What meritocracy trap?

Nov 1 JDN 2459155

So I just finished reading The Meritocracy Trap by David Markovits.

The basic thesis of the book is that America’s rising inequality is not due to a defect in our meritocratic ideals, but is in fact their ultimate fruition. Markovits implores us to reject the very concept of meritocracy, and replace it with… well, something, and he’s never very clear about exactly what.

The most frustrating thing about reading this book is trying to figure out where Markovits draws the line for “elite”. He rapidly jumps between talking about the upper quartile, the upper decile, the top 1%, and even the top 0.1% or top 0.01% while weaving his narrative. The upper quartile of the US contains 75 million people; the top 0.01% contains only 300,000. The former is the size of Germany, the latter the size of Iceland (which has fewer people than Long Beach). Inequality which concentrates wealth in the top quartile of Americans is a much less serious problem than inequality which concentrates wealth in the top 0.01%. It could still be a problem—those lower three quartiles are people too—but it is definitely not nearly as bad.

I think it’s particularly frustrating to me personally, because I am an economist, which means both that such quantitative distinctions are important to me, and also that whether or not I myself am in this “elite” depends upon which line you are drawing. Do I have a post-graduate education? Yes. Was I born into the upper quartile? Not quite, but nearly. Was I raised by married parents in a stable home? Certainly. Am I in the upper decile and working as a high-paid professional? Hopefully I will be soon. Will I enter the top 1%? Maybe, maybe not. Will I join the top 0.1%? Probably not. Will I ever be in the top 0.01% and a captain of industry? Almost certainly not.

So, am I one of the middle class who are suffering alienation and stagnation, or one of the elite who are devouring themselves with cutthroat competition? Based on BLS statistics for economists and job offers I’ve been applying to, my long-term household income is likely to be about 20-50% higher than my parents’; this seems like neither the painful stagnation he attributes to the middle class nor the unsustainable skyrocketing of elite incomes. (Even 50% in 30 years is only 1.4% per year, about our average rate of real GDP growth.) Marxists would no doubt call me petit bourgeoisie; but isn’t that sort of the goal? We want as many people as possible to live comfortable upper-middle class lives in white-collar careers?

Markovits characterizes—dare I say caricatures—the habits of the middle-class versus the elite, and once again I and most people I know cross-cut them: I spend more time with friends than family (elite), but I cook familiar foods, not fancy dinners (middle); I exercise fairly regularly and don’t watch much television (elite) but play a lot of video games and sleep a lot as well (middle). My web searches involve technology and travel (elite), but also chronic illness (middle). I am a donor to Amnesty International (elite) but also play tabletop role-playing games (middle). I have a functional, inexpensive car (middle) but a top-of-the-line computer (elite)—then again that computer is a few years old now (middle). Most of the people I hang out with are well-educated (elite) but struggling financially (middle), civically engaged (elite) but pessimistic (middle). I rent my apartment and have a lot of student debt (middle) but own stocks (elite). (The latter seemed like a risky decision before the pandemic, but as stock prices have risen and student loan interest was put on moratorium, it now seems positively prescient.) So which class am I, again?

I went to public school (middle) but have a graduate degree (elite). I grew up in Ann Arbor (middle) but moved to Irvine (elite). Then again my bachelor’s was at a top-10 institution (elite) but my PhD will be at only a top-50 (middle). The beautiful irony there is that the top-10 institution is the University of Michigan and the top-50 institution is the University of California, Irvine. So I can’t even tell which class each of those events is supposed to represent! Did my experience of Ann Arbor suddenly shift from middle class to elite when I graduated from public school and started attending the University of Michigan—even though about a third of my high school cohort did exactly that? Was coming to UCI an elite act because it’s a PhD in Orange County, or a middle-class act because it’s only a top-50 university?

If the gap between these two classes is such a wide chasm, how am I straddling it? I honestly feel quite confident in characterizing myself as precisely the upwardly-mobile upper-middle class that Markovits claims no longer exists. Perhaps we’re rarer than we used to be; perhaps our status is more precarious; but we plainly aren’t gone.

