Free Thoughts Blog

Does it matter whether the free market rewards merit? Should libertarians argue to skeptics that free markets reward merit? Over at the Library of Economics and Liberty, Bryan Caplan has responded to my post, Bad Arguments for Libertarianism: Merit. Bryan’s post also has links to a fascinating exchange on the same subject between him and Shikha Dalmia (here, here, here, and here), as well as a Cato Unbound essay by Roderick Long and Bryan’s response.  

Bryan’s critiques give me a welcome occasion to expand on my original post, which contains many philosophical holes. Originally, I wrote:

If merit comes from striving, effort, or overcoming adversity, then a free market works to diminish the amount of meritorious action in order to increase productivity. Efficiency is preferred over toil. If holes need to be dug, then they should be dug in the most efficient manner possible, not in the most meritorious manner. Digging a hole is hard work, and digging a hole with only one arm is even harder work, but it would be odd if we determined the value of hole-digging based on these considerations.

Bryan responds:

Simple answer: All else equal, the efficient use of resources is meritorious.  This is hardly an eccentric Objectivist invention.  Common-sense morality praises people who use their time wisely, who save for a rainy day, and who calmly weigh their options instead of running around like chickens with their heads cut off.  Of course these aren’t the only things that common-sense morality praises, but they are on the list.

In short, Bryan argues that “the correlation between market success and merit is imperfect, [but] still fairly high.” Great success can come to the lucky and lazy, but they tend to be the exceptions rather than the rule.

I agree. I respect those people who have risen to the top, and I understand that very few of them got there through pure luck. Even for those imbued with natural intelligence and other advantages of birth, success doesn’t just happen.

But the correlation between merit and success is less exact for those who are not successful—that is, there are many people who have worked very hard, have been unlucky, and are not successful. I’m thinking of undiscovered bands, brilliant entry-level workers who had apathetic mentors, and would-be superstar executives who simply didn’t have the right friends. There are also countless people who put in years of good, hard work at companies that eventually failed and who are now over-50 and struggling to find a job in a horrible economy.

But whatever the relationship is between success and merit, it is not integral to the case for the free market, and, if pushed too strongly, it may in fact be harmful to libertarian arguments. The intent of my original post was not only to ask whether libertarians lead with our chins if we decide to include merit in our pro-market rhetoric, but also to ask whether the relationship between markets and merit is a reason we should believe in free markets.    

For me, merit has essentially nothing to do with why I believe in free markets. Insofar as market success imperfectly correlates to what I believe is meritorious, I regard it as almost a coincidence.

Let’s look at some related counterfactuals:

1. If everything that Bryan pointed to was false—if only a smattering of those who are successful could be described as meritorious under any definition of the word—would there still be a convincing case for the free market?
2. If someone had an idiosyncratic view of merit—perhaps that “invisible hand” motives are an immoral using of others’ needs and wants to fulfill selfish desires—should that person still believe in the free market?

Yes and yes.

Admittedly, it may be a tougher sell, but even in the face of such obstinacy a successful case for the free market can be made based on the Hayekian/Austrian argument against central planning and the concept of individual rights. These arguments have the added virtue of being both less subjective than opinions about merit and less potentially demeaning to those who, right or wrong, feel cheated by the market.

Depending on your moral philosophy, opinions about merit may not be entirely subjective, but they do come quite close to being merely matters of taste. Many criticisms of free markets ultimately derive from such matters of taste: for example, the idea that the market is not adequately rewarding some characteristic—such as the ability to create innovative and boundary-pushing music rather than bubble-gum pop hits—to the degree that is deserved. Academics, in particular, are susceptible to this wrong-headed thinking about markets, particularly when it comes to whether the market adequately rewards academics. My recent review of Michael Sandel’s What Money Can’t Buy: The Moral Limits of Markets highlights many of Sandel’s preferences masquerading as political theory.

By using arguments based on merit, libertarians open themselves to arguments based on matters of taste. This is true whether or not Bryan’s observation that the “All else equal, the efficient use of resources is meritorious” is just a “matter of taste.” If the fact that markets tend to reward hard work and high skill is a reason to believe in markets, then anyone who doesn’t value hard work or high skill can disagree with markets for the same reason. These people may not be as uncommon as Bryan supposes. Many movements in twentieth-century art and music were based on a conscious rejection of skill, practice, and many other meritorious virtues traditionally associated with quality art. While the market may not adequately reward such art according to the subjective standards of merit held by the practitioners, those artists can still believe in the market because it fosters the productivity that allows them to exist at all.

