Distributed Wealth-Enabling Conditions and Collective Entitlement

by Will Wilkinson on April 12, 2005

In a chapter from this book, Jerry Mashaw from Yale Law lays out a prime piece of welare statist reasoning with great lucidity, and it got me thinking.

Mashaw says that an economic system characterized by a wide division of labor and well-functioning legal and civil society institutions:

Our capacity to support ourselves depends critically on others’ willingness to engage with us in a complex system of productive activity.

In any such system of market capitalism there is typically a considerable dispersion in individual returns to economic participation. Those returns depend on the public’s demand for particular services and goods. People who work or risk their capital in endeavors whose demand proves strong will be well-off economically; people in enterprises for which demand proves weak will not do well at all. Luck also plays a role: being born into a family of wealth and education often brings lifelong advantages. And market returns depend critically on well-functioning government institutions, police, civil and criminal courts, laws against fraud and deception, to name but a few. Some substantial portion of the nation’s output–of income from both labor and capital–is, therefore, a societal rather than an individual creation. But the return of that collective enterprise will end up in some individuals’ pockets and not in others. In order for this dispersion of economic rewards to be acceptable–for the system to maintain its legitimacy–variations in incomes must be seen to be “fair.”

Now, I think there is something to this argument. But I think there is less to it than Mashaw, Elizabeth Anderson, or the Leaugue of Eminent Rawlsians might think. It is too fast, even if you fill in the missing steps.

This part of the argument is true: in a market-based society, our well-being is radically interdependent. Our ability to become wealthy in a market libreal order depends crucially on the maintenance of certain set of beliefs, expectations, behavioral norms and various state and non-state institutions. Our interests are complexly interrelated and mutually supporting. This is why it is total nonsense to characterize the market as a morality-free zone of self-interested atomized individuals jockeying to step on each others’ heads on their way up. It is especially incoherent when welfare liberals accuse markets of involving BOTH radical cooperative interdependence, such that much of a society’s wealth is a “social product” to which individuals have no moral claim independent of some rule of distibutive justice, AND a kind of radically fragmented free-for-all state of nature war of all against all. Mashaw doesn’t make this mistake, but it’s just stunning how often you see it.

Have you ever seen this: On the market we’re so interconnected that what’s “yours” can’t truly be yours. And, besides, without the state binding us together through corrective coercive redistribution, we’d be so radically disconnected that we’d barely count as a society.

What I’m interested in is the argument that goes from the social, legal, and political enabling conditions of the market to the conclusion that some “substantial portion of the nation’s output . . . is . . . a societal rather than an individual creation” and that, therefore, this portion should be understood as a kind of common asset that must be distributed according to some principle of just division, even if it is already distributed among the members of society and considered by the laws to be individual property.

If we take the reasoning strictly, it seems that we ought to run a bunch of regressions and try to isolate what norms and institutions account for how much of the national output. So, suppose that having good police matters a lot. Say 3% of our national output can be attributed to having efficient, uncorrupt police. The police, however, internalize only a tiny fraction of those gains. So doesn’t fairness/justice demand that we redistribute much of this wealth back to the police? Suppose 5% of the national product comes from a widespread norm of trust and trustworthiness. More or less, everyone in society in contibutes to the effectiveness of the norm, so why not take 5% of the national product and divide it up as even shares for each citizen?

If you think that the rich guy’s benefitting from the norm, but the poor guy’s not. But consider how much poorer the poor guy would be without the prevailing norms of trust. (Compare: lowest 5% in US & lowest 5% in Brazil.)

Of course, it also generally true that the wealthier the capitalist, the smaller the percentage of the positive economic externalities he is able to internalize. Bill Gates has been able to internalize only a miniscule fraction of the wealth he has created. Does Bill Gates get a raw deal? But I digress.

