Meritocratic delusions and inequality

Noah Smith has a post today arguing that belief in skill is socially beneficial. For any given entrepreneurial venture, its success or failure will be the result of luck, skill, or a combination of the two. Smith argues that individuals who believe in the primacy of skill will be more likely to undertake the kinds of risks and uncertainty necessary to pursue new ventures and generate progress.

If you believe in skill, you’re more likely to be an entrepreneur, because you’ll be more convinced that you can beat the market. Which is to say, a person who believes she is more skilled than the average will only bet on that belief if she thinks skill matters. If you think entrepreneurial success is mostly just down to luck, then what you should do (as Thiel points out) is to diversify your portfolio and manage your risk. Go get a nice stable high-income job and put your savings into index funds. I.e., don’t be an entrepreneur at all.

As a counter-theory, one could argue that belief in skill is not necessary, that many entrepreneurs might enjoy the gamble and the challenge even if they did think their success or failure was primarily driven by luck. Both of these theories seem at least somewhat plausible.

If we assume that Smith is correct — belief in skill over luck does spur more innovation — that does not end the debate about the usefulness of such a belief. There are other side-effects to belief in skill that must be considered. For instance, perspectives on proper income distribution seem to correlate with perspectives on the meritocratic nature of economic success.

A 2011 Pew poll found that 58% of Republicans believed that the rich are wealthy mainly because of their own hard work, with only 32% attributing wealth to luck-based factors. Those numbers were exactly reversed for Democrats: 58% attributed wealth to luck-based factors and just 32% attributed it to hard work. Not surprisingly, Democrats and Republicans sharply split on whether economic inequality is a problem or an acceptable part of the system.

Like it or not, most Americans seem to have a broadly desert-based conception of economic justice. That is, they believe that economic distributions should be grounded in meritocratic success. This is what the emphasis on equal opportunity, hard work, and the American Dream is all about. Combining a desert theory of justice with the perspective that the success of the rich is primarily a feature of their skill (instead of luck) supports the conclusion that troubling levels of inequality are justified. After all, under this view, the rich have earned their spoils, and the poor have not.

So even if Smith is right in saying that a delusional belief in skill is better for innovation, the gains of that innovation have to be considered alongside the political consequences of such a delusion. Social mobility data tend to show that luck-based factors such as parental background have a great deal to do with individual economic success. Encouraging delusions to the contrary may make it more difficult to persuade others of the necessity of redistributive social programs. And that, I would argue, poses a much bigger problem for overall social welfare.