what we’re experiencing now. There is a minimum level of regulation, and when Bush got rid of it, we ended up with a backlash from all the people that got hurt by unrestrained capitalism. Now, car companies are being saved by government and we’re regulating executive pay.

Okay, but that’s not a Schumpeter argument. I find it difficult to believe that Schumpeter, who knew nothing but instability in his life, would want such a robust welfare state that would “protect” people. For him, the central force in society, was the entrepreneur, who he doubted government could help.

I’m not convinced that people are hurt by unrestrained capitalism, but by government involvement in housing, health care, and education — three things that currently make life very difficult for the middle class.

You’re misinformed about Glass-Steagall.

The Gramm-Leach-Biley Act of 1999 (back when Clinton was president) repealed the investment-commercial commingling ban in Glass-Steagall Act of 1933. Much of the Left incorrectly blames deregulation, but in Europe, most financial markets never separated commercial and investment banks in the first place, which suggests that the financial downturn wasn’t a fault of the repeal of Glass-Steagall. Lehman and Bear Sterns were the firms that failed most spectacularly BECAUSE they lacked the stability of commercial banking deposits.

The mortgage companies took advantage of the existing law and the Fed’s low interest rates. In addition, you got laws like the Community Reinvestment Act which encouraged minority and low-income home buying. That was done by both Republicans (with President Bush) and Democrats (Chris Dodd). In short, government, with the Fed and the federal government, brought about the crisis.

I’m not saying that he wanted a ‘robust’ welfare state. What he wanted was a state that had enough protections for the average consumer so that they didn’t get taken advantage of all the time. In purely cynical terms, he wanted a system of government that would keep the average person happy enough so that they didn’t get rid of capitalism entirely. In my opinion, your average person is not capable of being a real innovator. The average person wants a few simple things, like security and to have their wages rise gradually. Your average person also doesn’t want their retirement portfolios hammered by a giant financial downturn caused in large part by lax financial regulation. (I’m not saying that there weren’t other factors, like you described, in addition to the stupidity of individual borrowers, but still). If your average person can then be convinced that capitalism and corporate greed created the crisis, this creates a golden opportunity for socialists to sway a large fraction of the public.

Why not just put in place enough regulation to prevent catastrophic meltdowns at the consumer’s expense, and furthermore, provide for them if a meltdown does occur? The alternative is what we have occurring today; a pendulum that swung too far in one direction will now swing to the other, toward socialism, creating the type of situation Schumpeter foresaw.

Just look at Europe. There, you have a large fraction of the workforce that is content to have security at the expense of innovation. I have the uneasy feeling that we are trending toward a European style model of Socialism. This is why we must ensure the average consumer’s safety from their own stupidity.

There is a basic problem with your claim that there is only a weak connection between talent and outcome. How do you define talent? In your examples attributing an additional talent to the person in question would close the gap.

For example, the makers of the Blair Witch Project not only used their talents for making movies, but also their talent for determining what people would want to watch to create their movie. While their talent for making movies might not have been Oscar worthy, their idea that people would want to watch their movie was dead on and they were rewarded accordingly.

There are all sorts of talents. This makes it hard to draw talent-result conclusions. Take toothpaste for example. There are people with a talent for inventing better toothpaste, producing that toothpaste, marketing that toothpaste and selling that toothpaste. Without just one of those people or talents, all of the rest would be out of luck. Even attracting “the taste of an unpredictable mass audience” in itself can be a talent. How else would people make a living in marketing?

http://www.nytimes.com/2009/08/09/opinion/09ehrenreich.html?em

This article further reinforces my belief that we should be sympathetic and help the poor. Far too many laws persecute the impoverished.

Barbara Ehrenreich has lost a lot of credibility after the publication of Adam Shepard’s Scratch Beginnings.

The reason work for welfare is so successful is that it encourages the poor to get jobs and work — rather than stay on the government welfare. See Charles Murray’s Losing Ground. Ehrenreich is so retro.