Let’s think about the relationship between background enabling conditions and desert. Suppose I am the only person in the world who likes jelly donuts. I derive huge pleasure from jelly donuts. But I cannot make them. Nor can anyone else, because there’s no money in making jelly donuts, so its not worth knowing how to make them. Now, suppose that 1000 people came in on a boat and moved into my community, all of whom love jelly donuts. So now there is demand for jelly donuts and a jelly donut shop opens up, and now I can happily pig out.

Question: is it wrong for the donut shop owner to internalize all the money I paid for my donuts? I mean, the donut shop owner is not respsonsible for the demand that brought the donut shop into existence, and neither am I. I owe the existence of the shop to the 1000 boat people. Shouldn’t some of the cooperative surplus created by my exchange with the donut shop go to them, since the existence of their demand for donuts confers benefits on me and the donut shop, but neither of us had anything to do with it?

The intuitively obvious correct answer is, no, I don’t owe the boat people anything, even though I am, in effect, free riding off the existence of their demand. So the question is: does Mashaw have to deny that this is in fact the intuitively correct answer, or that our intuitions are screwy? Is the benefit I internalize from the existence of complementary preference orderings, like in the jelly donut case, different in principle from the benefits I internalize from the existence of norms of trust? From the existence of legal institutions?

In general, then, is there really any plausible principle that can tell us why it should be the case that some portion of the cooperative surplus in certain exchanges must be forfeited by the parties to the exchange because there are enabling conditions to the exchange that neither party is directly responsible for?

Or try this. Suppose gravity works only if a team of powerful telekinetic dwarves sit in a room together and concentrates really hard. It turns out that a lot of them just like doing this and do it for free, or else like to do it if they’re given a hot dog each day, which are happily supplied by Oscar/Mayer for public relations purposes. You and I walk from opposite ends of the street, meet in the middle, and hug, which makes us very very happy. How much do we owe the dwarves?

  • good content
  • Cain
    From time to time I will browse a so-called "libertarian" -- propertarian, really -- blog to understand again why it is I don't worship the Almighty Market-God.

    What's even more disturbing than the original post by the resident blogger are the comment replies contained herein (especially the first one in this case).

    "Our ability to become wealthy in a market libreal [sic] order depends crucially on the maintenance of certain set of beliefs, expectations, behavioral norms and various state and non-state institutions. Our interests are complexly interrelated and mutually supporting. This is why it is total nonsense to characterize the market as a morality-free zone of self-interested atomized individuals jockeying to step on each others' heads on their way up."

    I'm afraid this does not quite work. We can use a simple example from Richard Dawkins' _The Selfish Gene_. Assume all the birds of a particular species on an island are unselfish cooperators when it comes to grooming one another. In other words, there are prevailing norms and expectations. How on earth can atomistic selfishness arise in a system that is richly interrelated and mutually supporting? Well, use your imagination (or read the book). Just because the ability to generate wealth crucially depends on mutual support does not mean that system will reward cooperators. Omigosh, isn't there a common term economists use to describe this behavior? Free-*something*

    Maybe the original author would contend that situation is absurd! Hmph- Unselfish cooperators. But that would take quite a bit of gumption from someone who posits telekinetic dwarves.

    "It is especially incoherent when welfare liberals accuse markets of involving BOTH radical cooperative interdependence, such that much of a society's wealth is a "social product" to which individuals have no moral claim independent of some rule of distibutive justice, AND a kind of radically fragmented free-for-all state of nature war of all against all. Mashaw doesn't make this mistake, but it's just stunning how often you see it."

    "Cooperative interdependence" is the misleading phrase in this context. Who are the welfare liberals making this accusation? I know, I know, they're out there, somewehere. The essentials of the "welfare liberal" argument can be found on the website for the _Boston Review_ in the "New Democracy Forum". See the section on a universal basic income and look up Herbert Simon's piece.

    Once one understands the basic argument it's easy to see how this "cooperative interdependence" fosters selfish, anti-social, look-out-for-number-one, attitudes. Even the Randroids manage to grasp this elementary concept.

