Home > ethics > Skill or dumb luck?

Skill or dumb luck?

from Peter Radford

Both.

Be very wary of anyone who claims that their wealth is the result of great skill. Or even hard work. Luck had to play a part. Usually a very significant part. And dumb luck ought not be the basis upon which we build intelligent, caring, or stable societies.

Be wary, also, of arguments against popular policies that include references to envy or jealousy. Being opposed to plutocracy does not necessarily imply either. Those arguments are old and have been used to undermine the moral authority of populism since democracy first reared its ugly head and disrupted the ease with which our leaders could syphon off wealth for their own enjoyment.

The two go hand in hand.

Populists will be accused of devaluing hard work and skill, and of stirring up the evil sentiment of envy that is presumed to lie close to the surface in the squalid and uneducated minds of the masses. By being both an advocate of sloth and jealousy a populist is easily and summarily dismissed as being irrelevant to policy discussions and properly ignored by serious analysts everywhere,

Where being serious means combining allegiance to the economic status quo with a suitable level of puritanical moral self-abuse. 

It used to be that arguments made by advocates of watertight property rights, freer markets, and reduced government intrusion into the workings of the economy were designed to offset the whimsy of autocratic monarchs. Nowadays they are used to fend off the redistributive urges of democrats everywhere. What was once radical and liberal, is now time honored and conservative.

This we cannot tax the fruits of capitalist effort too highly lest we undermine the, presumably, tender spirits of free enterprise. If we tax them too highly our wealth elite will shrivel into a mouse like fear driven and profit averse rabble. So much for the toughness they so flaunt as being one reason they succeed. So much for the profit motive.

Such taxation, they tell us, is a government inspired invasion of the freedom held sacrosanct by capitalists. Until, of course, its their turn to do the invading, but that’s in the spirit of innovation. It is creative destruction. Not at all like that crass jealousy inspired sinister destruction that the government undertakes.

Funny how these things work.

When the masses want something – like health insurance or retirement safety – it is an unearned entitlement paid for by an occlusion of freedom. When the rich want something – like health insurance or retirement safety – it is a property they can buy. It is an expression of freedom.

Anyway: here’s what I think. We ought to tax on the ratio of luck to skill involved in generating wealth and income. Those who had the good fortune to be born into wealthy families; the good luck to meet or be mentored by the ‘right’ person; those who went to the ‘right’ school and so on, ought to fork over a portion of their luck-derived gain. That will subsidize those who were less fortunate. The bit derived from hard work and skill they can keep.

The problem is that the bit derived from hard work and skill is always less they they think it is. It’s human nature to underestimate luck. Or to miscalculate good fortune. We humans like to think we control our fates a lot more than we actually do. Our lives are riddled through by chance. Our greatest skill is in how we deal with chance, not in how we created opportunity.

Put this all another way: if you believe, as you should, that uncertainty plays a very significant role in how the future unfolds as we navigate through our economic relationships, then you are endorsing the view that luck plays a role in how different people prosper. They cannot ascribe their asymmetrical wealth purely to greater insight, skill or hard work. A great portion came from dumb luck. Luck as embodied, for instance, in the old saying about being in the right place at the right time.

We all know this is true. We all know that hard work alone provides no assurance of success. Somewhere along the way you need skill. And a whole lot of luck. We applaud skill. We love merit, learning, innovation and all those wonderful attributes that help propel society forward. We really do.

Just don’t brag about being skillful when we all know you were lucky.

Now, lucky ducks, stop preaching all that other self-serving nonsense. You caught a break. Good for you. Now pay up.

About these ads
Categories: ethics
  1. January 9, 2014 at 8:27 am

    The best way to be wealthy is to inherit some valuable real estate. All you have to do is to collect the rent. There is no mystery about that.

  2. collinconstantine
    January 9, 2014 at 10:29 am

    Reblogged this on .

  3. susan feiner
    January 9, 2014 at 1:23 pm

    Come on Peter. Even dumb people deserve healthy caring societies!

  4. Garrett Connelly
    January 9, 2014 at 5:15 pm

    Yes, you are correct, though you have omitted ruthless anti-social behavior. Witness the vultures in Michigan who circle the art treasures of a bygone era, there we see corporatist pirates who have driven a once successful State to the brink of bankruptcy lurking in the art museums for bargains from their buddies who run now corporate controlled governments.

  5. Avner Offer
    January 9, 2014 at 7:06 pm

    Tax intrinsic ability as well. That’s also a matter of luck. This is the argument for equality.

    • January 9, 2014 at 7:32 pm

      How would you tax intrinsic ability? How would you measure it? How do you even define it? And how about taxing the ability to demand monopoly rents for physical assets such as claims of ownership of the surface of the planet?

