Merit, Luck, and the Importance of the Free Market
By: Conner Drigotas
Tags: Luck, Socialism, Merit, Meritocracy, Free Market

“Merit itself is, in large part, the result of luck” and, “Meritocracy is not only wrong; it’s bad” argues Mark Clifton in his recent article for Aeon. That’s a tough pill to swallow for Americans, for whom merit is not just part of our cultural identity, but our economic structure. Indeed, merit is a key part of our complicated fiscal system and a necessary ingredient of all free markets. If we want to be neither “wrong” nor “bad,” should we toss both merit and the free market out the window?

If the goal is helping more people out of poverty (Mark and I agree, it is). And luck/ random events are always part of the world (Mark and I agree, they are). Then we should choose the economic system that can make the most of random events as they inevitably occur. Correct?

So we can choose between a centralized “arranged” economy, or a decentralized “free market” economy. There are degrees of each, but we can head toward one pole or the other in our personal and policy choices while acknowledging neither is likely to be fully realized.

In a free market, merit is sometimes measured in dollars and sometimes measured in other forms of wealth. Clifton argues that a merit based system gives an unfair advantage to the wealthy, and that it “encourages selfishness and discrimination,” which he claims leads to greater inequality, measured in dollars.

But if merit/ random luck is always present, there are other factors to consider. And Mark and I agree, random effects are always present, even in an arranged economy. They cannot be fully stopped by any amount of arranging. That’s inherent to them being random.

Let’s simplify this to one question: Which system is better for helping lift people out of poverty?

When considering whether arranged or free market economies are better situated to address random factors, the free market wins. Free markets can adjust faster, and that alone tips the scale.

It comes down to maximizing opportunity and limiting drawbacks. The impacts of bad decisions are amplified in any economy because there are downstream effects.

A simple example: my paycheck is late, I can’t go buy that shirt (or can’t until next week) so the local shirt store has less money (or will until next week), limiting their ability to buy food from the grocery and on, and on, and on…

The free market wins on speed as there are no hoops to jump through, no bureaucratic red tape to get in the way. Bad decisions in a free market have a limited effect because they are not replicated once they are recognized as bad decisions with a poor payoff. Which is sometimes measured in dollars, or other “merit” based reward systems.

In our other option, an arranged economy, it takes time to institute change because there are guardrails of acceptable exchange that may require bureaucratic hoops like rule changes, permissions, and the inevitable personal interest of the decision makers.

When economies slow due to any backup, less wealth is generated, and more people end up in poverty. Not just in terms of real dollars, but also in terms of buying power of those dollars. Slow downs are big problems when random events happen.

Its not enough for free markets to just be fast. Accuracy is important because bad economic decisions need to be minimized. Which system can get it “right” to lift people out of poverty more often?

A free market wins here, too. A market economy reacts faster and the negative impact of a bad decision is minimized while the potential of good decisions is maximized. Good ideas are freely adopted in a market economy. Bad decisions can take forever to fix in an arranged economy. The historical record leaves little room for doubt as we see free market systems flourish while arranged economies consistently fail to deliver on their grandiose promises.

Supporters of arranged systems sometimes claim that “we just haven’t gotten it right yet,” but that too falls short: Even if luck/random events could be controlled, and an arranged economy could actually control every individual aspect of an economy (it can’t, as we discussed earlier), we want to maximize the utility of those controlled changes to lift the most people out of poverty.

The system where we can maximize utility, is again the free market. The minimized dangers and maximized potentials are an advantage over arranged economies.

This all seems basic. These ideas are not unique. But they must be restated every time another media taste maker decides to attack merit, or the free market, in the name of a better world.

Belief in free markets is inherently a glass half full view. People are free to engage in commerce without a middle man, and merit is a key ingredient regardless of whether luck is involved. Merit is a mix of many things, and it’s different from person to person. To say that there are “winners and losers” in a merit based system is misleading, merit based systems like free markets mean there are just more ways to win and fewer ways to lose.

Because random events are always present, we can’t have zero instances of “failure.” But we can minimize the damage. We all miss the mark sometimes, but an arranged economy has fewer paths and is slow to adjust. Where free markets have unlimited paths to success, arranged economies have unlimited ways to fail. In an arranged economy, someone else defines what paths can lead to success . In a free market system anyone can succeed.

Moreover, absolute equality is neither feasible nor desirable. It is not feasible because of the aforementioned random events that are beyond controlling. Absolute equality is not desirable because we are a wonderfully diverse human race. We have different skills and aptitudes, the result of which is different definitions of both success and failure.

We should be encouraging innovation. In an arranged economy, there is no room for diversity in the definition of success. In a free market, there are multitudes of ways to achieve any definition of success, and people are free to pursue what earns them various kinds of merit, like money, followers, influence, or happiness.

Poverty is eliminated when there are paths to prosperity that are feasible for those who need it most. A free market system removes barriers and opens new paths limited only by ingenuity, not by a central planning committee.

If we want to raise more people out of poverty, a belief in meritocracy is besides the point. Random events exist and will always create merit, luck, or a leg up for some over others in some form. Merit is part of the reality we live in and free markets are the best system for helping the largest number of people in an uncertain world.

Read more at www.ConnerDrigotas.com