    If I might be so bold as to conclude with an example from Thomas Sowell's awful book _Basic Economics_. I'm sure Sowell has written nearly a dozen awful books, but this is the only one I bothered to read.

    Therein Sowell uses the (unoriginal, but powerful) example of Mickey Mantle and Roger Maris to show the ideal of remuneration in accordance with marginal productivity of labor doesn't hold in the real-world. We often tend to regard hitting as very individualistic (hey no one else is in the batter's box). But there is somone in the on-deck circle, and in the case of this Yankees ball club that would have been one Mickey Mantle. Pitchers were naturally reluctant to walk Maris because it would put a runner on base and then they'd have to face off against Mantle (arguably an even better hitter, and certainly more feared). So Maris got a boost from his teammate (he didn't really hit 61 homers all by himself). And today players get a boost from the ever-growing body of medical and nutritional literature that becomes more widely available -- and of course the person who supplies them with illegal muscle enhancers.
  • Robert Schwartz

    "Suppose gravity works only if a team of powerful telekinetic dwarves sit in a room together and concentrates really hard."


    Its not really a problem:




    Rabbi Raymond A. Zwerin, Temple Sinai / Denver


    Sermon on Kol Nidre September 15, 2002 / 1 Tishri 5763


    "It is said that at all times there are 36 special people in the world, and that were it not for them, all of them, if even one of them
    was missing, the world would come to an end. The two Hebrew letters for 36 are the lamed, which is 30, and the vav, which is six. Therefore,
    these 36 are referred to as the Lamed-Vav Tzadikim.


    This . ... Jewish concept is based on a Talmudic statement to the effect that in every generation 36 righteous "greet the Shechinah," the
    Divine Presence (Sanhedrin 97b; Sukkah 45b).


    ... the legend maintains that they are each extremely modest and upright, often concealing their identity behind a mask of ignorance and
    poverty, and usually earning their livelihood by the sweat of their brow.


    The Lamed-Vav Tzaddikim are also called the Nistarim (concealed ones). In our folk tales, they emerge from their self-imposed concealment and, by the mystic powers, which they possess, they succeed in averting the threatened disasters of a people persecuted by the enemies that surround them. They return to their anonymity as soon as
    their task is accomplished ...


    The lamed-vavniks, scattered as they are throughout the Diaspora, have no acquaintance with one another. ... Since the 36 are each exemplars of anavah, humility, having such a virtue would preclude against one’s self-proclamation of being among the special righteous. ...

  • David Billington
    Sorry to leave off my name from the above post on flow and moment.
  • Anonymous
    Will,

    I wonder if there isn't another way to look at this question. A state of society is a historical moment in time and not just a complex interplay of people and activity frozen at (and abstracted from) the moment. The great innovators who make huge fortunes present one sort of ethical issue if the question is restricted to the moment. But viewed historically, innovations transform the reference frame in which ethical choices are defined.

    Since the 1920s, both conservatives and liberals have conflated the flow with the moment, with trickle-down theorists taking the flow to be everything and redistributionists taking the moment. I would think that the question of what is owed to people first requires separating the question of what relative shares of income people receive from the question of what absolute needs people have. The question then would be how far a society can go to guarantee absolute needs and remain productive, if both are desired and if they are in any sort of tension.
  • Calm down, 'Lima.'
    'Monkeyboy' likes to play the troll.
    Spewing invective in response is, perhaps, entertaining for you and him, but not so much for the rest of us.
  • Lima
    Well, Monkyboy has said that he is content with a Big Mac, some St. Ides, a NASCAR race on TV, and some late-night porno. Oh yeah, and a copy of the Bible (an Al Franken book? _Left Behind_?) for some guidance and inspiration. Hell, does anybody really need anything more?

    Well, Monkyboy probably *doesn't* need anything more. The rest of us ... well, we're better than Monkyboy. We have some curiosity about the world around us, we ask questions, we don't sit content with pat bullshit answers from talking heads who couldn't reason their way out of a cardboard box. We have an interest in continuing to learn the things that others have discovered and developed. Since many of us have such an interest, they built special places where we can go and learn about history, ethics, cognitive science, economics, and so forth.