      This is a classic diversionary argument to draw attention away from land monopoly which is the principle means by which a few people get to be “successful”. It is based on the spurious notion that there is such a thing as rent of talent. There is not. The high pay of a Premier League footballer is wages of labour, and a highly precarious one at that. These sportsmen enjoy their high wages for just a few years, have invested huge amounts of time in honing their skills and are always just an injury away from the dole queue.

      • Avner Offer
        January 10, 2014 at 12:34 pm

        Progressive income taxation, on the assumption that income represents earning ability. If it captures land rents, so much the better.

      • Avner Offer
        January 10, 2014 at 12:35 pm

        PS — I was thinking of University professors, not footballers.

      • January 10, 2014 at 4:48 pm

        Henry Law asks, “How would you tax intrinsic ability?”
        When it becomes a physical entity (wealth) and wishes to be exchanged for ANYTHING
        already recorded as wealth.
        Justaluckyfool, however wishes to ask, “Why would you tax intrinsic ability, income, land directly when there exist “a means of taxation already in existence that is totally fair, equal and would produce all the revenue distribution to…” “to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…”
        TAXATION is the best place to start.
        As President Obama *even* knows but somehow does not understand that he has the answer, yet.
        Stated on ” 60 minutes” (12/11/11)” President Obama said,”You can’t raise revenues by lowering taxes unless you get the money from somewhere else.” ?
        YES,YES…reduce FICA to zero. Reduce federal personal income taxes to “first $100,000
        at zero percent tax , any amount above at 10%.
        That simple!
        Dare you ask , “Where is the “SOMEWHERE ELSE”?
        *****There shall be but one and only one issuer of the sovereign currency.
        Any issuance will be by way of a loan.The INTEREST paid to the central bank
        shall be the taxation.
        Surely: You are aware that the private for profit banks have raise over $100 trillion as interest profit for themselves since inception of being legally allowed to do just that: issue new currency and tax it via interest!
        Just do for the people what we have allowed the Private For Profit Banks to do—Issue currency as loans with a tax attached.
        How the Feds DO unto US what they have done for the PFPB!
        “Justaluckyfool”, http://bit.ly/MlQWNs

      • January 11, 2014 at 9:53 am

        Then you have not taxed intrinsic ability. Income taxes have the great weakness that they do not distinguish between the source of the income. The taxation of wages is robbery. Taxation should be confined to taxation of the rental value of land, meaning “land” in economics ie including things like mineral rights and radio spectrum. And please done come back and say it cannot raise enough revenue. Existing taxes have the effect of cutting into land value.

      • January 14, 2014 at 3:44 pm

        All money is wealth; not all wealth is money. When wealth transforms into money it takes on the form of the acceptable currency at that time. The currency shows “credare”, the rights of ownership to that wealth.
        Thank you for your reply it shows that a correction is needed.
        If the “flaw” were to be corrected, there would only need to be one taxation.
        The “flaw” being ‘allowing PFPBanks to issue and tax our sovereign currency!
        The correction would make the central bank the sole issuer as well as the sole source of taxation.
        A perfect circle-real money being lent that is the “credare” of the people being returned to the people by taxation. The central bank must by its mandate ‘to control the quantity and quality of the money’ return via Congressional appropriations one half of the payments received or the loans in order for the process to avoid “systemic failure”.
        It also must place the other half into new loans to ensure the continuation of the scheme.

        Private For Profit Banks must be separated from government.
        Excerpts from : http://realmoneyecon.org/lev2/answers.html

        Real Money Economics is an economic theory which proposes to change the current monetary and fractional reserve banking system as follows:

        change the bank depository and payment system to a “Trust Banking System”;
        change the bank credit system to a mutual fund system;
        to keep price stability, change the new money creation system from a deposit creation system …

        The world was created with enough wealth for all mankind to maintain a good standard of living. We need only to form better governance.

      • henry1941
        January 15, 2014 at 4:12 pm

        Money is not wealth. It is a medium of exchange. Any theory that regards money as wealth is flawed and indeed useless or worse. Any sound economic analysis must begin with a definition of wealth.

  6. January 9, 2014 at 7:30 pm

    Isn’t it awesome, what has been written centuries ago?
    ***
    “(T)he race is not to the swift,nor… wise, nor…to men of understanding, nor …to men of skill, but time and chance happeneth to them all.”
    ECCLESIASTES 9:11

  7. Newtownian
    January 10, 2014 at 2:29 am

    A close cousin of dumb luck seems to be selection bias in the information being considered when identifying the winners and their attributes http://en.wikipedia.org/wiki/Selection_bias and using this as a basis for investment.

