Morals and Merit in the Duffyverse

Michael Duffy thinks we live in a meritocracy — a society where everyone gets the income they deserve. But in the Duffyverse, evil genius Lex Luthor would be more deserving than Superman. Why? Because Luthor has a higher IQ.

Duffy argues that Australia has a new upper class based largely on IQ. Intelligent people tend marry other intelligent people and have intelligent children — maybe not as intelligent as themselves, but more intelligent than average. As a result, high incomes tend to run in families. Or that’s how it is in the Duffyverse — in reality things are a little more complicated (as this paper by US researchers Samuel Bowles and Herbert Gintis explains).

The trouble with Duffy’s Merit = IQ formula is that there’s no reason to think that just being smarter than other people entitles them to a higher income. For a start, most people think that effort counts for something. If it didn’t, a meritocracy would be a latte sippers’ paradise. Freed from any obligation to do something useful with their talents, the intelligentsia could spend their time arguing about postmodernism and Sydney Morning Herald columnists while everyone else went to work. That’s why Michael Young (who Duffy quotes) defined merit as IQ + Effort.

But even Young’s formula runs fowl of the Lex Luthor objection. If merit was just about IQ + Effort then it wouldn’t matter whether a person used their ability to find new ways to sell cigarettes to teenage girls or used it discover a way of preventing cervical cancer. What people choose to do with their ability and effort is a key part of what most people think of as merit.

Our definition of Merit depends on the context. Merit is one thing for a school student, another for a teacher, and another for an athlete. But how do we compare people who do different things? How can we decide whether a firefighter or nurse is more deserving than an advertising executive or a stockbroker? How would we settle an argument about this?

And there’s also another more controversial objection to Duffy’s idea that IQ = Merit. According to Austrian economist Friedrich Hayek, there’s no reason to think a person morally deserves a higher income just because they’re born with an ability that commands a high price in the market (p 94). Why should someone be rewarded for something they have no control over? Are supermodels more deserving simply because they were born more beautiful?

If merit is only about things individuals can control — their level of effort and the choices they make about how to use their talents — then there are two ways we can respond. We can be stoic about it and just accept that the world is an unfair place. Or we can radically redesign our social institutions

Hayek’s solution is to persuade people to give up on the idea that market incomes have anything to do with merit. If we want the benefits of markets then we have to learn to live with the fact that market outcomes won’t be socially just.

Duffy seems to anticipate Hayek’s objection because at the end of his column he raises the radical idea of a tax on IQ. The idea of taxing a person on their earning ability rather than their actual earnings first appeared in the late 19th century. Duke University’s Lawrence Zelenak has an excellent overview of the debate on this issue in the Duke Law Journal. For some egalitarians, an ‘endowment tax’ would be an elegant (but probably impossible) way to achieve complete equality of opportunity. No matter what level of talent you were born with, you would still have a fair chance of becoming rich. A workaholic cleaner could earn more than a lazy brain surgeon.

Just imagine what Clive Hamilton would think of that. Talented downshifters would be taxed on what they could earn if they worked full time in the highest paying occupation they could find. If you had a natural aptitude for corporate law you’d have a tough time retiring to a mountain retreat to grow heirloom tomatoes and practice yoga.

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whyisitso
whyisitso
14 years ago

As a side issue to taxing downshifters on their potential, we already have a form of tax on that very phenomenon. In a divorce situation the non-custodial parent (usually the father) is assessed for child support based on his current earnings at the time of first settlement. If he then chooses to downshift, his child support won’t be adjusted downwards accordingly. He will continue to be liable on his “earning potential”. This was certainly the case up to about five years ago.

derrida derider
derrida derider
14 years ago

The same old line from those with money trying to convince those without that everyone gets what they deserve. I prefer Terry’s observation to Arfur Daley:

“You know wot God thinks of money, don’t you Terry?” “Na, wot’s that then?” “Well you’ve only got to look at who ‘e gives it to.”

And of course an efficient progressive tax would tax only innate ability and dumb luck (which as you’ve pointed out are from one POV the same thing anyway), not effort. A person’s views on the relative contribution of each of these to people’s income will generally condition their views on progressive taxation and on equality generally. Paul Krugman expressed it well:

.. consider this simple parable: There are two societies. In one, everyone makes a living at some occupation–say, fishing–in which the amount people earn over the course of a year is fairly closely determined by their skill and effort. Incomes will not be equal in this society–some people are better at fishing than others, some people are willing to work harder than others–but the range of incomes will not be that wide. And there will be a sense that those who catch a lot of fish have earned their success.