    Not for you, Monkyboy? That's fine, we don't mind. Just don't mock things you don't understand. Get back to your NASCAR race and your malt liquor, and mouth back the same old bullshit that we all hear on the television. University departments weren't meant for people like you, anyway.
  • Jadagul
    Gareth, I can think of two potential responses. The first is Nozick's response to Rawls from Anarchy, State, and Utopia (sorry, don't have the book with me so I can't cite more specifically). Nozick pointed out that even if I don't deserve wealth I obtain by luck, you don't really deserve it either. So if we want to eliminate all undeserved wealth, does that mean we have to destroy all wealth that's earned through luck? Your principle of assigning-wealth-equally is just as arbitrary as my principle of assigning-wealth-to-the-creator.

    The second argument is derived by David Gordon of the Mises Institute from S L Hurley's Justice, Luck, and Knowledge. The core of the argument is thatthere's no reason to assume that in the absence of good/bad luck, we'd make more equal amounts of money. Either you assume we start out from equality, in which case you're simply defining luck and inequality to be the same, and thus can't treat luck as an independent cause of inequality; or you realize that luck is just a matter of how else things could have turned out, and we can't figure out what we owe to luck and what to other traits. Hurley argues for redistribution under different grounds, but I have other problems with her argument.

    A third response that occurrs to me is that some things can arguably be products both of luck and of desert. For instance, suppose that I was born with some inclination to be honest, work hard, and get ahead. On the one hand, I was born with these traits, and so don't "deserve" the rewards I reap from them; on the other hand, these traits seem to me morally praiseworthy. If you say that chance cannot create desert, you're arguably undermining the whole premise of desert itself.
  • Retief
    If they are libertarian telekenetic dwarves, then you owe them whatever the market will bear. How long do you think it will take for someone at Oscar Meyer to decide they can make more by charging you for the dwarves' service than they get in PR value?
  • Gareth
    What's wrong with this argument:

    1. Wealth (or income) variance depends (in part) on luck.

    2. No one deserves their luck.

    3. Therefore, wealth (or income) variance is (in part) undeserved.

    4. Undeserved wealth (or income) variance is undesirable.

    5. Therefore, public policy should try to reduce wealth (or income) variance (ceteis paribus, not at all costs).

    That argument does not depend on the telekenetic dwarf principle that we ought to pay people an amount commensurate to the benefit we receive from them, even if they will do it for less.
  • I *heart* telekinetic dwarves working for hot dogs.
    :-)
    Bit of a tangent, but...
    I remember seeing a similar argument about taxes, something like: it's not really YOUR money, since you depend on society for enabling you to make it, and on the gov't for printing it, etc.
    Therefore, don't complain about taxes: taxation doesn't mean the gov't is taking YOUR money, it just means the gov't is KEEPING some of ITS money.
  • monkyboy
    Hehe, research-oriented philosophy departments.

    You made my day, Lima.
  • Lima
    Monkyboy seems to forget that Harvard, Yale, Stanford, U Chicago, etc. also profess "useless knowledge" and don't do it on the government dime. In fact, they drive the industry, so that the public schools (e.g., Maryland) fight them in the prestige battle and end up with research-oriented philosophy departments.

    Monkyboy could use some philosophy classes taught by big shots from research universities. Then, he might masturbate less in public and utter more truth-functional strings of words. He might realize that mocking others just irritates and angers them, it doesn't cast any doubt on what they've said (hell, it angers me, and I wasn't even the one being mocked!). He might eventually realize (after reading Nietzsche's _Geneaology_?) that better people (i.e., people who are better than Monkyboy) find other ways to have an impact on the world and feel like they made a difference. Like serving fries and Wendy's and wishing people "Have a nice day, ma'am!". Oh, but he is just a little shit-throwing monky. Can't do any better than throw his own shit. It's too bad.
  • Anonymous
    Monkyboy seems to forget that Harvard, Yale, Stanford, U Chicago, etc. also profess "useless knowledge" and don't do it on the government dime. In fact, they drive the industry, so that the public schools (e.g., Maryland) fight them in the prestige battle and end up with research-oriented philosophy departments.


