The problem with “just desserts”

The blogosphere is aflutter over Harvard economist and former chairman of the Council of Economic Advisors to Bush 43, Greg Mankiw‘s recent article “Defending the One Percent“. Mankiw’s paper mostly argues against the classic utilitarian reason for redistribution – a dollar is more useful to a poor person than a rich one.  However, near the end of the paper he proposes that an alternative basis for fair income distribution should be the just desserts principle where everyone is compensated according to how much they contribute. Mankiw believes that the recent surge in income inequality is due to changes in technology that favour superstars who create much more value for the economy than the rest. He then argues that the superstars are superstars because of heritable innate qualities like IQ and not because the economy is rigged in their favour.

The problem with this idea is that genetic ability is a shared natural resource that came through a long process of evolution and everyone who has ever lived has contributed to this process. In many ways, we’re like a huge random Monte Carlo simulation where we randomly try out lots of different gene variants to see what works best. Mankiw’s superstars are the Monte Carlo trials that happen to be successful in our current system. However, the world could change and other qualities could become more important just as physical strength was more important in the pre-information age. The ninety-nine percent are reservoirs of genetic variability that we all need to prosper. Some impoverished person alive today may possess the genetic variant to resist some future plague and save humanity. She is providing immense uncompensated economic value. The just desserts world is really nothing more than a random world; a world where you are handed a lottery ticket and you hope you win. This would be fine but one shouldn’t couch it in terms of some deeper rationale. A world with a more equitable distribution is one where we compensate the less successful for their contribution to economic progress. However, that doesn’t mean we should have a world with completely equal income distribution. Unfortunately, the human mind needs incentives to try hard so for maximal economic growth, the lottery winners must always get at least a small bonus.

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3 thoughts on “The problem with “just desserts”

  1. i read that mankiw paper. i thought it was pretty good and clear, except as you note he doesn’t seem to have the right numbers on costs and benefits. (Cass sunnstein had some similar issues in his book on cost benefit analyses—the cost of environmental destruction, global warming is infinestimal etc so we should put our resources into convention centers, casinos, sports facilities, and other worthy issues which need resources. maybe law schools, MBAs, HR, PR, psychology, and behavioral economics.

    h simon (noble in econ) who devised the ‘bounded rationality’ concept wrote an article for van Parijis’ group on a guaranteed income which was that basically if you live in the US that gives you a huge income increase almost automatically. (not that it insures anyone since the life expectancy in the hood is someimtes like calcutta or bangladesh).

    on the other (invisible) hand, its possible that arrow-debreu-mantel-hahn-sonnenchein are right (which of course is just the mirror image of left, unless they have chirality (non-commutative geometry la connes)) so general equilibrium theory is correct, and we just haven’t explored the phase space yet. Leibniz (dr pangloss) showed this. we’re all equal but some at some times are more equal than others or at least above average like lake wobegan (i took my grandma for a walk in the peat bogs in minnesota, she lost her shoe (but i lost my green snake–i gave it a walk and it dissapeared) —i thought it would be an interesting walk.
    (see yakovenko on arxiv with a review by j b rosser (JMU) son of the person who developed lambda calculus—not rossler who has a chaotic attractor and later flipped out suggesting search for the higgs boson would destroy the plan it,).

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  2. I enjoy your logical and well-thought-out posts. Just for fun, let’s see you respond to the proposition that government-sponsored scientific grants should be distributed in a similar fashion where all PhD’s get essentially equal government grant sizes for all of the same reasons that you outlined above, and the highly prolific ones may get a little bit more. After all, with the current government-subsidy research-grant lottery, many finish their PhD’s and post-docs and end up with…nothing.

    http://www.theatlantic.com/business/archive/2013/02/the-phd-bust-americas-awful-market-for-young-scientists-in-7-charts/273339/

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  3. @Tom I think it would work better if we give grants to the students and post docs directly. They could then choose what lab or group to work in and then take the grants with them to their own labs when they get jobs. They would have to renew the grants periodically and would only maintain them if they are successful. I think this would allow for more flexibility and young people would leave the system earlier if they were not successful in getting grants rather than hanging on as a permanent post doc bouncing from lab to lab.

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