Markovits keeps talking about “radical differences” “not merely in degree but in kind” between “subordinate” middle-class workers and “superordinate” elite workers, but if the differences are really that stark, why is it so hard to tell which group I’m in? From what I can see, the truth seems less like a sharp divide between middle-class and upper-class, and more like an increasingly steep slope from middle-class to upper-middle class to upper-class to rich to truly super-rich. If I had to put numbers on this, I’d say annual household incomes of about $50,000, $100,000, $200,000, $400,000, $1 million, and $10 million respectively. (And yet perhaps I should add more categories: Even someone who makes $10 million a year has only pocket change next to Elon Musk or Jeff Bezos.) The slope has gotten steeper over time, but it hasn’t (yet?) turned into a sharp cliff the way Markovits describes. America’s Lorenz curve is clearly too steep, but it doesn’t have a discontinuity as far as I can tell.

Some of the inequalities Markovits discusses are genuine, but don’t seem to be particularly related to meritocracy. The fact that students from richer families go to better schools indeed seems unjust, but the problem is clearly not that the rich schools are too good (except maybe at the very top, where truly elite schools seem a bit excessive—five-figure preschool tuition?), but that the poor schools are not good enough. So it absolutely makes sense to increase funding for poor schools and implement various reforms, but this is hardly a radical notion—nor is it in any way anti-meritocratic. Providing more equal opportunities for the poor to raise their own station is what meritocracy is all about.

Other inequalities he objects to seem, if not inevitable, far too costly to remove: Educated people are better parents, who raise their children in ways that make them healthier, happier, and smarter? No one is going to apologize for being a good parent, much less stop doing so because you’re concerned about what it does to inequality. If you have some ideas for how we might make other people into better parents, by all means let’s hear them. But I believe I speak for the entire upper-middle class when I say: when I have kids of my own, I’m going to read to them, I’m not going to spank them, and there’s not a damn thing you can do to change my mind on either front. Quite frankly, this seems like a heavy-handed satire of egalitarianism, right out of Harrison Bergeron: Let’s make society equal by forcing rich people to neglect and abuse their kids as much as poor people do! My apologies to Vonnegut: I thought you were ridiculously exaggerating, but apparently some people actually think like this.

This is closely tied with the deepest flaw in the argument: The meritocratic elite are actually more qualified. It’s easy to argue that someone like Donald Trump shouldn’t rule the world; he’s a deceitful, narcissistic, psychopathic, incompetent buffoon. (The only baffling part is that 40% of American voters apparently disagree.) But it’s a lot harder to see why someone like Bill Gates shouldn’t be in charge of things: He’s actually an extremely intelligent, dedicated, conscientious, hard-working, ethical, and competent individual. Does he deserve $100 billion? No, for reasons I’ve talked about before. But even he knows that! He’s giving most of it away to highly cost-effective charities! Bill Gates alone has saved several million lives by his philanthropy.

Markovits tries to argue that the merits of the meritocratic elite are arbitrary and contextual, like the alleged virtues of the aristocratic class: “The meritocratic virtues, that is, are artifacts of economic inequality in just the fashion in which the pitching virtues are artifacts of baseball.” (p. 264) “The meritocratic achievement commonly celebrated today, no less than the aristocratic virtue acclaimed in the ancien regime, is a sham.” (p. 268)

But it’s pretty hard for me to see how things like literacy, knowledge of history and science, and mathematical skill are purely arbitrary. Even the highly specialized skills of a quantum physicist, software engineer, or geneticist are clearly not arbitrary. Not everyone needs to know how to solve the Schrodinger equation or how to run a polymerase chain reaction, but our civilization greatly benefits from the fact that someone does. Software engineers aren’t super-productive because of high inequality; they are super-productive because they speak the secret language of the thinking machines. I suppose some of the skills involved in finance, consulting, and law are arbitrary and contextual; but he makes it sound like the only purpose graduate school serves is in teaching us table manners.

Precisely by attacking meritocracy, Markovits renders his own position absurd. So you want less competent people in charge? You want people assigned to jobs they’re not good at? You think businesses should go out of their way to hire employees who will do their jobs worse? Had he instead set out to show how American society fails at achieving its meritocratic ideals—indeed, failing to provide equality of opportunity for the poor is probably the clearest example of this—he might have succeeded. But instead he tries to attack the ideals themselves, and fails miserably.

Markovits avoids the error that David Graeber made: Graeber sees that there are many useless jobs but doesn’t seem to have a clue why these jobs exist (and turns to quite foolish Marxian conspiracy theories to explain it). Markovits understands that these jobs are profitable for the firms that employ them, but unproductive for society as a whole. He is right; this is precisely what virtually the entire fields of finance, sales, advertising, and corporate law consist of. Most people in our elite work very hard with great skill and competence, and produce great profits for the corporations that employ them, all while producing very little of genuine societal value. But I don’t see how this is a flaw in meritocracy per se.