Fair play says we’re politically obligated because we all benefit from the collective sacrifices of our fellow citizens and so it’s only fair we return the favor. Going back to H. L. A. Hart,

when a number of persons conduct any joint enterprise according to rules and thus restrict their liberty, those who have submitted to these restrictions when required have a right to a similar submission from those who have benefited by their submission.

Fair play thus differs from the gratitude account chiefly in who it says we owe obligations to. Gratitude has us owing obligations to the state because it was the state that gave us benefits. Fair play, on the other hand, has us owing obligations to our fellow citizens because of their sacrifices which gave rise to the benefits provided by the state.

In my last post, I explored fair play in some depth. Today, continuing my series on political obligation, I want to address whether it successfully gets us to a duty to obey the state.

To fully evaluate fair play means asking a series of questions. First, does it even work? Does a sense of fair play (in general, and not limited to issues of politics) create moral obligations? Second, if it does–if cooperative schemes can give rise to obligations–what counts as a cooperative scheme? Does the state? Third, if the state is a cooperative scheme, does the obligation it creates look like broad political obligation? Or are we only obligated to some aspects of the state and not to others? Forth and finally, assuming the state is an obligation creating cooperative scheme, does fair play lead us to think we necessarily must discharge our duties by obedience? Or, instead, are we obligated to the state in some much more minimal sense?

It seems obvious that there are instances where a sense of fair play creates moral obligations. If a bunch of friends take a road trip together, and everyone pays for gas, when it’s your turn to pay you probably have a moral obligation to do so. (Assuming, of course, that you weren’t coerced into going along, that you didn’t discuss alternative arrangements ahead of time, and so on.) Similarly, if your neighbor helps you move, it’s only fair that you return the favor in the future.

So “fairness” can create obligations. Few dispute that. The question is whether the state is the sort of thing fair play applies to.

Remember, fair play, according to Hart, applies to “joint enterprises”–or, as they’re more commonly called in the literature, “cooperative schemes.” Roughly speaking, these are collective activities, requiring some degree of sacrifice from the members, that create benefits for everyone who participates. Participation can take the form of simply enjoying the benefits (you “participate” in the road trip cooperative scheme by being transported across the country, not by choosing whether to pay for gas). And we probably want to add a requirement of reasonable justness, too. It would be awfully odd indeed if fair play obligated us to obey a genocidal, totalitarian regime simply because we in some way benefit from it.

But here’s the thing: the modern state just isn’t a cooperative scheme, at least not of the sort the fair play argument speaks to. It simply strains credulity to look at Washington with its countless regulatory agencies and competing welfare programs for the poor and rich and see it as meaningfully similar to a potlatch dinner, a neighborhood watch, or a community garden.

Some parts of what the state does might fit the definition of “cooperative scheme,” of course. But then any obligations fair play creates would be limited to respecting those. Fair play wouldn’t lead to a general duty to obey every law the state creates and pay every tax it levies–even though that’s precisely what our government demands of us.

Further, recall that “reasonable justness” requirement. Even if I benefit broadly from the state, fair play likely doesn’t obligate me to obey or support it if the state is unjust. So before fair play can even get off the ground, we need to first agree that the state, in its current form or something similar to it, is reasonably just. Clearly, I think, our current government isn’t. There’s nothing just about the federal war on drugs. There’s nothing just about the bank bailouts or drone strikes murdering grieving Pakistanis. Unless fair play gives rise to obligations no matter how unjust the state, there’s much work to be done before we can safely use it as a legitimating argument for the government we’ve got.

Keep in mind, too, that fair play isn’t meant only to get us to a duty to pay taxes (though it likely fails even at that). True political obligation means a duty to obey the law. And there the link with fairness seems fuzzier.

If fairness means “contributing our fair share,” does that apply to something like a law against using recreational drugs? It’s difficult to see how. What would it mean to “contribute my fair share” of not taking drugs for personal pleasure? In other words, is fairness (at best) limited to obligations to contribute to the provision of public goods? It seems so.

Like so many of the theories we’ve looked at so far, fair play, if it works to create obligations, certainly doesn’t create the kinds of obligations necessary for the modern state as we know it. It may tell me that I’m obligated pay back my fellow citizens (in some way) for public goods I’ve benefited from, but it’s not clear how it gets me to a duty to obey the law, and it seems to do nothing for most of the government programs I’ve not benefited from or are actively harmful to me.

