Labor vs. Capital: Continuing the Meritocracy Trap Debate

This post, an exchange between Andrew Hart, Marshall Steinbaum, and Daniel Markovits, continues their debate from our March 2020 series discussing The Meritocracy Trap by Daniel Markovits. Click here to read all posts in the series. 

Andrew Hart & Marshall Steinbaum: It seems to us that the issue is not whether one places income in buckets labeled “capital” or “labor,” but rather what those particular buckets signify when it comes to extremely wealthy people. We might all agree to call the $50 million that a healthcare CEO gets for working 80-hour weeks “labor” income, but the fact that the firm or the “economy” has seen fit to allocate $50 million as a proper compensation for a healthcare CEO does not, as far as we can tell, have much to do with the productive value of 4,200 hours of healthcare CEO work over the course of a year. To justify this income by reference to skill is a just-so story—part of the inequality regime of “hyper-capitalism,” as delineated in Thomas Piketty’s recent book Capital and Ideology.

But Markovits seems to accept at least some of the human capital justification for high salaries when he speaks of superordinate workers and their immense skills and training. Put another way, we think Markovits believes the operative question is whether a person needs to work 80-hour weeks to get the $50 million as a healthcare CEO, and if the answer is yes, then the money is labor income. By contrast, we believe that the question should be why a healthcare CEO is “worth” $50 million in the first place, and that the answer to that question may at least cast some doubt on the usefulness of the category “labor income” when a person’s yearly income is high enough.

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Are We Prisoners of Technological Fate?

This is the fourth post in our series discussing The Meritocracy Trap by Daniel Markovits. Click here to read all posts in the series. 

Daniel Markovits –

 The Meritocracy Trap’s account of the relationships among elite education, skill-biased technical change, and rising economic inequality is, in my mind, one of the book’s most important arguments, even as it is undoubtedly one of the least discussed. I’m therefore delighted and grateful that Gordon chose to focus his attention on these matters.

Gordon rightly emphasizes that The Meritocracy Trap combines two positions that are typically (but not by any necessary facts or logic) opposed—to embrace what Gordon calls a “materialist” theory of income inequality while rejecting what he calls a “determinist” theory of technological development. First, the book argues that, in Gordon’s words “technology has a predominant influence on social and economic structure.” Innovations have biased work in favor of a certain set of narrowly elite skills, and this bias accounts for the bulk of rising high-end economic inequality. And second, the book rejects what Gordon calls “the pervasive myth that technological change is natural, self-directing, or inevitable.” Rather, the innovations behind rising inequality are themselves produced by meritocracy, as the distribution of training influences the path of innovation and superordinate workers stimulate the demand for their own skills. This places policy that “guide[s] the course of technological change,” or as Gordon calls it, “industrial policy,” at the center of efforts to combat rising inequality.

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Are the Rich Rentiers or Superordinate Workers?

This is the third post in our series discussing The Meritocracy Trap by Daniel Markovits. Click here to read all posts in the series. 

Daniel Markovits –

I am grateful to the LPE Blog for hosting this exchange about The Meritocracy Trap. Today’s post will take up Hart’s and Steinbaum’s post and focus on facts, and tomorrow’s will turn to Gordon’s post and take up values.

Hart and Steinbaum claim that The Meritocracy Trap fails to recognize deep “differences between rich professionals and the ultra-wealthy capitalist class.” They also propose that the book exaggerates meritocratic inequality’s economic rationality, that “[i]t is not the meritocrats’ skills that bring in their high salaries.” In short, Hart and Steinbaum propose that the rich are not superordinate workers paid on account of their enormous productivity but rather are rentiers who exploit their capital to extract rents.

Hart and Steinbaum suggest that The Meritocracy Trap overemphasizes the rising labor incomes of the merely very rich and underemphasizes the exploding capital incomes of the super-rich. But in fact, although the past half-century has seen a shift of income against labor and in favor of capital, this shift is much too small to account for rising top income shares. Instead, rising economic inequality is principally caused by a shift of income within labor’s share, away from middle-class and towards superordinate workers.

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Guiding Innovation’s Hand: Industrial Policy Against Inequality

This is the second post in our series discussing The Meritocracy Trap by Daniel Markovits. Click here to read all posts in the series. 

Jeff Gordon – 

Most of the critical attention directed at Daniel Markovits’s The Meritocracy Trap has focused on its claim that well-off parents launder inequality through schooling. While Markovits brings masterfully comprehensive reams of data to bear on the concept of the “meritocratic inheritance,” the most original and provocative part of the book comes later, when Markovits offers his explanation of why educational sorting has come to matter so much: elite schooling leads to top jobs, and “[t]he top jobs pay so well because a raft of new technologies has fundamentally transformed work to make exceptional skills enormously more productive than they were at mid-century and ordinary skills relatively less productive.” This is provocative because it contradicts the pervasive myth that technological change is natural, self-directing, or inevitable. Few reviewers have remarked on this part of the book or reflected on what it suggests: that industrial policy will be vital to building a more equal economy.

