Pluralistic: 03 Oct 2020

Today's links

Inequality and luck and risk and merit (permalink)

Political scientist John Quiggin ("Economics in Two Lessons") is working on a new book, "Economic Consequences of the Pandemic," and he's been serializing the first part, on the role of luck in inequality on Crooked Timber starting here:

I've been following the series with interest, but I wasn't motivated to write about it until today's instalment, "Risk and reward."

In capitalist doctrine, inequality is beneficial because it encourages risk-taking. The rich are rich because they made audacious bets that paid off, and those bets were on new products, services and methods that made us all more prosperous.

All of that only makes sense if you assume that wealth isn't the result of luck: how wealthy your parents are, whether there's a recession when you enter the workforce, etc.

We see this most starkly in the pandemic: whether you live or die has to do with whether you can do your job at home, whether you have the bargaining power to force your employer to provide a safe workplace if you have to do your job in person…

Whether you have health insurance NOW, and whether you had sufficient insurance BEFORE to care for chronic illnesses and to head of deterioration from acute illnesses, and thus stave off higher risk.

Also whether you live in a housing arrangement that facilitates distancing, whether you have housemates who themselves weren't adequately insured and/or have to work in unsafe conditions.

Opponents of the wealth-is-luck hypothesis will point to merit, arguing that markets are a system that automatically puts control over capital into the hands of people who can put it to use to make us all better off.

Quiggin's work on merit counters this: "The massive growth in the number and incomes of lawyers and finance professionals over the past 40 years has not been matched by any obvious improvement in justice, financial security or the rational investment of capital."

And: "Many workers who make a vital contribution receive far less payment or recognition. The pandemic has reminded us how much we depend on workers we may never see and who work in difficult and sometimes dangerous conditions."

The capitalist archduke (and war criminal) Friedrich Hayek tried to finesse this, arguing that "what should be rewarded is the value people create for each other, regardless of whether that value is the result of merit or luck."

Quiggin translates this claim: "a free market economy rewards luck as well as merit, so, if we want to maintain the free market economy, we must accept that income will not, in general, reflect merit."

Which brings me to today's instalment, on risk. So what if capitalism makes you rich because you got lucky? We need people to take big risks and the way we do that is by rewarding lucky bets.

But most rich people were born rich. And despite the innumerable bad bets rich people have made over the past two decades – bad bets that repeatedly crashed the global economy – they've stayed pretty fucking rich.

Where's the risk-taking come in, exactly?

It's among poor working people: In "any given year since 1996 the level of volatility among the bottom 10% was 81% higher than the volatility among the top 1%, and this level nearly doubled since 1981."

"Once someone has made it to the top of the income distribution, they will never become poor as a result of bad luck or business mistakes."

  • Does your large business fail? Restructure with a bankruptcy.

  • Are you a failed CEO? Here's a multimillion-dollar exit package.

  • Are you a rich person with a lot of debt? Your bankruptcy comes with homeowner exemptions and your irrevocable trusts and well-timed gifts mean you keep nearly everything

"The poor take more voluntary risks because any chance of escaping the bottom of the distribution in a highly unequal society is worth a shot. And freely chosen risks seem less worrying when you are subject to so much risk that is out of your control anyway."

"[Trump,] having gambled with his own safety and that of anyone who listens to him, he is guaranteed the best medical care money can buy, while thousands of less fortunate victims of the pandemic die every week."

This day in history (permalink)

#15yrsago acquired by Yahoo

#10yrsago Firefighters watch as house burns to the ground: owner had not paid annual firefighting fees

#1yrago Even if you pay off your student loan, be prepared to spend decades trying to get bottom-feeding debt-buyers to acknowledge it

#1yrago Consumer Reports documents the deceptive cable industry practices used to hike real prices 24% over advertised ones

#1yrago Brian K Vaughan and Cliff Chiang bring Paper Girls in for a perfect landing

#1yrago “Martian Chronicles”: Escape Pod releases a reading of my YA story about rich sociopaths colonizing Mars

Colophon (permalink)

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Currently writing: My next novel, "The Lost Cause," a post-GND novel about truth and reconciliation. Friday's progress: 516 words (68593 total).

Currently reading: Harrow the Ninth, Tamsyn Muir

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When life gives you SARS, you make sarsaparilla -Joey "Accordion Guy" DeVilla