With only two theories left–association and natural duty–the prospects of finding a way to ground robust political obligation narrows. The trouble of state authority remains an open question.

Many consider rent seeking a vital contribution of public choice economics. This brief essay will explain rent seeking and its importance to economics and politics.

Most of us are familiar with the term “rent” as in “I paid the rent on my apartment.” Here the rent in question is the return on a productive resource (housing). Economists refer to an economic rent as a return to the owner of a resource in excess of what might be expected under normal competition. Market competition tends to reduce such rents; high profits attract new entrants who offer lower prices or better value for the same goods and services.

Government can create an economic rent by limiting market competition. New York City, for example, limits the number of taxis to 13,000 or about half as many as during the 1930s when the city’s population was smaller than it is now. The cap on taxis prevents new entrants, thereby protecting the profits of incumbents. The value of such protection should not be underestimated. A license to operate a taxi in New York recently sold for over $1 million.

Who is harmed by government providing economic rents? Consumers are harmed. Given the limits on competition, riders must pay more for taxi rides in New York than they would under open competition. People who might have driven a cab absent the licensing also lose out. The economic rents provided to taxis by government also cannot be spent on other goods or services. The people who would have offered those goods and services are worse off than they would have been absent the licensing. The limit on cabs thereby distorts the economy and harms many people, many of whom are not obvious.

Some people do benefit from economic rents and therein lies the problem of reform. The owners of a license gain the right to abnormally high profits. The public officials who grant the freedom from competition receive votes, electioneering efforts, and campaign contributions from the taxi industry. Everyone in the industry has a clear material interest in continuing the licensing whatever its effects on everyone else.

Some people say that removing the power to offer rents would avoid rent seeking. If government did less, officials would have fewer economic rents to offer leading in turn to less rent seeking and less damage to society. True enough. But existing laws and regulations cannot be wished away. We need a political solution to rents.

Imagine that by chance or design a New York mayor decided to eliminate taxi licensing. The industry would lose all the benefits noted above; in particular, owners would lose the value of their license, which depended on the protection from competition. They would have one million reasons to resist reform and would quickly organize resistance to the mayor’s proposal. Protests would fill the evening news. Poor service would be predicted. The sad plight of the cabbie would be discussed.

But, you say, what about the winners? Wouldn’t they rally to the side of reform? After all riders would pay less to get across town. Other people suffer in various ways from the licensing.

Probably not. In New York, many taxi riders would be from out of town. The businesses who would benefit from diverting dollars away from overpriced cab rides do not exist and thus cannot lobby the city government. Even those riders who live in New York would gain at most a few hundred dollars if the licensing disappeared.

Government responds to organized interests. Taxi owners have a lot to lose and thus sufficient motivation to pay the costs of organizing and influencing public decisions about taxi licensing. Taxi riders are different. The costs of organizing for them are likely higher than the gains from less expensive rides. Taxi licensing persists despite imposing aggregate costs on many New Yorkers.

Rent seeking involves other costs to society. The economic rents provided by the government are not economically productive. The resources spent seeking to persuade officials to grant an exemption from competition to an organized interest are wasted. This waste includes not only money but also the diversion of talent and time into rent seeking. Smart lobbyists might have done something more productive with their brains and their time.

Those who see government officials as benevolent seekers after the general welfare have a hard time accounting for rent seeking. It is not enough to say that bad people in office should be replaced by a better sort. The incentives created by awarding rents to organized groups would remain when the better sort arrive.

The idea of rent seeking tells us to be skeptical of government, pessimistic about reform, and morally outraged about the status quo.

Further Reading

Eamon Butler. Public Choice – A Primer. London: Institute of Economic Affairs, 2012.

Mancur Olsen. The Logic of Collective Action: Public Goods and the Theory of Groups (Revised ed.). Cambridge: Harvard University Press, 1965.

Gordon Tullock, “The Welfare Costs of Tariffs, Monopolies, and Theft ,” Western Economic Journal, 5(June 1967)224.

We’ve added a new video to Libertarianism.org featuring Nathaniel Branden discussing self-esteem and libertarianism.

Branden is a psychotherapist and writer known for being both the founder of the self-esteem movement in psychology and a former associate of Ayn Rand.

In this lecture given at a Libertarian Party of California event in 2000, Branden talks about the connection between the workings of free-market capitalism, the self-esteem movement, and the Information Age. In his words, “entitlement robs people of the sense of self-reliance” and the self-esteem that comes with that sense of independence.