Nor does Markovits stop at accusing employment of being rent-seeking; he takes aim at education as well: “when the rich make exceptional investments in schooling, this does reduce the value of ordinary, middle-class training and degrees. […] Meritocratic education inexorably engenders a wasteful and destructive arms educational arms race, which ultimately benefits no one, not even the victors.” (p.153) I don’t doubt that education is in part such a rent-seeking arms race, and it’s worthwhile to try to minimize that. But education is not entirely rent-seeking! At the very least, is there not genuine value in teaching children to read and write and do arithmetic? Perhaps by the time we get to calculus or quantum physics or psychopathology we have reached diminishing returns for most students (though clearly at least some people get genuine value out of such things!), but education is not entirely comprised of signaling or rent-seeking (and nor do “sheepskin effects” prove otherwise).

My PhD may be less valuable to me than it would be to someone in my place 40 years ago, simply because there are more people with PhDs now and thus I face steeper competition. Then again, perhaps not, as the wage premium for college and postgraduate education has been increasing, not decreasing, over that time period. (How much of that wage premium is genuine social benefit and how much is rent-seeking is difficult to say.) In any case it’s definitely still valuable. I have acquired many genuine skills, and will in fact be able to be genuinely more productive as well as compete better in the labor market than I would have without it. Some parts of it have felt like a game where I’m just trying to stay ahead of everyone else, but it hasn’t all been that. A world where nobody had PhDs would be a world with far fewer good scientists and far slower technological advancement.

Abandoning meritocracy entirely would mean that we no longer train people to be more productive or match people to the jobs they are most qualified to do. Do you want a world where surgery is not done by the best surgeons, where airplanes are not flown by the best pilots? This necessarily means less efficient production and an overall lower level of prosperity for society as a whole. The most efficient way may not be the best way, but it’s still worth noting that it’s the most efficient way.

Really, is meritocracy the problem, or is it something else?

Markovits is clearly right that something is going wrong with American society: Our inequality is much too high, and our job market is much too cutthroat. I can’t even relate to his description of what the job market was like in the 1960s (“Old Economy Steve” has it right): “Even applicants for white-collar jobs received startlingly little scrutiny. For most midcentury workers, getting a job did not involve any application at all, in the competitive sense of the term.” (p.203)

In fact, if anything he seems to understate the difference across time, perhaps because it lets him overstate the difference across class (p. 203):

Today, by contrast, the workplace is methodically arranged around gradations of skill. Firms screen job candidates intensively at hiring, and they then sort elite and non-elite workers into separate physical spaces.

Only the very lowest-wage employers, seeking unskilled workers, hire casually. Middle-class employers screen using formal cognitive tests and lengthy interviews. And elite employers screen with urgent intensity, recruiting from only a select pool and spending millions of dollars to probe applicants over several rounds of interviews, lasting entire days.

Today, not even the lowest-wage employers hire casually! Have you ever applied to work at Target? There is a personality test you have to complete, which I presume is designed to test your reliability as an obedient corporate drone. Never in my life have I gotten a job that didn’t involve either a lengthy application process or some form of personal connection—and I hate to admit it, but usually the latter. It is literally now harder to get a job as a cashier at Target than it was to get a job as an engineer at Ford 60 years ago.

But I still can’t shake the feeling that meritocracy is not exactly what’s wrong here. The problem with the sky-high compensation packages at top financial firms isn’t that they are paid to people who are really good at their jobs; it’s that those jobs don’t actually accomplish anything beneficial for society. Where elite talent and even elite compensation is combined with genuine productivity, such as in science and engineering, it seems unproblematic (and I note that Markovits barely even touches on these industries, perhaps because he sees they would undermine his argument). The reason our economic growth seems to have slowed as our inequality has massively surged isn’t that we are doing too good a job of rewarding people for being productive.

Indeed, it seems like the problem may be much simpler: Labor supply exceeds labor demand.

Take a look at this graph from the Federal Reserve Bank of San Francisco:

[Beveridge_curve_data.png]

This graph shows the relationship over time between unemployment and job vacancies. As you can see, they are generally inversely related: More vacancies means less unemployment. I have drawn in a green line which indicates the cutoff between having more vacancies than unemployment—upper left—and having more unemployment than vacancies—lower right. We have almost always been in the state of having more unemployment than we have vacancies; notably, the mid-1960s were one of the few periods in which we had significantly more vacancies than unemployment.

