I had a post at Demos today about Greg Mankiw’s weak at best understanding and adherence to a Just Deserts theory. The main focus of the post was not to attack Just Deserts theory, but to actually work out what it entails. The thesis is that Just Deserts does not entail the kind of distribution Mankiw claims it does.
In the preface to making my points in the post, I wrote this:
Moreover, what each particular individual ends up “contributing” is itself a function of what kinds of background economic institutions have been established. Think about that last sentence hard enough and you’ll see the hopeless circularity that is involved in trying to use “just deserts” as a method of justifying background economic institutions, something Mankiw attempts to do.
I want to explain this because I think it’s interesting. Assume that contribution refers to whatever your marginal product is. Assume further that in a given economy market incomes actually track marginal product. So for instance, it is the case that an accountant making $80k actually contributes $80k of product to the economy, and that an architect making $40k a year actually contributes $40k of product to the economy. The Just Deserts adherent will observe this and remark that these institutions are clearly perfectly just. You can tell because 80 = 80 and 40 = 40.
But now let’s imagine a separate set of institutions. In this one, we have a rule that prohibits tertiary schools from screening applicants at all. The result would be, at the very least, many individuals wind up in different schools and different geographical locations than they would wind up under our current institutions. Surely, as a result of this change, some students who would have become accountants end up becoming architects and vice versa. They go to different schools, get influenced by different people, and so things change. When these people go out into the labor market, they will still receive their marginal product, but the marginal product of a given individual will likely be much different than it is under status quo institutions. However, because they still receive what they contribute, these institutions are clearly perfectly just.
Let’s try a totally different example. Assume that we have a law that prevents people from collecting more than $15 million in a given year. As a result, some individuals reduce the amount of labor they contribute to the economy because they can’t get paid over the cap. Notice however: they will still receive their marginal product. They will have contributed $15 million and then gotten $15 million. Since 15 = 15, that society is also perfectly just under a Just Deserts view.
You can play this out forever, but the end game here is that Just Deserts — when defined narrowly as receiving your marginal product — actually ends up endorsing an infinite variety of institutional systems. This means it does not actually come anywhere near determining, except circularly, what institutions are the way to go. When I refer to circularity I mean this: there is circularity involved in justifying institutions by referencing who contributes what when who contributes what is itself largely determined by the institutions.
That particular kind of circularity doesn’t render the whole theory hollow. It is still the case that this particular Just Deserts approach requires whatever institutions you create to follow a marginal-product rule. It’s just that there are endless kinds of systems that could follow it. When it comes to picking between them, Just Deserts has nothing to say. Those who think it does have some to say — Mankiw appears to be in this camp — are simply blind to the circularity explained in the prior paragraph.