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Inequality and the Pandemic Part 2: Merit

Summary:
Unequal incomes are regularly justified by claiming that high incomes reflect a larger contribution to society. This has never been true as a general proposition. Some high incomes, like those of skilled surgeons, reflect a contribution well above the norm. Others, like those of entertainers and sports stars, reflect services that are highly valued by our society whether or not they make it a better place. Others on high incomes make only marginal contributions to society or cause active harm. The massive growth in the number and incomes of lawyers and finance professionals over the past forty years has not been matched by any obvious improvement in justice, financial security or the rational investment of capital. The majority of people in these professions are, at

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Unequal incomes are regularly justified by claiming that high incomes reflect a larger contribution to society. This has never been true as a general proposition.

Some high incomes, like those of skilled surgeons, reflect a contribution well above the norm. Others, like those of entertainers and sports stars, reflect services that are highly valued by our society whether or not they make it a better place.

Others on high incomes make only marginal contributions to society or cause active harm. The massive growth in the number and incomes of lawyers and finance professionals over the past forty years has not been matched by any obvious improvement in justice, financial security or the rational investment of capital.

The majority of people in these professions are, at least, attempting to earn an honest living in the system as it currently stands. But a substantial minority, exemplified by Donald Trump and Jeffrey Epstein, make their money by exploiting the loopholes in the system, and by campaigning to keep those loopholes open and widen them as far as possible. These are people for whom paying debts and obeying the law are options to be adopted when it is necessary for business purposes, and evaded whenever it is profitable to do so. And they have a legion of well-rewardd assistants – the Roy Cohns, Michael Cohens and Allan Dershowitzes all play their part.

By contrast with the highly visible upper end of the income distribution, many workers who make a vital contribution receive far less payment or recognition. The pandemic has reminded us how much we depend on workers we may never see and who work in difficult and sometimes dangerous conditions. Cleaners, meatworkers, grocery store packers and many others ensure that the goods and services we expect are delivered, even under the crisis conditions of the pandemic. Low-paid hospital workers are just as essential to the functioning of our health system as the most skilled surgeons.

The continuing appeal of the idea that high incomes are generally deserved stems largely from wishful or even magical thinking, of the kind that is reflected in the ‘Prosperity Gospel’ and the writings of Norman Vincent Peale. We want to believe tht the universe, or at least the country we live in, is inherently just and that only in exceptional cases do bad things happen to good people.

But the universe doesn’t care about us; the rain falls on the just and the unjust alike and, if there is a divine plan for justice, it doesn’t manifest itself in this life. Certainly, there is nothing in the pandemic that suggests its depredations have anything to do with justice.

As for justice in human affairs, it doesn’t simply happen. Justice comes only from a long struggle and can only be kept up with more struggle. The pandemic has done the greatest damage to the poor and low-paid whose efforts keep society running while leaving Wall Street and the professional classes largely unscathed.

Most defenders of inequality are unwilling to abandon the belief that high incomes go to those who deserve them. An important exception is Hayek, who argues that what should be rewarded is the value people create for each other, regardless of whether that value is the result of merit or luck.

This argument works only on the assumption that the return someone can secure from our existing market arrangements is a measure of the value we create for others. But it’s obvious that all of this is contingent on those existing arrangements: a different society would value contributions differently. Even within the limits of market capitalism, changes in things like intellectual property and bankruptcy laws can make valuable claims worthless and vice versa.

Stripped of the rhetoric of ‘value’, Hayek’s claim can be more simply stated as follows: a free market economy rewards luck as well as merit, so, if we want to maintain the free market economy, we must accept that income will not, in general, reflect merit. But looking at the outcomes of last few decades, they do not seem positive enough to make Hayek’s argument work. The market economy as it now exists is not such a boon that we should tolerate the inequities it generates.

John Quiggin
He is an Australian economist, a Professor and an Australian Research Council Laureate Fellow at the University of Queensland, and a former member of the Board of the Climate Change Authority of the Australian Government.

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