Social Recognition Fallacy – Also known as Just Deserts Theory, or Meritocracy.
The Idea in Market Fundamentalism that a person is “rewarded” with exactly what he “contributed” to society. In a market Economy, everyone gets what they deserve. So the poor deserve to be poor because they haven’t done anything, and the rich have made the world that much better. “The amount of money you make is how much you have “produced” or “contributed” to society, or how much better off you have made society.” We serve here, to address some of these arguments.
This is attacked depending on how it is presented. Presenting the argument that people earn what they deserve is a stronger variation of this since the concept of deserve is more vague and perhaps harder to refute. (But also harder for them to support.) Presenting the argument that people earn what they contribute is far easier to attack.
The simplest point to remember that is almost always missed is that people are not paid according to how hard they work or how much they contribute. They are paid according to how hard they are to replace.
A billionaire might pay someone $1M to take a shit in front of him. This person has contributed nothing to the wellbeing of society. One individual has simply transferred money to him based of off a desire to pay $1M to see someone shit. A surgeon that has saved a dozen lives has done more for people. For anyone who wishes to challenge that premise let them; no one will take them seriously at that point.
Probably the easiest example you can bring up to make fun of this stupid and asinine claim is to point out that it is very possible, and indeed sometimes happens, that someone could just pay someone else $1 Million to kill someone they don’t like. A wealthy man might transfer a million dollars to a hitman to kill a guy who he didn’t like, who happens to be a doctor who helps lots of people. The hitman is now a millionaire, and his “contribution” was to end the life of a person who helps hundreds. One person is not only made worse off, he’s dead. They’d probably move the goalpasts and say “willing transactions” but that’s not what they said. Externalities and unconsenting third party harm happens all the time. You only said “Wealthy people earn their money by providing more value.” Don’t get mad at the counter examples.
Compensation for failure
Based on an extensive survey of major corporations, Michael Jensen, professor emeritus at Harvard’s Graduate School of Business, found 94 percent of all contracts for chief executives prevent them from being fired for unsatisfactory work without a big severance package. Remarkably, in 44 percent of the contracts, this protection included those convicted of fraud or embezzlement.36 This should be a national scandal. As Warren Buffett told his shareholders: Getting fired can produce a particularly bountiful payday for a CEO. Indeed, he can “earn” more in that single day, while cleaning out his desk, than an American worker earns in a lifetime of cleaning toilets. Forget the old maxim about nothing succeeding like success: Today, in the executive suite, the all-too-prevalent rule is that nothing succeeds like failure
– The Invisible Handcuffs
Setting ones own wage
When a manager or high profile executive decides to arbitrarily set his “worth” at 5 million dollars instead of 4 million dollars, has he now “contributed” an additional million dollars more of “worth” to society than if he had set his wage at 4 million dollars. Is society a million dollars of value better off, has he given them 1 million dollars of wellbeing, in that moment that he decided to set his wage at an additional 1 million? If he had set his wage at $1, as some have, has he now only contributed $1 to society?
We understand that in some contexts, a person has garnered the wealth they attain through wages or agreed upon contracts based on the value they bring to the company or in the case of sports, team. Manning wins games, and puts fans in the seats. Whether he has made society that much “better off” is another matter, but people have paid to come see him based on their desire to see him play. In other scenerios, the people have no real say in the matter, for the managers and ceos set their own wages, independent of how they “perform.” They are merely in a position of power to do so – their compensation bears no reflection on how much “better” they’ve made society.
The importance of this reminds us that equating a person’s income directly which how much they have “contributed” to society is a dangerous intellectual underpinning. I’ve seen it said that everyone who cannot make ends meet means that they take more than they are producing. It is a dangerous fallacy to allow. It gives us justification to deny any social help, examine possibly faulty markets, and demonstrates a lack of understanding of compensation in economics. How much better has the crack dealer who has “earned” $100,000 a year for a decade with his trade made society, as opposed to the.
Timothy Berners Lee created Mozilla, the first web browser and made the Internet as we know it possible. He did this for free, asking for no profit. His contribution was probably worth billions, yet he chose to not take this profit.
It can be said in some instances that we deserve what we can convince another person to pay us – but this is persuasion, not contribution. It’s a very different thing to say that we take, or put into society only what is captured on the bank ledger.
(Price of Inequality, Einstein and physicists)
(How Markets Fail – the examples of the CEOs who sank the companies and walked away with millions)
Inheritance and luck
Did Paris Hilton “contribute” her exact inheritance value to society the moment she was bequeathed her fortune? Had she suddenly made the world a better place, had she suddenly “contributed” millions in value, had she suddenly “done more” for people the next day than the firefighter who pulled the family from the burning building? Such examples serve to remind us that the amount of money we have tells us little about how much better we’ve made the world.
Income earned through rents and through labor
When the rate of return on capital significantly exceeds the growth rate of the economy, (as it did much of history until the ninteenth century and as it likely to be the case again in the twenty-first century), then it logically follows that inherited wealth grows faster than output and income. (Capital in the 21st century – page 35)
Many people “earn” income, sometimes very high rates of income by merely owning capital. Their income is not a reflection of how hard they have worked (outside of the initial work to earn the capital) or how much they are currently “contributing.” While their capital is important, it sits idle without the worker to utilize it. In this sense, it is hard to separate the contribution of the capital from the contribution of the worker. The worker is merely the lowest bidder for the job against a possibly background of desperation. The money earned from this capital could be largely a product of the worker and little of the capital.
According to Milton Friedman and most other neoclassical economists, the essential principle of capitalist distribution is “to each according to what he and his instruments he owns produces.” But this principle presents a problem. Because it is characteristic of capitalism that the owners of the means of production often are distinct from those who operate those means, Friedman’s claim presupposed that one can distinguish, in a precise, quantitative manner, between the contribution of the instrument and that of the operator. How might this be done? Notice that we cannot simply define the contribution of each to be what the market returns to each, for that begs the question. We know what the market returns. What we want to know is whether or not such returns really reflect contributions. (Against Capitalism – page 5)
Contributions not captured by market signals – unknown value
How much better has a person made the world who saves a life? Or warns of a bomb attack that saves hundreds, or thousands? How much is it “worth” to raise a child that becomes a doctor, as opposed to one that raises a violent criminal? Some things are forever unknown, shrouded behind an intrinsic epistemic problem. Some things can’t be measured.
What a person “deserves” and how much a person has “produced” or “contributed” are two entirely different things. If you can convince someone to give you money for a trade, even for something that makes no one any better off, in that sense you deserve to make the free transaction. But that doesn’t mean the veteran who saved the lives of hundreds, has “taken” more than he has “given” because he cannot pay the rent? Income gives us some rough ideas, but missed all of the ways a person contributes that monetary signals cannot tell us.