The H Factor

When most great fortunes were inherited, it was easy to write social criticism from the left. Heirs sunning themselves in $2,000 blue jeans and $200,000 wristwatches did most of the work. You, the writer, only had to come up with a few stories of deprivation among the worthy poor as a counterpoint, along with some witty ridicule of the evident intellectual limitations of the sons and daughters of the great entrepreneurs. With minor variations, this formula could sustain an entire career. Writers like John Kenneth Galbraith rode it for the better part of fifty years.

But now that many millionaires and billionaires have earned their own money, the game has changed. The information technology industry alone has spawned hundreds of firms that didn’t exist a generation ago. Among them they represent several trillion dollars of market capitalization, a large fraction of which is still owned by the firms’ founders and employees. A few thousand people have reconfigured the patterns of everyday life—and have become extravagantly rich doing it.

So, an argument that would provide the justification for confiscating their wealth requires more ingenuity. These are not your parents’ idle rich.

The latest champion to accept this challenge is Michael Sandel, a professor of philosophy and teacher of one of the most popular courses at Harvard College. Sandel’s book, The Tyranny of Merit: What’s Become of The Common Good?, is an admixture of analysis and theology, so that a reader is never quite sure whether the author truly intends to sway the skeptical or whether he is simply providing words for the mouths of the faithful.

In either case, his argument is a serious statement of communitarian beliefs and a demonstration of how far this ideology must go to get the job done.

Sandel’s argument is structurally straightforward: If individuals acquire wealth through merit, one must attack merit in order to attack the wealth. Tyranny of Merit includes the usual list of left-wing laments about free markets, globalization, and Donald Trump—along with its central concern, which is inequality of income and wealth. All these problems share a common feature: They stem from society’s willingness to reward merit. It isn’t just that society fails to live up to its meritocratic ideal, which it certainly does; what is worse, Sandel says, things would be even more unjust if it did not fail.

At the book’s beginning, Sandel warms up his readers with the story of William “Rick” Singer, who became notorious for his schemes to get the children of his well-heeled clients into fancy colleges through what he termed a “side door.” The details are unforgettable: under-the-table payments, fake athletic profiles, paid-off test proctors. Sandel’s purpose, it seems, is to give a dramatic opening demonstration of just how much our society departs from a standard of true meritocracy.

But the demonstration doesn’t really show what Sandel thinks it shows. First, there’s an economic puzzle: Why would these parents, who could easily underwrite the economic security of their children for a lifetime, stoop to such schemes just to gain entry for their offspring into schools that are sometimes distinctly mediocre? But Sandel is more concerned with what he sees as a deeper problem. Even if the world were free of Rick Singer and his schemes, it is morally “unclear why the talented deserve the outsized rewards that market-driven societies lavish upon the successful:”

Central to the case for the meritocratic ethic is the idea that we do not deserve to be rewarded, or held back, based on factors beyond our control. But is having (or lacking) certain talents really our own doing? If not, it is hard to see why those who rise thanks to their talents deserve greater rewards than those who may be equally hardworking but less endowed with the gifts market society happens to prize.

This thought—that life is, to some degree, a lottery—will not surprise anyone who has read Ecclesiastes or happened into a Judeo-Christian house of worship over the last few centuries. Still, Sandel’s argument is not just an ordinary sermon. He maintains (in a gloriously non-falsifiable proposition) not just that chance is one of several factors contributing to individual success; no, he says that chance is everything. The entire package—not just intelligence and energy but wisdom, perspective, ingenuity, character—is the product of random inheritance.

Sandel’s world is a world of predestination: Individuals are either born with the right stuff or they’re not. No one transcends the inherited self. No one fails to live up to his or her potential. No one accomplishes anything as an act of sheer will. Whatever one does with one’s life, the deeds are explicable by some combination owed “to the genetic lottery or to God.” Lebron James is a gifted basketball player; but he does not deserve the extraordinary earnings he gets, because he owes his great gifts to luck. Had James been born with a club foot and overcome it, Sandel would have found some other part of his endowment to explain that, too.

Sandel says little about the non-economic dimensions of life, but eventually his argument gets to the fundamental question: What is the essence of a human being? All of his examples come from the economic domain, but life is more than just getting and spending. One can only assume that Sandel thinks the other activities commonly called living—the ability to bond with a suitable mate, the capacity to form lasting friendships, the predisposition to obey the law—are also determined and dominated by chance. Exactly what this would mean for free will and individual responsibility is not clear. Sandel is careful to maintain that individuals are responsible for their moral behavior, but why should that be true if such behavior is so foreordained?

