Mankiw on Just Deserts

From Greg Mankiw’s “Joe the Plumber” essay (see also his “Defending the One Percent“) on alternatives to utilitarianism:

“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.”

Mankiw goes on to say that a competitive market equilibrium is not just efficient but fair, since it gives people what they deserve:

“[T]he Just Deserts Theory… gives a new normative interpretation of the equilibrium of a competitive market economy. Under a standard set of assumptions, a competitive economy leads to an efficient allocation of resources. But we economists often say that there is nothing particularly equitable about that equilibrium. Perhaps we are too hasty in reaching that judgment. After all, it is also a standard result that in a competitive equilibrium, the factors of production are paid the value of their marginal product. That is, each person’s income reflects the value of what he contributed to society’s production of goods and services. One might easily conclude that, under these idealized conditions, each person receives his just deserts.”

But that’s not at all what Nozick or Friedman said! I want to set the historical record straight.

First, a preliminary about Friedrich Hayek.  Hayek was a noted classical liberal, and he rejected “just deserts”.  Hayek distinguished merit from value.  Merit and value diverge because of luck.  No one can predict with any precision how the distribution of tastes and technology will evolve, but we each make choices about career, investment, where to live, etc. and some are luckier than others.  Two people could work equally hard, with exactly the same degree of diligence and prudence and responsibility, but one gets lucky and the other doesn’t.   The price signals in a free market reward such luck (and punish bad luck), and must do so if they are to send the right signals i.e. the signals that will shift resources to where they can be best used.

Nozick cited Hayek’s rejection of desert approvingly, but argued that Hayek didn’t go far enough.

“Hayek argues that we cannot know enough about each person’s situation to distribute to each accord to his moral merit (but would justice demand we do so if we did have this knowledge?)… Hayek concludes that in a free society there will be distribution in accordance with value rather than merit: that is, in accordance with the perceived value of a person’s actions and services to others [without regard to merit, e.g. how much or how little effort the person in question put in – ADL]… Distribution according to benefits to others is a major patterned strand in a free capitalist society, as Hayek correctly points out, but it is only a strand and does not constitute the whole pattern of a system of entitlements (namely, inheritance, gifts for arbitrary reasons, charity, and so on) or a standard that one should insist a society fit” (Anarchy, State, and Utopia, p.158)

Nozick’s point is that even distribution according to value is not justice.  Justice in holdings, accruing to Nozick, is simply a function of just initial acquisition of unowned resources followed by just transfer, indefinitely iterated (leaving rectification of injustice to one side).

So Nozick wasn’t a believer in Just Deserts.  What about Friedman?

In the chapter on the distribution of income in Capitalism and FreedomFriedman examined the “the ethical principle that would directly justify the distribution of income in a free society,” which was  “‘to each according to what he and the instruments he owns produces’.”   The “ownership” bit is crucial, but leave that aside for today.  Friedman directed most of his critical fire against the common view that there is an important moral difference between inequalities in inherited talents and inequalities in inherited wealth.  “Is there any greater ethical justification for the high return to the individual who inherits from his parents a peculiar voice for which there is high demand than for the high returns to the individual who inherits property?”  But Friedman recognized that this inconsistency could be resolved either by saying that there is nothing wrong economic inequalities that are due to fortunate family circumstances, or that there is something wrong with economic inequalities due to innate talents – or at least no positive reason to think that such inequalities are fair, in and of themselves.   It is perhaps for this reason that Friedman concluded that distribution according to productive contribution “cannot in and of itself be regarded as an ethical principle… [but] must be regarded as instrumental” (165).  In other words, the reason for having institutions that distribute income more or less according to productive contribution (and hence in part according to natural talent and social class at birth) is not that the result is fair or unfair but that it is efficient in allocating resources and hence in generating wealth.

Friedman’s final remarks express a remarkable degree of scepticism about “deservingness.”