    And this isn’t just about identifying the Soros’s and Berkshire Hathaways before they get rich.

    One issue regarding selection bias I have only just become properly aware of (being only a dumb scientist) is how the stock market valuation is a constantly updated reporting of the value of the winners.

    Ergo, given a rising market, if you or your representative invest across the board/in a balanced way ‘in the long term’ as a wise owl might counsel, you will not make the gains suggested by these charts.

    Rather you/your rep clearly has to play the game constantly and hope the fees of stock transactions, management, inflation losses etc. are outweighed by the additional profit of mad activity approaching speculation.

    Similarly, if as seems to be the emerging case, the long term value of stocks is in fact stagnating, you face a lose-lose situation in the absence of dumb luck or insider knowledge.

    Could it be that secure term deposits which you manage yourself are far better than stocks and bonds speculation – in contrast to the advice peddled by every financial advisor from here to Timbuktu?

  8. January 10, 2014 at 3:06 am

    More crucially there is enormous skill required in maintaining, via effective lobbying and capture of the political system, the fruits of one’s previous luck or bequest of an established rent taking enterprise. There is a level of technical knowledge/interpersonal abilities (e.g. skill) required to function effectively in such a role, and this can only be attained via hard work and discipline.

    Should we therefore punish via higher income taxes the diligent child of poor migrants, who by dent of good academic achievement wins a Harvard scholarhip, goes onto to become head of capital markets at a global investment bank, and via various directorships and financial contributions helps to strengthen the firm’s political ties and legislative influence which enables it continue hiring such aspirational and enthusiastic young people, and enabling them to break the cycle of their own family’s poverty ?

    The system is built on such people making their own luck. Tax that, and you undermine the entire system. This is not so much the politics of envy as the politics of economic sabotage.

    • davetaylor1
      January 10, 2014 at 12:40 pm

      “There is a level of technical knowledge/interpersonal abilities (e.g. skill) required to function effectively in ANY role”, but as Peter says, “the bit derived from OTHER PEOPLE’S hard work and skill is always less than WE think it is”. “Should we therefore punish via higher income taxes the diligent child of poor migrants, who … goes onto to become head of capital markets at a global investment bank”? Inso far as he uses his position or others use his skills to cream off resources so far in excess of his needs as to deprive others of opportunities to use their skills, YES we should tax (what they don’t give back to society voluntarily). We need a financial system which both rewards social achievement AND gives disincentives to anti-social financial behaviour, with politicians who DON’T “strengthen the firm’s political ties and legislative influence” but govern banking in the interests of EVERYBODY (not supinely allowing bankers to control them via “revolving doors” and borrowed money).

      Though such taxation (a generalisation of Henry George’s land tax) would be just, and C H Douglas’s social credit a seemingly fair way of redistributing it, I personally think it necessary to change the ethos by it becoming generally understood that money is of no (or indeed negative) real value. It is (i.e. can be) created at will as a personal or corporate credit limit and one is responsible for repaying what one buys with it: i.e. not necessarily by giving it back, but by proper use (e.g. by living decently and/or doing the job it was borrowed to facilitate). In a “credit card” economy there is no need for tax and redistribution, while inheritance would amount to accepting responsibility for one’s benefactor’s debts. One more nearly needs John Ruskin’s stipend and jobs worth doing, with the incentive of awards for effort and actual achievement: his “crown of wild olive”.

      Teflon, perhaps, has judged by appearances and slipped into the common error of mistaking the meaning of ‘economics’ for money-making, i.e. chrematism. I’m suggesting a Copernican revolution, where money circulates around the world’s economy rather than financial institutions. If that will sabotage chrematism, good! Economy is about using no more than we need, not acquiring as much of other people’s earnings as we can get.

      • January 11, 2014 at 2:15 am

        My comment was entirely ironic, Dave.

      • davetaylor1
        January 11, 2014 at 10:56 am

        My apologies, Teflon. A good excuse, anyway, for trying to express the alternatives simply.

        Justalucky @ #9, have another think about tax and disincentives to antisocial behaviour. I’m trying to accomodate your idea of interest on publicly created loans as tax. Even as a local tax it seems to leave the fundamental problem of putting a lot of one’s eggs in the same basket, allowing a few people to control and prioritise the funding of many people’s activities.

  9. davetaylor1
    January 10, 2014 at 12:49 pm

    Avner Offer :Progressive income taxation, on the assumption that income represents earning ability. If it captures land rents, so much the better.

    If we are going to stick with taxation, yes. I don’t think you need the assumption, though. I learnt at school the French don’t talk of “earning a living”, they talk of “winning” one.

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 9,916 other followers