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Liberate the Meritocrats—From Their Bosses

This week, we share two posts discussing The Meritocracy Trap by Professor Daniel Markovits. In his 2019 book, Professor Markovits argues that meritocracy is a straightforward mechanism of class reproduction and wealth concentration—and that it is making life worse for everyone, elites included. The Meritocracy Trap has generated productive conversations about the causes and implications of wealth inequality, and what this means about potential movements to upend the present hierarchy. Because the book centers the gap between elite and nonelite labor as today’s most salient class division, critics have been quick to push back. In particular, some have challenged the book’s downplaying of the role of capital in its class analysis, as well as its optimism about elite cooperation in any project aiming for economic justice. While these are crucial parts of the debate around the book, we want to avoid rehearsing those arguments here.

By examining the social and political valences of a seemingly neutral quantitative system, The Meritocracy Trap touches on several questions at the core of law and political economy. Today on the blog, Marshall Steinbaum and Andrew Hart argue that Professor Markovits omits capitalists from the story in part by relying too heavily on the flawed theory of human capital. Tomorrow, Jeff Gordon turns our attention to the book’s argument that industrial policy contributed to the technological innovations that over-reward elite workers at the expense of the poor and working class, and that industrial policy will be essential to build a fairer economy.


This is the first post in our series discussing The Meritocracy Trap by Daniel Markovits. Click here to read all posts in the series. 

Andrew Hart and Marshall Steinbaum

There’s a big difference between the first Gilded Age and the second. Historically, rich people earned income from their capital and everyone else earned income from their labor, under the direction and control of the capitalists. This time around, the rich don’t just own capital; they also work. Daniel Markovits’s book The Meritocracy Trap is about just how hard they work, and what it says about them.

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Promises All the Way Down: A Primer on the Money View

This post is part of a symposium on the Methods of Political Economy.

Elham Saeidinezhad

It has long been tempting for economists to imagine “the economy” as a giant machine for producing and distributing “value.” Finance, on this view, is just the part of the device that takes the output that is not consumed by end-users (the “savings”) and redirects it back to the productive parts of the machine (as “investment”). Our financial system is an ornate series of mechanisms to collect the value we’ve saved up and invest it into producing yet more value. Financial products of all sorts—including money itself—are just the form that value takes when it is in the transition from savings to investment. What matters is the “real” economy—where the money is the veil, and the things of value are produced and distributed.

What if this were exactly backwards? What if money and finance were understood not as the residuum of past economic activity—as a thing among other things—but rather as the way humans manage ongoing relationships between each other in a world of fundamental uncertainty? These are the sorts of questions asked by the economist Perry Mehrling (and Hyman Minsky before him). These inquiries provided a framework that has allowed him to answer many of the issues that mystify neoclassical economics.

On Mehrling’s “Money View,” every (natural or artificial) person engaged in economic activity is understood in terms of her financial position, that is, in terms of the obligations she owes others (her “liabilities”) and the obligations owed to her (her “assets”). In modern economies, obligations primarily take the form of money and credit instruments. Every actor must manage the inflow and outflow of obligations (called “cash flow management”) such that she can settle up with others when her obligations to them come due. If she can, she is a “going concern” that continues to operate normally. If she cannot, she must scramble to avoid some form of financial failure—bankruptcy being the most common. After all, as Mehrling argues, “liquidity kills you quick.” This “survival constraint” binds not only today but also at every moment in the future. Thus, generally, the problem of satisfying the survival constraint is a problem of matching up the time pattern of assets (obligations owed to an actor) with the time pattern of liabilities (obligations an actor owed to others). The central question is whether, at any moment in time, there is enough cash inflow to pay for the cash flows.

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In Praise of Blindspots

This post is part of a symposium on the Methods of Political Economy.

Suresh Naidu–

The introductory essay to this symposium repeats several standard views about neoclassical economics that I think are some combination of dated, inaccurate, or irrelevant. I think what legal scholars (including those who do “economic analysis of the law”) perceive as economics is a tragic caricature of what currently happens inside economics departments, and the list of people to blame for that is long. But I’ve written about that elsewhere, and so I’ll take advantage of this space to defend one thing I think current economics shares with its neoliberal doppelganger. The most salient reason neoclassical economics became dominant in policy circles is that it was allied with a general revanchist business interest squeezed by late-60s/early 70s crisis. But we should not forget that it also presented the policymakers dealing that crisis something that more heterodox approaches did not: parsimony.