For decades we’ve been instituting policies to try to give people “incentives to work”; but there is no shortage of labor in this country. We seem to have plenty of incentives to work—what we need are incentives to hire people and pay them well.

Indeed, perhaps we need incentives not to work—like a basic income or an expanded social welfare system. Thanks to automation, productivity is now astonishingly high, and yet we work ourselves to death instead of enjoying leisure.

And of course there are various other policy changes that have made our inequality worse—chiefly the dramatic drops in income tax rates at the top brackets that occurred under Reagan.

In fact, many of the specific suggestions Markovits makes—which, much to my chagrin, he waits nearly 300 pages to even mention—are quite reasonable, or even banal: He wants to end tax deductions for alumni donations to universities and require universities to enroll more people from lower income brackets; I could support that. He wants to regulate finance more stringently, eliminate most kinds of complex derivatives, harmonize capital gains tax rates to ordinary income rates, and remove the arbitrary cap on payroll taxes; I’ve been arguing for all of those things for years. What about any of these policies is anti-meritocratic? I don’t see it.

More controversially, he wants to try to re-organize production to provide more opportunities for mid-skill labor. In some industries I’m not sure that’s possible: The 10X programmer is a real phenomenon, and even mediocre programmers and engineers can make software and machines that are a hundred times as productive as doing the work by hand would be. But some of his suggestions make sense, such as policies favoring nurse practitioners over specialist doctors and legal secretaries instead of bar-certified lawyers. (And please, please reform the medical residency system! People die from the overwork caused by our medical residency system.)

But I really don’t see how not educating people or assigning people to jobs they aren’t good at would help matters—which means that meritocracy, as I understand the concept, is not to blame after all.

What do we do about unemployment?

JDN 2457188 EDT 11:21.

Macroeconomics, particularly monetary policy, is primarily concerned with controlling two variables.

The first is inflation: We don’t want prices to rise too fast, or markets will become unstable. This is something we have managed fairly well; other than food and energy prices which are known to be more volatile, prices have grown at a rate between 1.5% and 2.5% per year for the last 10 years; even with food and energy included, inflation has stayed between -1.5% and +5.0%. After recovering from its peak near 15% in 1980, US inflation has stayed between -1.5% and +6.0% ever since. While the optimal rate of inflation is probably between 2.0% and 4.0%, anything above 0.0% and below 10.0% is probably fine, so the only significant failure of US inflation policy was the deflation in 2009.

The second is unemployment: We want enough jobs for everyone who wants to work, and preferably we also wouldn’t have underemployment (people who are only working part-time even though they’d prefer full-time or discouraged workers (people who give up looking for jobs because they can’t find any, and aren’t counted as unemployed because they’re no looking looking for work). There’s also a tendency among economists to want “work incentives” that maximize the number of people who want to work, but I think these are wildly overrated. Work isn’t an end in itself; work is supposed to be creating products and providing services that make human lives better. The benefits of production have to be weighed against the costs of stress, exhaustion, and lost leisure time from working. Given that stress-related illnesses are some of the leading causes of death and disability in the United States, I don’t think that our problem is insufficient work incentives.

Unemployment is a problem that we have definitely not solved. Unemployment has bounced up and down between peaks and valleys, dropping as low as 4.0% and rising as high as 11.0% over the last 60 years. If 2009’s -1.5% deflation concerns you, then its 9.9% unemployment should concern you far more. Indeed, I’m not convinced that 5.0% is an acceptable “natural” rate of unemployment—that’s still millions of people who want work and can’t find it—but most economists would say that it is.

In fact, matters are worse than most people realize. Our unemployment rate has fallen back to a relatively normal 5.5%, as you can see in this graph (the blue line is unemployment, the red line is underemployment):

All_Unemployment

However, our employment rate never recovered from the Second Depression. As you can see in this graph, it fell from 63% to 58%, and has now only risen back to 59%:

Employment

How can unemployment fall without employment rising? The key is understanding how unemployment is calculated: It only counts people in the labor force. If people leave the labor force entirely, by retiring, going back to school, or simply giving up on finding work, they will no longer be counted as unemployed. The unemployment rate only counts people who want work but don’t have it, so as far as I’m concerned that figure should always be nearly zero. (Not quite zero since it takes some time to find a good fit; but maybe 1% at most. Any more than that and there is something wrong with our economic system.)

