Desert Theory, Rehashed

In response to Pope Francis’ call for nations to distribute their resources more evenly, Sean Hannity unleashed an ugly tirade. In it, he refers to the poor as stupid and lazy, which is more or less the reality of how the right-wing regards them. Despite their various shell arguments to the contrary, the core reason right-wingers oppose egalitarian policies is that they don’t think poor people are deserving of the income such policies deliver to them.

In sophisticated circles, this desert theory approach is usually expressed as a kind of productivity ethic. Adherents claim that we should construct our distributive institutions so as to create a patterned distribution in which economic benefits flow to their producers, people usually said to have “earned” them. Adherents seem to think that laissez-faire institutions create such a patterned distribution, but they are sorely mistaken.

1. Value Provided By Nature
All material things that people produce are made up of pieces of nature that nobody produced. I would go as far as to say this fact immediately dooms desert theory because it would mean all products have contained in them things that their possessor cannot claim any distributive entitlement to. And since you cannot separate out the non-produced nature from the produced “improvements,” no objects can ever come to be exclusively owned by others under desert theory.

Even if you don’t take this hyper-physicalist approach to desert theory, the value of nature still poses problems for the laissez-faire advocate. Specifically, desert theory will at least require a 100% tax on the value of unimproved raw materials, sometimes called simply a Land Value Tax. Because the economic benefits of unimproved pieces of nature are not produced by anyone, allowing them to flow to some owner would be a windfall that runs afoul of the rule that economic benefits must flow to their producers.

Implementing a Land Value Tax can help ease some of the contradictions inherent in conservative desert theory, but it doesn’t actually solve them. If everyone is supposed to receive only the value of what they produce, then surely it follows that nobody should receive the component of value that comes from unimproved nature. Taxing it ensures that its “owner” doesn’t receive it, but then that tax revenue necessarily goes to someone else who will also, in this view, be receiving an unjustified windfall. A departure from desert theory is thus inevitable.

2. Joint Production
The stylized version of desert theory imagines one person laboring on some resources, the total output from which should belong to that person. As we saw above, even this doesn’t follow desert theory because the value of those unimproved resources cannot rightly flow to the person. But we can bracket that issue here.

It’s easy to understand why the sole producer scenario is the preferred example for desert theory advocates. In the example, it’s supposed to be clear that all of the product comes from the one person. But this clarity of production falls apart when people engage in joint production, which is how most production works these days.

If we are trying to give to each person that which they produced, we have to be able to pinpoint what it is that they produced. The problem with joint production is that it’s not actually possible to determine how much of the output comes from each worker in the joint production team. Many economists say that we can do this using a concept called “marginal productivity,” but that’s not actually true. They misunderstand what this concept actually tells us.

Marginal productivity tells us, as an accounting matter, how much additional total output will result from adding an additional worker (or another unit of labor). But matching an additional worker to an amount of additional output that comes out the other end of the joint-production venture does not snap back and tell us how much of the total output that additional worker produced through their own personal contribution.

Here is Amartya Sen making the same point:

Production is based on the joint use of different resources, possibly provided by different people, and it is not in general possible to separate out who—or even which resource—produced how much of the total output. There is no obvious way of deciding that “this much” of the output is owing to labor, “that much” to raw materials, “that much” to machinery, and so on. In economic theory, a common method of attribution is according to “marginal product,” i.e., the extra output that one incremental unit of one resource will produce given the amounts of other resources. This method of accounting is internally consistent only under some special assumptions, and the actual earning rates of resource owners will equal the corresponding marginal products only under some further special assumptions.

But even when all these assumptions have been made—quite a tall order—it is still arbitrary to assert that each resource’s earnings reflect the overall contribution made by that resource to the total output. There is nothing in the marginalist logic that establishes such an identification. Marginal product accounting, when consistent, is useful for deciding how to use additional resources so as to maximize profit, but it does not “show” which resource has “produced” how much of the total output. The alleged fact is, thus, a fiction, and while it might appear to be a convenient fiction, it is more convenient for some than for others.

Accordingly, laissez-faire institutions (which in theory distribute labor income according to marginal productivity not personal productivity) do not actually track desert theory’s distributive requirement. Moreover, it’s not clear how any joint-production venture could track desert theory because it is quite literally impossible to tease out who produced what in such a venture.

3. Capital
As mentioned above, desert theory is the view that distribution should be patterned in such a way that economic benefits flow to their producers. But around one-third of the economic benefits in our society flow to people who do no work for them whatsoever, i.e. those who “own” capital. Owners of capital, those people, do not produce any of the economic benefits they receive under laissez-faire institutions.

Some will object to this point and say that capital — machines, buildings, and so on — produce economic benefits. And that may very well be true. But it does not follow from that that the people who simply “own” the capital deserve those benefits. The view that each person should receive from the overall output that which they produce is different from the view that they should also receive from the overall output that which the capital they “own” produces.

Capitalists do not produce the economic benefits they receive. The best you can say is that things they “own” produce them. But ownership is nothing but a legal status and a social relation of violent exclusion. Capitalists leverage their state-granted right to violently exclude others from capital in order to get those others to pay rents to use the capital. Desert theory cannot sanction any capital income because it is not income from the personal production of capitalists.

It would thus be inconsistent with desert theory to construct laissez-faire economic institutions because such institutions allow capitalists to capture economic benefits that they did not produce.

4. Total Factor Productivity
Upon being confronted with the problems above, a desert theory advocate might change their tune slightly. Under this changed tune, they might argue that all they mean by desert is that each factor of production should receive its marginal product. It is extremely difficult to understand what the moral appeal of such a theory is. Under this new construction, the theory becomes totally detached from its productivist normative underpinnings. This reform changes desert theory from the view that each should receive what they actually produce to the view that each should receive whatever capitalism sends their way.

But even this factoral desert theory runs into a problem. An economy’s output is determined by four factors of production:

  1. Land
  2. Capital
  3. Labor
  4. Total Factor Productivity (TFP)

(The neoclassical production function subsumes land under capital, but I think it is important to separate it out here given my point about nature above.)

The factoral desert theory would seem to work fine with Land, Capital, and Labor. The marginal productivity of land would flow to land (or actually its owners, which I’ve already pointed out is a problem). The marginal productivity of capital would flow to capital. The same with labor.

But now turn to TFP. TFP consists of the “effects in total output not caused by traditionally measured inputs of labor and capital.” That is, TFP refers to everything else that goes into the overall economic output. Generally, it is understood as largely consisting of a country’s accumulated technology and knowledge.

The marginal productivity of TFP does not flow to the owners or producers of the TFP because we don’t really have such things. The marginal productivity of electricity technology for instance, which is huge, does not flow to Edison or Tesla. The marginal productivity of algebra knowledge does not flow to those people long ago that came up with it either.

Of course, none of that accumulated technology could be productive on its own. It has to be combined with other factors (especially labor) to contribute to any output. But that is true of all of the other factors of production as well.

The factoral desert theory therefore falls to pieces in the face of TFP, which probably comprises the majority of our economy’s output. The marginal productivity of accumulated TFP does not flow to the owners or producers of TFP, but instead as a windfall to all sorts of randomly placed people. They don’t have any rightful desert theory claim to those windfalls, but laissez-faire institutions give the windfalls to them nonetheless.

There are more problems with desert theory that I wont go into here. It suffices to say that this is a woefully inept normative framework for economic justice. It is not quite as stupid as the procedural justice libertarian stuff about non-aggression and whatnot that I usually pillory, but it’s pretty weak nonetheless.