A recurring theme in the criticism of neoclassical economics is its constraining precision and abstraction. Even when freed from laissez-faire dogma, economic models maim reality, and the narrow style of quantitative empirical work in economics does a great deal of epistemic violence to details, compressing qualitative differences into quantitative measures. The result is a discipline that is insensitive to a lot of the cultural, psychological, and institutional details that sibling social sciences take seriously. The criticisms from heterodox economists and other more qualitative social sciences perpetually remind us of this. We use math that doesn’t actually capture reality; we quantitatively measure entities that are immeasurably different; and we insist on a crude logical positivism even as economics is deeply constitutive of institutional realities. But the virtue of all these vices is simplicity, well worth the cost of the notorious blindspots.

My claim here is not just the usual one that every discipline requires blindspots—that to model reality is to miss some of it—but also that a discipline can only be useful in guiding governance if it has such blindspots. Any social science that aims to inform (and perform) the function of a complex social organization, like a state or corporation, that enforces even somewhat impartial rules needs to ruthlessly abstract from particularities. In particular, it must use mathematics, for making incommensurable claims commensurable, for representing the workings of fantastically complex adaptive systems, and for complementarity with technologies of organizational administration, like spreadsheets.

Relatedly but distinctly, a social science that is useful for the legal needs of a large administrative state operating in a complex heterogeneous society must also be parsimonious. This social science ought to be cognitively lightweight and context-independent so that citizens and experts and bureaucrats and judges and lawyers can easily communicate new situations across a large population in a common idiom. Late 20th century neoclassical economics provided a primitive, ideology-laden language for doing this, for example by making market prices inviolable adjudicators of value inside the regulatory state (e.g. via cost-benefit analysis). But its successor will not be found in pendulous, wordy treatises penned by ethnographers and humanists; it will be instantiated in formal organizational protocols and algorithms that are the logic of some mathematical social science. It will remedy some of the blindspots of modern economics but will have its own. The question is what form that mathematical social science will take, what normative principles will it encode, and how will it be fit into an administrative apparatus that is as transparent and legitimate as possible. I suspect an updated economics will be a part, but only a part, of whatever post-neoliberal administrative epistemology we wind up inhabiting.

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Stocking the Toolshed: A Symposium on Methods of Political Economy

This is the introductory post in a series on the Methods of Political Economy.

Luke Herrine–

In their Law & Economics textbook, Robert Cooter and Thomas Ulen ask: “Why has the economic analysis of law succeeded?” Their answer: “Economics provide[s] a scientific theory to predict the effects of legal sanctions on behavior….This theory surpasses intuition, just as science surpasses common sense.” Moreover, “economics provides a useful normative standard for evaluating law and policy….Efficiency [that standard] is always relevant to policymaking, because it is always better to achieve any given policy at lower cost than at higher cost.”

This is, to quote a wag, pure ideology.

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Losing at Its Own Game: the Right Retreats from Cost-Benefit Analysis

Amy Sinden —

Over the past four decades, the right wing has painstakingly built an intellectual scheme to try to justify the weakening of regulatory public health protections on the basis of neoliberal economic theory.  But a couple of decades ago, when the EPA began to figure out how—at least sometimes—to beat them at their own game, that edifice began to crumble.  At the 2018  APPEAL conference, I presented a brief sketch of this story. More recently, I developed it in an article that appears in this month’s edition of The American Prospect.

In brief, the story goes like this:

In the 1970s, industry lobbyists and their right-wing allies, disgruntled by the wave of environmental, health, and consumer protection legislation that had just swept through Congress, latched onto an idea that had begun to kick around among conservative economists at the University of Virginia, the University of Chicago and the London School of Economics. Before government is allowed to intervene in the market with regulation, they argued, it should be made to show that the regulation can pass a cost-benefit test.  This idea began to show up in industry briefs challenging EPA’s first efforts at environmental regulation and in white papers from right-wing think tanks.  Its pedigree in neoliberal economic theory lent an air of academic legitimacy to the idea and was a perfect fit with the Right’s larger political strategy of selling the American public on laissez-faire economics.

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Medicare for All: How to Reduce Inequality in the Long-Term Care Market

Medicare for All: How to Reduce Inequality in the Long-Term Care Market

This post is part of our symposium on Medicare for All. You can find all the posts in the series here.

Ruqaiijah Yearby – 

Medicare for All has the potential to address gaps in access to quality long-term care services for the elderly by mitigating some of the inequities in the market for long-term care. It could do this by increasing reimbursement rates for long-term care, fostering competition between long-term care providers, and improving federal enforcement of non-discrimination requirements.

In the long-term care services market, the issue is not private insurance versus single payer because the government already finances most long-term care services through Medicare and Medicaid (Medicaid is the primary payer for long-term services and supports ranging from institutional care to community-based services). Instead, the issue is who will provide the care: institutions or home- and community-based providers.

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