In the other society, the main source of income is gold prospecting. A few find rich mother lodes and become wealthy. Others find smaller deposits, and many find themselves working hard for very little reward. The result will be a very unequal distribution of income. Some of this will still reflect effort and skill: Those who are especially alert to signs of gold, or willing to put in longer hours prospecting, will on average do better than those who are not. But there will be many skilled, industrious prospectors who do not get rich and a few who become immensely so.

Surely the great majority of Americans, no matter how conservative, instinctively feel that a nation that resembles the second imaginary society is a worse place than one that resembles the first. Yet there is also no question that our nation today is much less like the benign society of fishermen–and much more like the harsh society of prospectors–than it was a generation ago.

meika
14 years ago

. The idea of taxing a person on their earning ability rather than their actual earnings first appeared in the late 19th century

IE a tax on brown-nosing, backstabbing and being an extravert.

Yobbo
Yobbo
14 years ago

Krugman obviously doesn’t do a lot of fishing if he thinks no luck is involved. Hasn’t he even seen Forrest Gump?

. If merit was just about IQ + Effort then it wouldn’t matter whether a person used their ability to find new ways to sell cigarettes to teenage girls or used it discover a way of preventing cervical cancer.

Am I missing something here? This is the situation we currently have. Being good at selling cigarettes (or more generally marketing any product) is a skill worth just as much in as science research is.

“Merit” isn’t being used in the boy scout sense. It’s just another word for “value”.

Don Arthur
Don Arthur
14 years ago

Yobbo – Try reading the second last paragraph in Duffy’s column. I think Duffy is tapping into the boy scout sense of the term.

What’s your definition of value?

James Farrell
James Farrell
14 years ago

Duffy gets himself into an awful tangle in this piece, as is usual when he attempts social and economic analysis.

It turns out by IQ he means ‘smart, as measured by the education system.’ So my guess he’s been reading something quite innocuous about education as a predictor of income, and is throwing in IQ just to sex it up. In fact IQ is not a very good independent preedictor of income and status at all, as anyone passingly familiar with the literature on this topic can tell you.

In any case, he seems to have gotten the proposition that IQ predicts income, tied up in his mind with the proposition that income distribution is getting worse, as though one follows from the other. But why should it? Is intelligence more variable than inherited wealth? Is income more elastic with respect to intelligence than to other determinants when they apply?

Then there is all the stuff about how the new intelligent ruling classes spend their income. As if people who get rich through inheritance or the lottery don’t hire domestic helpers and visit cafes. In fact Duffy doesn’t seem to have noticed the difference bewteen luxury comsumption (e.g. visiting cafes), which results from rising income (irrespective of distributional trends), and the outsourcing of housework (hiring cleaners and buying takeaway food) which is simply an extension of the division of labour.

Guff, guff, guff. But I’d better shut up before Geoff Honnor tells me again that Duffy is just pulling my leg.

Yobbo
Yobbo
14 years ago

Don: My understanding of the concept of “meritocracy” isn’t “good people will become successful because of their moral values” but rather “skilled people will become successful because of their skill”.

There’s no moral judgement in meritocracy, mainly because the market is amoral.

There are plenty of people around who would hold the CEO of McDonalds to the same level of disdain as your hypothetical cancer merchant, but the fact is that people want to buy hamburgers and people want to buy smokes.

I think the Duffys of the world define “value” or “merit” as “the ability to conbtribute to society“, whereas it is really more accurate to define it as “the ability to contribute to GDP

In that sense a Tobacco CEO has more “merit” than a firefighter.

Don Arthur
Don Arthur
14 years ago

Yobbo – Good answer. If “There’s no moral judgement in meritocracy” then there’s no reason for anybody to think that they morally deserve their market income. Anyone who argues against taxation on those grounds is having a lend.

And I agree, people like Duffy confuse “contribution to GDP” with “contribution to society.”

It all comes down to the so-called paradox of value. In the market the price of labor behaves the same way as the price of any other product.

Imagine you’ve got two boxes of product. Product A is an antibiotic that will save hundreds of lives. Product B is a treatment for erectile dysfunction.

But Product A costs only a fraction of Product B costs. It’s out of patent and is useful mostly in the third world. Does this mean that a box of Product B makes a greater contribution to society than a box of Product A?

No. Prices are prices. They’re not a measure of ‘contribution to human welfare’ or ‘contribution to society.’

A box of Product A can save the lives of 300 third world children and still cost less than Product B which prevents 300 middle aged women from getting a good night’s sleep.

Yobbo
Yobbo
14 years ago

If “There’s no moral judgement in meritocracy”

meika
14 years ago

and remember there is some modelling on inheritance that suggests IQ might actually decrease through the generations if there is no re-distribution of wealth (death duties, tax, dumb blonde trophy wives, or religious sons) because the wealthy do not have to try at all, taxing earnings potential would be regressive, to say the least.

Tax and dumb blondes make us smart.

meika
14 years ago

Paris Hilton is an inheritance tax. A fun one, at least for her.

Jason Soon
Jason Soon
14 years ago

Where does Duffy himself equate IQ with merit, Don? He’s merely descibing the concept as it was coined by Michael Young. It sounds like he’s as concerned with the problematic nature of the concept as you are.

Rafe
Rafe
14 years ago

Krugman made an interesting point (fisherfolk vs gold prospectors) but fudged the issue because we live in a mixed society of fisherpersons and prospectors and the policy issue is to ensure that special powers and privileges do not get handed to successful prospectors (or hedge funds managers, supermodels or basketball players) to the detriment of other people.

The application to industrial relations and wage fixing is that we want to encourage workers to get rewarded for cleverness and effort, not for belonging to a particularly strong and reckless trade union.

meika
14 years ago

The application to industrial relations and wage fixing is that we want to encourage workers Directors to get rewarded for cleverness and effort, not for belonging to a particularly strong and reckless trade union right wing old boys network.

derrida derider
derrida derider
14 years ago

It’s an interesting parable, Rafe, because of what Krugman has left unsaid. That is, it is not an evil conspiracy by the gold diggers to do the fishermen down, but it is just the way society and the economy have evolved towards gold mining. There are many, many more economic rents to be obtained in a densely populated, highly technological society with advanced communications and transport. This creates more ‘winner takes all’ games and so drives us more towards more and more disproportionate rewards for celebrities, celebrity managers and rentiers.

But just because the cause of this inequality is beyond our control is no argument not to try and ameliorate its effects. And the worst of these effects is the threat to democracy from plutocracy – which we are already seeing a lot of – and the threat to social mobility.

MikeM
MikeM
14 years ago

In the real world, it is desirable to have some way of assessing the comparative importance of jobs, then assessing separately how well an incumbent performs a particular job.Suppose you wanted to compare the relative worth of a newspaper columnist with that of a taxidermist. One method, developed by Hay Associates, ranks positions along three dimensions: knowhow required, problem-solving capability required and accountability.

Taxidermy requires a good deal of knowhow, little beyond routine problem solving ability and substantial accountability, especially when dealing with the corpse of a rare or valuable beast. On the other hand a newspaper columnist need not know much at all, has minimal accountability but benefits from a facility for solving problems – an ability for example to see a contrary side to even the most apparently straight-forward matter. (The worth of an individual in either position depends on how well she or he performs according to each dimension.)

Where does IQ stand in this? The political scene suggests that it is inversely correlated with at least one Hay dimension of job importance: a politician who is caught being accountable for anything these days is clearly an idiot.

James Hamilton
James Hamilton
14 years ago

You do read a lot of rubbish if you spend anytime reading at all but I read Paris Hilton was a hard working person who has actually made more money herself from the sweat of her brow than she will inherit.

Remember also to that passing wealth from one generation to another is the perogative of the owner of that wealth. They could leave it to charity. Or not. My point is passing wealth on to a cause of your choice – being family or not, is probably the first reason anybody would give for being wealthy. Ahead of racehorses and boats. We should not be placing any impediment to creation of wealth. Society would be the loser.

Link
14 years ago

. . . .whose lives depend on servants in a way that was unimaginable a generation ago.

Use of the word ‘servants’ in Australia was pretty unheard of too, a generation ago. I agree, Duffy ties himself up in this piece. A no-brainer argument and a weak attempt to classify people.

Chris
Chris
14 years ago

Reminds me of a history teacher who openly admitted he marked assignments and tests relative to what he thought individual students were capable of. So two different people producing basically equivalent work could get very different marks. I never liked that policy.

Regarding inheritance tax – I think it greatly encourages philanthropy. People would much rather donate the money away or setup charitable trusts before they die than let the government get their hands on it.