The Causes of Wealth Inequality (19): Talent, Effort or Luck?

Talented people usually earn more, especially when their talents are “marketable”, highly valuable and in demand among large groups of consumers or users. Hence, it’s tempting to conclude that income inequality is the natural and necessary result of the given inequality in the distribution of marketable talents. However, that conclusion only holds up when you turn things around: rather than talented people earning more, it has to be true that people who earn more generally have more and better talents, talents moreover which are in demand. I don’t know of any study confirming this claim, but my anecdotal observations in the matter tell me that the claim isn’t true: many rich people don’t have special talents, and many talented people aren’t rich at all.

But then why are some people rich? Perhaps they have some other native endowments, such as a strong will, discipline and a natural willingness to make an effort. Or perhaps they have successfully acquired these characteristics during the course of their upbringing and education. Income inequality is then the product of the natural and/or acquired inequality of effort. But, again, it’s easy to find wealthy people who are neither talented nor strong willed, and many poor people work very hard. As someone has said: hard work is much more common than success.

Maybe luck plays a large part in the creation of wealth: some people have the good fortune of acquiring – perhaps through inheritance – certain means of production. Others are born in a place and family that provides good education, numerous wealth creating opportunities, encouragement etc. Still others find themselves in an economy where demand for their particular contributions is high, or where these contributions are highly valued. Or maybe they find themselves in a political system where discrimination and certain government policies give them an advantage.

Your personal thoughts on the relative importance of talent, effort or luck will determine what you think should be done about income inequality. Those who believe effort is the main cause tend to assume nothing should be done. If wealth distribution is the sole result of differences in effort, then redistribution is not only unfair to those who invest more effort, but also has perverse consequences: it will destroy all future wealth and therefore make all future redistribution impossible, because punishing people for their efforts means taking away their incentives to invest effort.

If you think talent or a native endowment of discipline is the main cause of wealth inequality, then you will probably be more sympathetic to redistribution. Since no one deserves his or her talents or other native endowments, no one deserves the unequal rewards that come with unequal endowments. However, since people still need to use and develop their endowments, you’re likely to reserve at least a small role for effort. Hence, you’re not likely to be a strict egalitarian. Still, you will favor education as a means to foster some people’s lingering talents and underdeveloped sense of discipline, and perhaps you’ll also favor a more equal distribution of the attention society gives to different talents.

If you think income inequality is mainly caused by luck or the lack of it, you will be a strong egalitarian. You view talent and effort, as well as the ability and willingness to use and develop talents and to invest effort, as the products of good fortune: you’re lucky to have the right genes, parents and teachers who encourage you etc. And you also view other types of good fortune as causes of wealth: being in the right place at the right time, inheriting means of production, meeting the right business partners etc. Luck is undeserved, and so are its products. Hence redistribution is morally required.

Why Do We Need Human Rights? (24): What is the Marketplace of Ideas?

I’ve often invoked the metaphor of the marketplace of ideas to justify the right to free speech. (See these older posts). I think it’s useful to spell out in some more detail what the metaphor means, how far it goes and how it can bolster the right to free speech.

The point is this: ideas that can get themselves accepted in a competitive market of ideas will tend to be of better quality than other ideas. The marketplace of ideas therefore improves the quality of our ideas and our thinking. If different ideas are presented in an “ideas-market”, and if that market is populated by a maximum number of free agents expressing themselves freely, then those competing ideas will be exposed to a maximum number of supporting and dissenting arguments, and the balance of arguments in favor of or against an idea will be compared to the same balance for counter-ideas. The idea with the best balance will “survive”, because alternative ideas will be seen as comparatively defective, given the fact that the arguments in favor of them are weaker or the arguments against them are stronger.

It’s crucial that there is mass participation in the argumentation and deliberation going on in this market, since only mass participation will allow for the multiplication of possible arguments and alternative ideas. Hence, it’s also crucial that there’s a right to free speech and that everyone (or at least a large number of people) has and effectively exercises this right. This mass participation of free and expressive agents will improve the quality of ideas and of their supportive arguments even before the ideas reach the market: people who know that their ideas will meet probing and massive criticism will prepare themselves for this criticism, and this preparation means that they will preemptively develop supportive arguments and undermine opposing arguments. Hence, these ideas may even change and improve before they reach the market.

Exposing ideas to the test of the market doesn’t mean telling only your friends or your countrymen about them. Ideally, the market includes the whole of humanity; people who are close to you may share your biases and hence may not see the weakness of certain arguments or may not come up with the killer counter-argument. Another metaphor that can make this point somewhat clearer is the metaphor of perspectives: if you only look at a square from one side (or from one perspective) because no one told you that there’s another side or because in your group or culture it’s not common to suppose that there’s another side, you may not come to see that the square is actually a cube.

Without this massive and global participation of free speakers, many valuable points of view or perspectives will not be made public, and many valuable objections and counter-arguments will not be known to someone defending a certain thought or idea. This can diminish the quality of the thought or idea in question.

This ultimately global nature of the marketplace of ideas gives us not only a justification of the equal right to free speech, but also a justification of the universal right to free speech.

So, the marketplace of ideas shouldn’t be understood in purely economic or literal terms, as a place where ideas are “traded” or “sold”, or “produced” and “consumed”; that wouldn’t make any sense. Of course, the result of the marketplace of ideas is that some people “trade” their old ideas for other ideas because the marketplace has proven that some ideas are hard to defend. In some sense of the word, ideas – and alternative ideas – are “exchanged”, as are arguments for and against ideas, but they aren’t exchanged in an economic sense. Also, one can argue that ideas have a cost: it may have been very hard and therefore costly to establish the set of arguments in favor of a winning idea (the marketplace of ideas is a tough place); or it may be costly in terms of status to hold on to an idea that has been thoroughly debunked in the marketplace. In the end, however, it’s never advisable to take metaphors too far or to use economic thinking where it doesn’t belong.

One important caveat: none of this should lead to the conclusion that massive support for an idea automatically turns this idea into a good one. It’s not because many people have decided that an idea is strongly supported by the best arguments and that other ideas have failed, that they are right. Maybe the marketplace of ideas hasn’t worked properly, because some of the prerequisites aren’t there (massive participation, strong speech rights, an educated citizenry etc.). Maybe the popular assessment of the balance of arguments rests on nothing more than prejudice. If you insist you can call this a “market failure”.

Here’s a quote that nicely illustrates my point – it’s about scientific discourse but it applies generally:

Science works very well as a social process, when we can come together and find flaws in each other’s reasoning. We can’t find the problems in our own reasoning very well. But, that’s what other people are for, is to criticize us. And together, we hope the truth comes out. … [W]hen people reason on their own, they’re unable to arrive at a good solution, at a good belief, or to make a good decision because they will only confirm their initial intuition.

On the other hand, when people are able to discuss their ideas with other people who disagree with them, then the confirmation biases of the different participants will balance each other out, and the group will be able to focus on the best solution. Thus, reasoning works much better in groups. When people reason on their own, it’s very likely that they are going to go down a wrong path. But when they’re actually able to reason together, they are much more likely to reach a correct solution. (source)