We value liberty at the expense of caring. That’s the takeaway about libertarians from Jonathan Haidt’s compelling new book, The Righteous Mind: Why Good People are Divided by Politics and Religion. The basic idea in The Righteous Mind is that humans have six “moral foundations.” We vary in how much importance we place on each—and that variety explains our political views. Libertarians give the “care/harm” foundation very little weight at all.

I think Haidt is wrong about libertarians—or at least not completely right. Of course libertarians value liberty. But a great many of us, myself included, value caring very highly too. In fact, the reason I shifted from being a progressive to a libertarian was not because my moral foundations changed but because I came to realize that genuine caring means making an effort to actually help people—and that government programs intended to help have a rather poor track record.

I am a libertarian because I want a better—more caring, more fair—society and I believe enhancing the private sphere at the expense of government power is the best way to achieve that. I also strongly believe that liberty, which is after all entirely about how we treat other people, is central to both caring and fairness. Expansive government not only makes things worse from the standpoint of economic consequences, but also creates a world that is less caring and less fair.

Of libertarians, Haidt writes,

We found that libertarians look more like liberals than like conservatives on most measures of personality (for example, both groups score higher than conservatives on openness to experience, and lower than conservatives on disgust sensitivity and conscientiousness). On the Moral Foundations Questionnaire, libertarians join liberals in scoring very low on the Loyalty, Authority, and Sanctity foundations. Where they diverge from liberals most sharply is on two measures: the Care foundation, where they score very low (even lower than conservatives), and on some new questions we added about economic liberty, where they score extremely high (a little higher than conservatives, a lot higher than liberals).

You can take Haidt’s tests online and see how you compare to his findings. (I encourage you to do so, as the tests are quite interesting and revealing.)

Here’s his explanation of how libertarians diverge from liberals on specific questions:

For example, do you agree that “the government should do more to advance the common good, even if that means limiting the freedom and choices of individuals”? If so, then you are probably a liberal. If not, then you could be either a libertarian or a conservative. The split between liberals (progressives) and libertarians (classical liberals) occurred over exactly this question more than a hundred years ago, and it shows up clearly in our data today. People with libertarian ideals have generally supported the Republican Party since the 1930s because libertarians and Republicans have a common enemy: the liberal welfare society that they believe is destroying America’s liberty (for libertarians) and moral fiber (for social conservatives).

Yes, libertarians believe the welfare state impinges liberty. But we also believe it harms those it’s intended to help. Thus, we want to reform welfare and entitlement programs in large part because we care about their recipients.¹ Social Security doesn’t just mean the government deciding what to do with your money. It also means making you poorer in your twilight years than you would’ve been had you invested that money in a private account.

Of course, libertarians might be wrong about what helps and what hurts. Maybe we’re mistaken in our policy prescriptions. But those mistakes, if they exist, aren’t because we “care” less than liberals, just as mistakes by liberals (should their policies in fact not work) aren’t the result of them caring less than libertarians.

Haidt writes,

This helps explain why libertarians have sided with the Republican Party in recent decades. Libertarians care about liberty almost to the exclusion of all other concerns, and their conception of liberty is the same as that of the Republicans: it is the right to be left alone, free from government interference.

Again, no. Liberty does not come at the exclusion of all other concerns. Rather, liberty is the best way to maximize all other concerns. Yes there are libertarians who want nothing more than “to be left alone.” But that feeling doesn’t carry with it Haidt’s implied “and screw all the rest of you.” Instead, “left alone” means freed from officious government so we can better go about making the world a happier, healthier, richer, and more caring place.

Sixty-seven million dollars. That’s the tax bill Eduardo Saverin’s avoiding by renouncing his U.S. citizenship just as he’s expected to earn billions from Facebook’s IPO.

By not paying that $67 million, Saverin’s being greedy, ungrateful–even traitorous. Or at least that seems to be the consensus view among the tech press and the political talking heads. And it’s a view I strongly rejected in a post here a couple days back.

Noah Kristula-Green over at the Daily Beast thought so little of that post, he labeled it “The Weakest Defense of Eduardo Saverin.” Kristula-Green argues that Saverin gained much–if not everything he has–from America’s system of laws. Thus he owes the state for much–if not all–of his riches, and so ought to pay up. (Or, rather, he ought to pay more than he already will, because he’s not escaping the U.S. tax free.)

“If you think that Saverin should be convinced to maintain his U.S. citizenship,” Kristula-Green writes, “this is an incredibly important argument to get right.”

That’s true. But Kristula-Green doesn’t succeed.