The optimal employment rate is not as obvious; it certainly isn’t 100%, as some people are too young, too old, or too disabled to be spending their time working. As automation improves, the number of workers necessary to produce any given product decreases, and eventually we may decide as a society that we are making enough products and most of us should be spending more of our time on other things, like spending time with family, creating works of art, or simply having fun. Maybe only a handful of people, the most driven or the most brilliant, will actually decide to work—and they will do because they want to, not because they have to. Indeed, the truly optimal employment rate might well be zero; think of The Culture, where there is no such concept as a “job”; there are things you do because you want to do them, or because they seem worthwhile, but there is none of this “working for pay” nonsense. We are not yet at the level of automation where this would be possible, but we are much closer than I think most people realize. Think about all of the various administrative and bureaucratic tasks that most people do the majority of the time, all the reports, all the meetings; why do they do that? Is it actually because the work is necessary, that the many levels of bureaucracy actually increase efficiency through specialization? Or is it simply because we’ve become so accustomed to the idea that people have to be working all the time in order to justify their existence? Is David Graeber (I reviewed one of his books previously) right that most jobs are actually (and this is a technical term), “bullshit jobs”? Once again, the problem doesn’t seem to be too few work incentives, but if anything too many.

Indeed, there is a basic fact about unemployment that has been hidden from most people. I’d normally say that this is accidental, that it’s too technical or obscure for most people to understand, but no, I think it has been actively concealed, or, since I guess the information has been publicly available, at least discussion of it has been actively avoided. It’s really not at all difficult to understand, yet it will fundamentally change the way you think about our unemployment problem. Here goes:

Since at least 2000 and probably since 1980 there have been more people looking for jobs than there have been jobs available.

The entire narrative of “people are lazy and don’t want to work” or “we need more work incentives” is just totally, totally wrong; people are desperate to find work, and there hasn’t been enough work for them to find since longer than I’ve been alive.

You can see this on the following graph, which is of what’s called the “Beveridge curve”; the horizontal axis is the unemployment rate, while the vertical axis is the rate of job vacancies. The red line across the diagonal is the point at which the two are even, and there are as many people looking for jobs as there are jobs to fill. Notice how the graph is always below the line. There have always been more unemployed people than jobs for them to fill, and at the worst of the Second Depression the ratio was 5 to 1.

Beveridge_curve_2

Personally I believe that we should be substantially above the line, and in a truly thriving economy there should be employers desperately trying to find employees and willing to pay them whatever it takes. You shouldn’t have to send out 20 job applications to get hired; 20 companies should have to send offers to you. For the economy does not exist to serve corporations; it exists to serve people.

I can see two basic ways to solve this problem: You can either create more jobs, or you can get people to stop looking for work. That may be sort of obvious, but I think people usually forget the second option.

We definitely do talk a lot about “job creation”, though usually in a totally nonsensical way—somehow “Job Creator” has come to be a euphemism for “rich person”. In fact the best way to create jobs is to put money into the hands of people who will spend it. The more people spend their money, the more it flows through the economy and the more wealth we end up with overall. High rates of spending—high marginal propensity to consumecan multiply the value of a dollar many times over.

But there’s also something to be said for getting people to stop looking for work—the key is do it in the right way. They shouldn’t stop looking because they give up; they should stop looking because they don’t need to work. People should have their basic needs met even if they aren’t working for an employer; human beings have rights and dignity beyond their productivity in the market. Employers should have to make you a better offer than “you’ll be homeless if you don’t do this”.

Both of these goals can be accomplished simultaneously by one simple policy: Basic income.

It’s really amazing how many problems can be solved by a basic income; it’s more or less the amazing wonder policy that solves all the world’s economic problems simultaneously. Poverty? Gone. Unemployment? Decimated. Inequality? Contained. (The pilot studies of basic income in India have been successful beyond all but the wildest dreams; they eliminate poverty, improve health, increase entrepreneurial activity, even reduce gender inequality.) The one major problem basic income doesn’t solve is government debt (indeed it likely increases it, at least in the short run), but as I’ve already talked about, that problem is not nearly as bad as most people fear.

And once again I think I should head off accusations that advocating a basic income makes me some sort of far-left Communist radical; Friedrich Hayek supported a basic income.

Basic income would help with unemployment in a third way as well; one of the major reasons unemployment is so harmful is that people who are unemployed can’t provide for themselves or their families. So a basic income would reduce the number of people looking for jobs, increase the number of jobs available, and also make being unemployed less painful, all in one fell swoop. I doubt it would solve the problem of unemployment entirely, but I think it would make an enormous difference.