Getting 'Market Morality' Wrong

By  Kevin D. Williamson

Thursday, October 31, 2013

Here is a thought experiment simple enough that even a fellow at All Souls College could follow it: Imagine that Bill Gates moved to Muleshoe, Texas, population 5,128 mostly nice people. What would that do the demographics of Muleshoe? If one were inclined to take the welfare-statist point of view, then the question inevitably would be: What happened to the wealth and incomes of the top 1 percent in Muleshoe? Both would rise, by what I assume is a factor of some thousands. And if Mr. Gates should, Heaven forfend, grow weary of Muleshoe and move away, the wealth and incomes of the top 1 percent there would fall. That is a mathematical truth that is without practical meaning.

In her embarrassingly shallow essay about the political thought of Robert Nozick, Amia Srinivasan of All Souls College, Oxford, repeats a deathless claim and links it to the alleged spread (if only it were so!) of Nozickian ideas:

    This rise in Nozickian thinking coincides with a dramatic increase in economic inequality in the United States over the past five decades — the top 1 percent of Americans saw their income multiply by 275 percent in the period from 1979 and 2007, while the middle 60 percent of Americans saw only a 40 percent increase.

First, a question of fact. As I have shown repeatedly, that claim about the incomes of the top 1 percent of earners is untrue, and claims similar to it are untrue. As with the case of the well-off farmers of Muleshoe, this is simply a statistical construct with little or no relation to the incomes of actual people and households. Srinivasan, like practically everybody else who makes this claim, ignores the fact that the people who compose the top 1 percent of earners this year are not in the main the same people who composed the top 1 percent in 1979, or whatever year you’d like to choose. From 1996 to 2005, the actual income of super-rich households — the top 0.01 percent — went down, and most of those households that were in the highest group in 1996 were in a lower income group in 2005. Which is to say, the rich got poorer. But the level of income it would take to qualify for the top 0.01 percent, or the top 1 percent, or the top 20 percent, or the top 43.5 percent, grew during those years. To say that the income it takes to qualify for the top 1 percent in 2013 is significantly more than it took in 1983 is a very different claim from the statement that “the top 1 percent of Americans saw their income multiply by 275 percent” or whatever number you like.

The income growth for actual families in the top quintile in 1979 was only 5 percent over the course of the next decade, according to IRS data, while income growth for those in the bottom quintile was 77 percent. This is not very surprising; people’s income tends to go up over the course of their lives and taper off or fall in retirement. And a lot of people are in a very high income bracket for only one year or a few years of their lives: professional athletes and other entertainers, entrepreneurs who cash out at the end of their careers, lottery winners, people who inherit money or win a big lawsuit, etc. Turnover in the top quintile and the bottom quintile runs about 50 percent over 20 years, and turnover in the top 1 percent runs about 60 percent over ten years. Lifetime income variability seems to be increasing, an interesting but separate phenomenon.

The problem with analyzing income in terms of brackets is that if Joe Median hits the lottery, it has zero effect on statistical measures of income in the middle income bracket — because he is not in it any longer. But there is no escape from the highest bracket. That has some real consequences in a society that produces and attracts very wealthy people. There are 110 known billionaires in Russia, 122 in China, 58 in Germany, 37 in the United Kingdom, and 13 in Switzerland. There are 1,342 in the United States. American entrepreneurs and executives operate in a very large and globally connected market, which is one reason why there are outsized returns to successful innovation and managerial talent (real and perceived). That’s why the lady who invented Spanx is a billionaire. The guy who started Domino’s Pizza was a billionaire before he commenced giving it away.

Even if one concedes that income inequality is a problem (I do not; I think poverty is a problem), it is a smaller and different sort of a problem than Srinivasan imagines it to be. But it isn’t only the subtleties of income figures that escapes Srinivasan. Consider her question here and her answer to it:

    Is any exchange between two people in the absence of direct physical compulsion by one party against the other (or the threat thereof) necessarily free? If you say yes, then you think that people can never be coerced into action by circumstances that do not involve the direct physical compulsion of another person. Suppose a woman and her children are starving, and the only way she can feed her family, apart from theft, is to prostitute herself or to sell her organs. Since she undertakes these acts of exchange not because of direct physical coercion by another, but only because she is compelled by hunger and a lack of alternatives, they are free.

Nozick’s argument about the just acquisition and transfer of property, while important to his thought (and to free-market thought generally), is not a unified theory of everything; most of us can imagine a morality that can walk and chew gum at the same time. The unmentioned third party in Srinivasan’s example above is the person with property who might or might not help the poor woman and her children. The question of whether he should or should not provide help (and of course he should) is not the same as the question of whether he holds his property justly. The Nozickian view favors very strong property rights, but it does not follow from that that one must assume that everyone gets what he deserves — or that everybody should get what he deserves. If it sounds paradoxical to say that some people should not get what they deserve, consider the quality of mercy: There is no mercy in commuting the sentence of an innocent man, but there is in showing clemency to a guilty one. We do not turn homeless alcoholics away from soup kitchens because their problems are in some measure, or even entirely, self-inflicted. The example in Srinivasan’s question is morally repellant, but not because a third party held property unjustly.

The question of whether somebody holds property justly is not the only moral question in the universe, or even in the comparatively narrow universe of politics, just as the question of whether a particular activity should be forbidden by police powers is not the only moral consideration, though it may sometimes be the only political consideration. Racist literature, for example, is immoral, but in the liberal tradition we do not generally ban it. The decision to permit the dissemination of racist literature is not an endorsement of its contents; similarly, the decision to respect property rights is not an endorsement of everything people do, or decline to do, with their property. From the Nozickian point of view, the question is not whether Scrooge McDuck ought to be more generous, but whether the state should be empowered to use violence against him.

Srinivasan’s argument, like most similar arguments against the set of policy preferences I suppose we must call “libertarian” (though we used to call them “liberal”), fails to account for the fact that Nozickian libertarianism is a theory of government, not a universal theory of human life. That is a fairly serious intellectual error, and one that should be easily avoided: For instance, one may believe that drugs should be legal, and that people should not use them. One may believe that pornography should be legal, and that it is morally repugnant. Likewise, one may believe that there exists a positive moral obligation to assist the poor and the vulnerable, and that enforcing that obligation at gunpoint is wrong or at least morally problematic in and of itself and also subtracts the possibility of virtue from the transaction.

Nozick, as Srinivasan notes, dedicated his major work to refuting the welfare-statism of John Rawls. Nozick at least did Rawls the courtesy of understanding his thought.