Economic Distributions and the Politics of Luck

It may only be rock and roll, but Alan Krueger, the outgoing chairman of the President’s Council of Economic Advisors, likes it, not least because it is economically illuminating.  Among the ways in which the economy and the recording industry are alike, he said in a recent address at the Rock and Roll Hall of Fame in Cleveland, is that outcomes in both depend substantially on luck.  The suggestion is that distributions dictated by chance are arbitrary, problematic and—this last point is unstated but seemingly latent—fair game for rearranging.  The typical conservative response is to deny that luck rather than merit is at play.  But were the point ceded just for fun—and luck stipulated as a potent force in economic affairs—an interesting question might result: So?

Krueger makes the point this way: “Luck plays a major role in the rock ’n’ roll industry.  Success is hard to judge ahead of time, and definitely not guaranteed, even for the best performers.  Tastes are fickle, and herd behavior often takes over.”  This effect is “amplified in a superstar economy” in which winners have the technological means to magnify their reach.

All this is doubtless true, even if Hayek would remind us that it is not the job of the price system to provide objective determinations of merit.  In any case, the intersection of one’s talents with public tastes and whatever circumstances are necessary to be recognized and propelled to success certainly requires luck.  Conversely, the prominent role of chance in musical success means with equal certainty that some untalented people are successful and that some gifted artists go unrecognized.

Surely this is also true in the economy at large: Some people stumble into fortunes by dumb luck, others by talent combined with chance, others still fall on hard times through little fault of their own.  Most of us likely fall in the interstices between these groups, except college professors, who occupy a tragic category characterized by high skill, extreme effort, extraordinary merit and inadequate pay.

All true: just insignificant.  The question is why the mere fact of luck or its absence warrants redistribution, especially if we start with the assumption that power requires justification.  In this sense, it is not enough to observe that lucky outcomes are arbitrary: To justify their rearrangement, we need a further step, an affirmative cause.  The fact that you find a dollar on the sidewalk does not justify me in confiscating fifty cents.  I need a reason to do that.

Suppose we stipulate, by way of a thought experiment, that all economic outcomes are substantially influenced by luck, from the genetic draw to the geography of being in the right place to the temporal coincidence of being there at the right time.  It is far from clear that a license for redistribution would follow.  A warrant for amelioration clearly would.  It would be a sensible social compact for people mutually exposed to ill fortune to insure one another against it.  Allowing the positive results of luck to stand would impose a particular moral obligation to alleviate its harsher edge.  But as Theodore Lowi reminds us, alleviation and elimination are different policies.  One requires a relatively simple state the extent of whose generosity can be the topic of reasonable partisan dispute; the other a micromanagerial regime that accretes interest groups and resists change.

To be sure, the state ought not encourage reliance on luck.  Permitting the substantially random results of economic distributions to lie undisturbed is different from fostering their randomization through policies like lotteries or preferential tax treatment for casinos.  Moreover, it might be that the entitlement to wealth acquired by luck is weaker than that to wealth acquired by merit, so that the state might be justified in being quicker to tax the former—the gushing oil well in the back yard, for example—than the latter.

But one ought to approach with caution the prospect of the state inquiring into questions of desert. Ultimately, separating merit from luck—if this indeed is even possible; Rawls, the apostle of desert, believes in the end that it is not and consequently sweeps everything aside as arbitrary, including one’s work ethic—would require investigating the most intimate and personal questions.  It would involve a concentration of power rather than the dispersal that is involved in letting luck alone.  Distinguishing between merit and chance is also a task to which the state is almost surely incompetent: In attempting to excise tumors, it is all but certain to remove healthy economic tissue too.

This is different, of course, from personal economic transactions in which justice can be ascertained.  Krueger notes research that shows productivity suffers when workers perceive their pay to be unfair. But in a discrete workplace, two people doing the same job for unequal pay can identify and rectify an injustice.  Across the distance of an entire economy, two people who are similarly situated—comparably talented, for example, putting forth equivalent effort—yet economically disparate are not engaged in a common enterprise in which justice can be assessed.  Nothing could justify one’s ill feelings toward the other’s good fortune but bare envy.

The fact that fortuna alone separates them may, of course, be cause for the frustration (or relief) of what might have been.  But from the perspective of the coercive power of the state, the question remains: Supposing economic distributions are substantially determined by luck, so what?  A state powerful enough to rectify this problem, if a problem it even be, is too powerful a state.  Better for its disposition toward good luck to be indifference, and toward misfortune to be amelioration.