“Most differences in status or position can be regarded as the product of chance at a far enough remove.  The man who is hard working and thrifty is to be regarded as ‘deserving’; yet these qualities owe much to the genes he was fortunate (or unfortunate?) enough to inherit” (165-6)

Friedman even notes that inequalities that are perceived as being due to chance are more easily tolerated than those that are perceived as being due to merit (166), an issue Rawls would confront in his discussion of the objection that his (Rawls’s) theory would lead to a “meritocratic” society (Section 17 of A Theory of Justice, p.91 Revised Edition – meritocracy being an objection! Rawls cites Michael Young’s 1958 The Rise of Meritocracy; Hayek also cited Young on this point, in The Constitution of Liberty, though he said that he hadn’t yet read Young’s book).

So: Nozick and Friedman (and Hayek) all explicitly reject “just deserts” as a theory of just distribution.  In particular, they deny that distribution according to productive contribution is a matter of justice.  Mankiw’s idea of “just deserts” can’t be what they had in mind.



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5 Responses to “Mankiw on Just Deserts”

  1. Regis Servant Says:

    Indeed, it appears that Mankiw’s idea of “just deserts” is not what Nozick and Hayek had in mind.
    According to Mankiw’s quote, the more a person contributes to society, the more he/she deserves a higher income.
    In Hayek’s and Nozick’s terminology, the idea of “just deserts” against which they argue is: citizens ought to be remunerated in proportion to their efforts; the more a person make efforts, the more he/she deserves a higher income – whatever the value the result of these efforts has to his/her fellows.
    “Merit is not a matter of the objective outcome but of subjective effort” (Hayek, 1960).
    Régis Servant.

    • andrewdlister Says:

      Thanks for the comment, Regis. It’s true that Hayek argued against reward according to effort, but I don’t think he would have agreed with Mankiw’s defense of just deserts. Mankiw is claiming that reward according to marginal product is not just efficient but fair, whereas Hayek was arguing that it generates prosperity and protects individual freedom. Hayek like Friedman and F. H. Knight was wary of defenses of the market based on desert, because he understood that in order to communicate dispersed information about scarcity in relation to preferences, prices have to reflect a lot of brute luck. If I was born with a talent that happens to be scarce in relation to today’s preferences, and I am willing to to put it to use, I will be rewarded. The extra reward I receive, as compared to you, my equally hard-working and conscientious neighbour, is justified not by my deserving it more than you, but by the fact that it sends the rights signals to other people, e.g. “develop this scarce talent!” and “find a way of producing the same things that doesn’t require this scarce talent!” It is only because markets don’t closely track what we would ordinarily think of as merit that they are so good at generating prosperity.

      Have you read Knight’s paper “The Ethics of Competition”? I think it does a good job of undercutting Mankiw’s just-deserts defense of markets. Knight was a defender of markets, but not on that basis. Hayek and Friedman followed his lead. Rawls read Knight and Hayek (not sure about Friedman), and so took it for granted that individual deservingness could not play a major role in the justification of any society making significant use of the market. I’m working on a paper about this, at the moment.

  2. Regis Servant Says:

    Thank you for your answer, Andrew. No, I did not read Knight’s paper “The Ethics of Competition”, but I have to read it, together with other papers by Knight.
    I feel that a connection can be established between (1) the fact that Knight was wary of defenses of the market based on desert (I did not know this fact, so thank you for telling me) and (2) the fact that, according to Knight (1921)’s distinction between uncertainty and risk, “profit arises out of the inherent, absolute unpredictability of things, out of the sheer brute fact that the results of human activity cannot be anticipated”.
    There clearly seems to be a link because, if the concrete circumstances of time and place are essentially unpredictable (for example, as you wrote in your post, if no one can predict with any precision how the distribution of tastes and technology will evolve), the profits and losses made by each business firm cannot be proportional to their merit or desert. Profit and losses (just as prices) have to reflect a lot of brute luck.

    The comparison between Hayek and Knight is interesting because Hayek, in 1939, made a similar claim, namely: “The great advantage of the competitive system, however, lies exactly in the fact that it offers a premium on foresight and adaptability…”, but as you pointed out, Hayek knew that this foresight can be a matter of luck!

    Régis Servant.

    • andrewdlister Says:

      That is very interesting, I’ll have to look into that. I’m not an economist, so I haven’t been delving into that part of Knight’s work. But if profit arises from the “brute” fact of unpredictability, then as you say it can’t be a function of merit.

  3. The Non-Non Libertarian FAQ | Nintil Says:

    […] Hayek and Milton Friedman also rejected that. […]

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