This is the image I used here on 11/15/16 when writing about Okun’s leaky bucket:
Wealth redistribution efforts not only work against our financial interests, they shrink everyone’s wealth. The more equal you try and force a society to be, the poorer it gets. Economist Arthur Okun (1928-1980), in his book Equity and Efficiency: The Big Tradeoff (1975), documented this economic phenomenon, which has become known as “Okun’s Bucket”. He likens wealth redistribution to moving money from one person to another in a leaky bucket. You manage to get some money transferred from one person to another, but along the way a lot leaks out and is lost forever.
Daniel Markovits makes several references to Okun’s Bucket in his conclusion of The Meritocracy Trap (2019) because he knows it’s fatal to his argument for wealth redistribution. I think he correctly points out the really bad psychological aspects of meritocracy: “Meritocratic inequality therefore induces not only deep discontent but also widespread pessimism, verging on despair”. But there is no alternative.
The amount of wealth leaking out of Okun’s wealth redistribution bucket is not trivial. One commentator estimates it at between 34%-56%!
The only possible way to justify destroying half of the wealth Government would steal to get the other half forcibly transferred to the “needy” (who gets to determine who’s needy?) is the tired old marginal utility argument. But that is flawed logic. As I wrote here a few months ago:
[wealth redistributionists think that the marginal dollar taken out of a wealthy person’s pocket and given to someone in need will increase overall human flourishing]. To the contrary, as we’ve learned from Game Theory and Scott Alexander’s Mistake Theory vs. Conflict Theory dichotomy, the notion of overall marginal utility is wrong. Von Neumann and Morgenstein pointed this out in the 1940’s: “the popular misunderstanding about this pseudo-maximum problem is the famous statement according to which the purpose of social effort is the ‘greatest possible good for the greatest possible number’. A guiding principle cannot be formulated by the requirement of maximizing two (or more) functions at once. Such a principle… is self-contradictory. One function will have no maximum where the other function has one.” It’s like saying that a business should pursue maximum revenue and minimum expense. Theory of Games and Economic Behavior (1944).
Markovits begins his book with the sentence “Merit is a sham”. He concludes by arguing that “meritocratic inequality benefits no one; neither the many whom meritocracy idles and thereby excludes from income and status, nor even the few whom meritocracy ensnares in a destructive tournament to exploit their human capital by yielding oppressively intense pervasively alienated labor”. His logical leap to wealth redistribution is “by unmasking merit as a sham, the diagnosis of meritocratic inequality pierces the ideologies that lead the elite to cling to is privilege and the middle class to direct its resentments at innocent outsiders. It is one thing for a person to suppress his humanity in order to protect real advantages; it is another to do so in the service of an illusion.” He concludes that meritocracy is a trap ensnaring everyone by “creating false pride in the rich and false resentment in the rest”.
He is correct that meritocracy makes us miserable:
But whether or not merit is a sham/illusion, wealth redistribution is not a solution because of Okun’s Bucket and the pseudo-maximum utility problem. We are each independent, free moral and economic agents in competition with one another. Government cannot impose radical change to a natural aristocracy and would engage in immoral wealth destruction by trying.
Next week, we begin a new dig down even further into the philosophy of merit via the extraordinary mind of Adrian Wooldridge.