In her latest book, she subscribes to a fixed view of economic growth. She writes that “the money that fueled the explosion of gluttony at the top had to come from somewhere or, more specifically, from someone. Since no domestic oil deposits had been discovered, no new seams of uranium or gold, and since the war in Iraq enriched only the military contractors and suppliers, it had to have come from other American.” In short, there is no entrepreneurship. It’s all on the backs of others. How Marxist.

Please read beyond the New York Times opinion page, Charlie. Maybe you should read things that don’t just confirm your biases. Here’s something that might help you expand your mind.
http://www.city-journal.org/2008/bc0716lv.html

In a weird way, the implication of your argument may be that the market should remain freer, not more redistributed. If your success depends on so much luck, then working your ass off entails even more risk (cause you have less control over your success), and therefore, for the same level of innovation (and raised living standards for all), more reward will be required. So if luck is really as important as you believe, then taking away the reward will hurt societies progress even more than a society where luck is less powerful.

But my argument presupposes we are not at the end of history and that many innovations and levels of living standards still exist (cures to cancer, extended life and health, more information and higher IQs for all, more chances to experience things the very wealthy get to, etc.)

“Losing Ground”,
Can we please just put our names to different comments? I’ve read Murray’s Losing Ground and I find some of his arguments persuasive. You are attacking Ehrenreich rather than the article she wrote. To be honest, I have not read her book (too much else to do and I found her other books a bit repetitive). I was simply commenting that I’m glad she wrote an article about the criminalization of poverty. I won’t respond to the content of your ad hominem attack since I was not supporting any of her other claims.

An interesting blog post in economix, one of the nytimes economics blogs, about the social costs of greater income inequality.
http://economix.blogs.nytimes.com/2009/03/12/crime-and-punishment-some-costs-of-inequality/
We need to minimize the effects of luck to ensure our own continuation as a society. (Understanding, of course, that this is merely one study. Even so, the lessons apply to other areas)

I do agree with your thoughts about how luck determines our economic outcome, however everybody chooses how much they want to expose themselves to that luck. Somebody could invest their retirement money in an hedge fund (higher risk, higher reward), the market (general systemic risk) or an hedged mutual fund (low but steady income, low risk). They could even put it in t-bills and have no risk at all. But frankly we need our market to remain open to risky investment, that’s what has kept our economy the strongest in the world. It’s venture capital, drug industry and small business, the riskiest investments, combined with consumer culture which keeps our economy the strongest.

The problem isn’t that people were unlucky, the problem is people were overconfident and thus became more risk-loving, dangerously so. Combine that with the expectations that recent historical prices would move in the same direction indefinitely, and consumer confidence creates a massive price bubble. When the bubble burst everybody who had their money in risky assets got ****ed. But there were also a lot of people who thought things were overpriced and chose to be less risky and should be rewarded as such. But we shouldn’t be giving handouts to those who bought way more that they could afford and are now in massive debt, or those middle income families who bought property merely on speculation and then just defaulted on the payments when the market went bad.

You can say that J.K. Rowling was just lucky that she’s so famous but maybe she actually has a talent for writing great stories, even if she isn’t some super intellectual, just like Goldman Sachs listened to the research that the housing market was far overpriced and thus hedged their bets and are now the top investment bank in the world by a long shot. For those that weren’t so “lucky” we already have a lot in place to help them out. Massive tax deductions, which can be deferred for up to 10 years, and for those in even more trouble we have bankruptcy, which is actually a great system, even if it sounds bad. Bankruptcy is a godsend for the small businesses that died out in the economy because they get to start all over again without paying their debts. Its an incredibly redistributive system that always benefits the unlucky ones and basically lets them start over.

Just because everybody might choose a strong redistributive system doesn’t mean its the best idea. We can just let people work and invest in a risky market and then just bail them out whenever things go bad. I think we need to stop people from being risk loving when they won’t be able to handle the potential downside of that decision, rather than just redistributing wealth to make up for their losses. Maybe I’m just ranting about the financial system, idk I’m on adderoll and felt like making a really long comment