    Monkyboy could use some philosophy classes taught by big shots from research universities. Then, he might masturbate less in public and utter more truth-functional strings of words. He might realize that mocking others just irritates and angers them, it doesn't cast any doubt on what they've said (hell, it angers me, and I wasn't even the one being mocked!). He might eventually realize (after reading Nietzsche's _Geneaology_?) that better people (i.e., people who are better than Monkyboy) find other ways to have an impact on the world and feel like they made a difference. Like serving fries and Wendy's and wishing people "Have a nice day, ma'am!". Oh, but he is just a little shit-throwing monky. Can't do any better than throw his own shit. It's too bad.
  • rjb@yahoo.com
    There's nothing I can stand less than people who are eminently reasonable with well-considered judgments. I much prefer raving lunatics. The word "skeptical" appears 120 times on Yglesias' blog, 12 times on this blog, and two of those refer to Yglesias.
  • Ryan
    Actually I meant "Moral Hazard in Teams", Bengt Holmstrom. It introduces some complexities that aren't relevant to what you were talking about, though. The basic idea is as follows: you have 5 people working on a project that will yield a total payoff of $100. If any one of them shirks, the total payoff is only $60. So the marginal product of each worker is $40 (assuming the others are working). You can't pay the workers their marginal products, though, since you'd end up paying out $200. Holmstrom's solution is to impose a group punishment - if anyone shirks, nobody gets anything. This may be a tad difficult to implement on a national level.
  • Will Wilkinson
    Ryan, Is the Holmstrom paper "A Theory of Wage Dynamics"?
  • Ryan
    As was alluded to in a previous comment, one problem with this line of reasoning is that you get a number >> 100% when you add up all the fractions of output various institutions are responsible for. It's just not possible to internalize all the externalities in a team production function without breaking the budget constraint. In case you're interested, Holmstrom (1982) explains how this works in labor markets.
  • Will Wilkinson
    Thanks, Andy. I am a tad haughty. A tad sassy, too. Do you like sassy?

    A good place to start is my David Boaz's Libertarianism: A Primer, a bit of which is online: http://www.libertarianism.org/ Poke around IHS's Liberty Guide... http://www.theihs.org/libertyguide/
    And though its too late this year, you should apply for an IHS summer seminar next year.
  • This comment actually has nothing to do with this particular post. I just wanted to say that I've been keeping up with your blog for the past few months as well as reviewing some of the archived posts and essays. I really respect your intellectual skill and find your writing very refreshing and engaging, even if sometimes just a tad haughty :)

    Anywho, I was wondering if you had written anything on what libertarianism actually is, or at least what it is to you. Or perhaps you could point me to a site with resources relevant to that end? I'm just a simple college student, and wish to acquire knowledge from the almighty intellects of the Interweb. Thanks.
  • This argument is as old as trade itself. The fact is, the more common a commodity or skill is, the lower value it will have. Low-skilled jobs simply can’t justify higher wages than the market will bear. History has shown that forced egalitarianism through a centralized economy is doomed to failure. The missing element in such case is the profit motive, without which poor working saps would be jobless. Absent sufficient incentive to create wealth (free markets), the well of productivity eventually runs dry.
  • podraza
    Does Monkyboy have a blog?
  • Wild Pegasus
    That's astounding. I've never seen a post that is one enormous Tu Quoque.

    - Josh
  • monkyboy
    Little Willy wants to study Philosophy, but because no company will hire a Philosophy major, no school will teach it. Little Willy is sad.

    Then a kindly government steps in and funds schools that will teach knowledge even if it has no market value. In addition, they pay schools to hire people who get doctorates in worthless knowledge so they can teach it to others.