Let’s start with a major assumption being made–one that must be argued for, but isn’t. This is the question of whether paying taxes is the only (or even the best) way of discharging debts you have to America for benefits you received from being a citizen. I wrote a rebuttal of the “only taxes will do” position last year.

The short version is simply that my debt from benefits received is ultimately owed not to the state, which may have been the immediate supplier of the benefits, but to the citizens who sacrificed to pay for them. Because of this, the debtor can discharge his debt in any way that helps those citizens. That may mean paying taxes, but it needn’t mean that exclusively. Rather, if Saverin benefited from all of us, his obligation (if he has one) is to in turn benefit us back. I argue he’s done that enough by being partly responsible for Facebook. But even if that’s not enough, I don’t quite see why he must “benefit” us by way of a check to the IRS instead of, say, funding private scholarships or launching a new business to put even more Americans back to work.

Further, while it’s true that Saverin benefited from America’s judicial system, that would seem to imply only a duty to give back to the judicial system. It’s unclear why it means he’s morally obligated to pay into a pot from which the judicial system will get something, true, but which will also be used to bail out banks, drop bombs on people in Afghanistan, subsidize rich sugar growers, and outfit SWAT teams perpetuating the shockingly immoral war on drugs.

Kristula-Green goes on to ding me for “express[ing] skepticism with the idea of a state at all.” To support that claim, he links to a post of mine on fair play theory, part of a series I’m writing on the philosophy of political obligation.

The question of political obligation–even if it makes us skeptics–matters. It’s not an easy question, but it’s one we need to address if we’re to have meaningful discussions within political philosophy. It’s a exploration that may lead to anarchism, but it needn’t necessarily take us that far. As I wrote in an earlier post,

Recognizing just how hard the question of political obligation is does carry some normative weight outside anarchist circles. The modern state, with its high taxes, voluminous legislation, and robust regulatory regime, acts as if we have a significant number–a huge number–of obligations to it. The modern state exercises a great deal of authority over us.

But if justifying that authority and grounding those obligations proves morally difficult, then at the very least we ought to be more skeptical the next time the state adds another obligation to its list. And the state adds obligations all the time.

What’s more, none of this is particularly controversial among philosophers. In fact, most of the arguments I’ve discussed in my series, raising problems with fair play and gratitude and so on, also appear in the Stanford Encyclopedia of Philosophy article on the topic, which itself pulls from A. John Simmons’s groundbreaking book, Moral Principles and Political Obligations, as well as the work of Simmons and others in the 30 years since its publication. Simmons’s position, what he calls “philosophical anarchism,” may actually be the dominant view among academic philosophers (surely not a reactionary, right-wing bunch) who’ve made a study of political obligation. And if it’s not dominant, it’s certainly the most influential.

In short, explaining why we have political obligations proves awfully hard. Assuming it’s easy won’t make the question go away.

What’s more, we all have a theory of political obligation and authority, even if we’ve never examined it. We all have a point at which we say what the state asks of us is too much. We can all imagine some situation where we’d feel the state has no right to spend our tax dollars on that.

In closing, do I, as Kristula-Green claims, “express skepticism with the idea of a state at all?” Yes and no. Throughout my series, I’ve generally avoided attacking premises such as “the state benefits us” or “we are better off with government than without” precisely because, even if those premises are true, it’s not clear that genuine political obligations of the kind expected of us by large, modern democracies necessarily follow. In fact, I believe they don’t. I believe that while it’s possible for political obligations to arise, they can only occur in very narrow circumstances (i.e., through some form of legitimate consent) and with very narrow scope. I also believe that no currently existing state meets those requirements. Thus none of us actually bear political obligations.

(Please note this is not the same thing as claiming we are without moral obligations and so are free to murder, steal, oppress, and so on. I explain the difference between moral and political obligations here.)

But denying political obligations doesn’t mean I therefore reject the idea of the state and embrace anarchism. Rather, while I think the state has no moral authority over us, we still have good reasons to want live within it and support (some of) its activities. Thus we should act as if political obligations do in fact exist, while recognizing that enforcing them may, because they are a fiction, be immoral. We may even have very good reasons for adopting this tactic. Perhaps having a state that enforces its (illegitimate) authority is just so much better in its consequences that we’re willing to put up with the moral violations it entails.

So this makes me skeptical of the state, yes, but not of the idea of the state at all.

There are many things Eduardo Saverin probably ought to feel morally bound to do with his $67 million. Paying what amounts to voluntary taxes, by choosing to stay in the United States, isn’t one of them.