To be fair, Sandel’s argument is based on a communitarian model; that is what explains his abiding concern with both the social divisions that result from discrepancies in wealth and the psychic damage done by what he calls meritocracy’s dark side. “The meritocratic ethic,” he says, adds insult to injury: The notion that “your fate is in your hands” and that “you can make it if you try” is a double-edged sword, both inspiring and invidious. It congratulates the winners but denigrates the losers, even in their own eyes. If you cannot find work or make ends meet, it is hard to escape the demoralizing thought that your failure is your own doing; and life is harsh when you have no one to blame but yourself. More, the flip side of self-abasement by the losers is hubris among the winners—their sense that they are economically successful because they are in some sense superior. Sandel does not deny it.

The losers, then, suffer envy while the winners suffer pride, both deadly sins. The two vices, together, are responsible for many of the most preoccupying developments of the past three decades, from the “politics of humiliation”—exemplified by Hillary Clinton’s boast that in the presidential election of 2016 she won the regions that produce two-thirds of the nation’s GDP—to the abuse of OxyContin so graphically documented by Anne Case and Angus Deaton in their book Deaths of Despair and the Future of Capitalism (2020). Thus, Sandel finds the roots of American populism in the meritocracy.

Unfortunately, Sandel, because his approach is so reductionist, is unable to say anything useful about the distribution of income and wealth. In fact, there is an interesting contrast between Sandel’s argument and Milton Friedman’s 1962 treatment of the same subject in Capitalism and Freedom. Friedman offers two lines of thought that Sandel is obliged to ignore. First, Friedman says that while the lottery of birth is important, it is only one of life’s lotteries: Since we have free will, there are other games of chance that we enter by choice. In New York City alone, for example, 60,000 households are headed by individuals who report their occupation as “artist.” There is probably an equal number of actors, and most likely twice that number in Los Angeles. When people choose these occupations, they more or less know the odds that lie ahead. Similarly, a recent college graduate who opts for a job with a tech start-up instead of taking the offer from an established company might be lucky and end up on the ground floor of a future IPO—or might spend ten years at the start-up only to have the company vaporize, leaving the graduate with no job and a drawer full of worthless stock options.

Friedman’s point is that it is impossible to determine how much of life’s outcomes are attributable to birth and how much to choice.

Friedman’s second point, one that Sandel is evidently not equipped to grasp, is that some work has greater psychic benefit than other work. Indeed, the money wage system is to some extent compensation for these psychic differences. University teaching is said to have low pay (though maybe not at Harvard) but high psychic rewards. Professors show up low on the monetary income scale but high in “real” income. In these circumstances, Friedman concludes, an income tax distribution that is determined through a democratic process will be steeply graduated—more steeply, in fact, than is economically optimal. That is, most of the people who participate in the vote will know the outcome of their life’s bet; they will endorse their personal choices rather than the public interest.

So, Friedman offers an ingenious, if impractical, suggestion: having each generation vote for a tax schedule that will be applied only to the subsequent generation. That’s the kind of intellectual effort you can make when you credit human agency.

Sandel’s book is a work of true social criticism, a cry for change that feels no responsibility to provide a cogent alternative. Still less does it acknowledge the costs of discarding the current regime. When meritocracy is applied to people and enterprises, it has the virtue, for all its faults, of serving as a standard that motivates change. It signals to individuals and companies, when their hour has passed, that they are wasting their time.

American drivers, for example, were not saved from the tender mercies of the Big Three American auto makers by a government regulatory commission: If Volkswagen and Toyota hadn’t introduced new standards for what an automobile should do, we might still be driving Vance Packard’s rolling boudoirs. To take another example, in 1980 we thought IBM was the industrial dynasty of the century. In 1984, in fact, its debt was briefly treated as being on a par with the credit of the U.S. Treasury. Yet by 1990, Apple and Hewlett-Packard had pushed IBM to the brink of Chapter 11 bankruptcy.

More generally, what office still has a Xerox machine? When was the last time anyone took a photo in Kodachrome? These are issues that Sandel wants to dismiss as merely “technocratic” but that he cannot properly dance around. They are, collectively, essential to not just our prosperity but our capacity to be humane—and human.

Paul DeRosa has taught economics at Columbia, ran a hedge fund for some thirty years, served on the research staff of the Federal Reserve Bank of New York, and has written extensively on topics related to economics.