    Little Willy is very happy and studies Philosophy for many years. When he's done, to show his gratitude to the generous government...he decides he wants to work for a right-wing think tank that attacks "useless government programs."

    But Little Willy is sad again.

    Right-wing think tanks don't exist. They only exist when a corrupt and spendthrift right-wing party takes over the government. Once again, Little Willy is dependent on the government. Just when Willy is about to go back to school to study something useful, like refrigerator repair, a revolution occurs and corrupt, spendthrift right-wingers take over the government!

    Little Willy gets a job and begins to happily turn out "thought pieces" about telekinetic dwarves and how evil government programs warp the oh so perfect markets that, if left alone, would create a paradise on earth.

    Then the people tire of the corrupt right-wingers and chuck them out of office...and Little Willy becomes a comedian...then retires on his Social Security benefits.
  • dominic murphy
    "I find it hard to see him as making an argument about what people happen to believe, namely, that a lot of national wealth is a social product because there are diffuse social enabling conditions. That's not what regular people believe."

    Well, put like that, no. But the idea that people might see the system as illegitimate if they think they're making a contribution but not receiving a commensurate benefit doesn't strike me as a crazy view about our psychology, whether or not you think that the system would be really illegitimate. (Full disclosure: I'm a philosopher myself, but a philosopher of science; maybe I'm just susceptible by association.)

    Still, perhaps you're right. Perhaps I'm too ready to believe the guy can distinguish between concepts of xs, and actual xs. But, I mean to say, my students can do it. (Although I do have the smartest students in the world, I suppose.)
  • Dominic, He makes the Bonapartist argument, too. And you're right, he waffles between legitimacy and the perception of legitimacy in a way common to lawyers & political scientists that drive political philosophers crazy.

    In any case, I find it hard to see him as making an argument about what people happen to believe, namely, that a lot of national wealth is a social product because there are diffuse social enabling conditions. That's not what regular people believe. That's what liberal law professors and political philosophers believe. So this can't feed into a popular perception of legitimacy or illegitimacy. He's got to be making a point about what actually does make a system legitimate.
  • Dominic Murphy
    But in the passage you quote (I don't know the whole book), Mashaw isn't making the argument you criticize. You attack an argument about desert that says that we owe something - morally owe it - to the boat people or the nice dwarves.

    But Mashaw says that unless some of the surplus is redistributed in ways that seem fair (note that he puts scare quotes round "fair", presumably to distance himself from issues about what is really fair) then the system will no longer seem legitimate to the people whose labor make the surplus possible. That's not an argument about desert. That's a prudential argument to the effect that the peasants will burn down our chateaux unless we give back some of the surplus that their efforts helped to create.
  • asg
    I have to say, I was going through the post over lunch, and when I got to the part about the telekinetic dwarves, I nearly spewed hunan chicken all over my monitor. That was very, um, jarring.
  • Nicholas Weininger
    Boy, Mashaw's is a silly argument.

    I mean, your counter-analogies are great, but there's a very standard response to it that works just as well: the reductio ad agricolum. Our market returns surely would not exist without farmers to grow our food, since if they didn't provide us with food we'd all starve to death. Does it follow that a "substantial portion" of our earned wealth is actually due to the farmers' efforts? Does it follow that the more we earn, the higher the percentage of our income they ought to be able to make us pay for our food?

    Of course not. It follows only that the farmers get to demand that we pay them the market price for the goods they provide. Likewise, if the basic institutions of the minimal state-- police, courts, anti-fraud laws-- are necessary for our market returns, that at most legitimizes such taxes as are necessary to fund the minimal state. (I leave aside the question of whether some or all of these institutions could be provided privately.)

    To justify taxation for the welfare state, then, you need to claim that the welfare state *itself* is necessary for our market returns. Which its defenders tend not to claim because it isn't true.
blog comments powered by Disqus

Previous post:

Next post: