Greg Mankiw has produced a provocative paper on economic theory:
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.
I am drawn to this approach in part by reflecting on some of the public anger that we see over some very high incomes. My sense is that people are rarely outraged when high incomes go to those who obviously earned them. When we see Steven Spielberg make blockbuster movies, Steve Jobs introduce the iPod, David Letterman crack funny jokes, and J.K Rowling excite countless young readers with her Harry Potter books, we don’t object to the many millions of dollars they earn in the process. The high incomes that generate anger are those that come from manipulating the system. The CEO who pads the corporate board with his cronies and the banker whose firm survives only by virtue of a government bailout do not seem to deserve their multimillion dollar bonuses. The public perceives them (correctly or incorrectly) as getting more than they contributed to society.
He concludes that "we should focus not on the marginal utility of different individuals but on the congruence between their contributions and their compensation." In a dissent, Yglesias notes that the successful people Mankiw cites depend on a particular type of copyright law to maintain their wealth, and notes that "intuitions about desert aren’t very conservative economisty. Normal people are always talking about how professional baseball players don’t deserve to get paid more than teachers." Karl Smith objects too.
Me less so. I think what Mankiw is driving at is that great wealth is not necessarily unjust, that it can represent simply greater talent or hard work or innovation - and that this should be celebrated, not regarded as inherently suspicious. On all those counts I'm with him. The problem is that the market doesn't measure justice, it measures how successfully someone supplies a demand. And I'm loath to conflate entirely that kind of success with some kind of "justice".
The benefit of the doubt should go to the successful. But that is not saying success and desert are always the same thing, even when no shenanigans are involved.
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