Chapter Nine
The Paradox of Meritocracy
I remember when I came home from Evendale Elementary School in first grade in 1992, and I had received a certificate at school that day. It was a piece of paper, but thicker than the kind I was accustomed to writing on.
My teacher had awarded it to me because I had written a first grader’s summary of Alex Haley’s book Roots. I hadn’t actually read the book, but my parents were particular about watching the TV adaptation, and I’d ended up watching it with them. In retrospect, I’m pretty sure the level of violence that you see in that TV series was something that most American parents would say you’re not supposed to show a six-year-old. But call it part of being the kid of immigrants who didn’t operate according to those same norms. As long as it wasn’t sexual, they were pretty much fine with it.
The certificate had two prominent words at the top, in elaborate cursive that signified to me that it was something important: “Merit Award.” I didn’t know what that word was, but I accepted the certificate and brought it home anyway.
My aunt Brindha from Fort Wayne was visiting our house at the time. She looked at the certificate, and her face lit up when she saw that it said “Merit” at the top. I still remember her explaining to me that merit was a very big deal, even as I struggled to understand exactly what it meant.
What exactly is merit? And why is it worth preserving?
Merit is the idea of rewarding someone in a manner that accords with the achievement of excellence in a particular sphere of life. Merit norms are sphere-specific—that is, they are generally not transferable from one sphere of life to another.
There are very practical reasons for a nation to want to create and preserve a meritocracy. The spheres of national life that operate according to principles of merit tend to be better than those that don’t. For example, a National Basketball Association that selects the best basketball players tends to produce the highest-quality basketball for viewing—and the rewards that accrue to the best basketball players tend to accrue in proportion to how good at basketball they are (the amount of fame they receive, the amount of money they are paid by the league, and so forth). If those same rewards start to accrue to players who don’t necessarily play the best basketball but instead generate the greatest level of attention for their antics off the court, then the overall quality of basketball suffers. That’ll happen whenever rewards select for player attributes that have less to do with basketball and more to do with something else.
Funnily enough, there’s actually an American tradition of using NBA stars as paragons of merit in arguments about distributive justice. In chapter 7, I discussed Thomas Piketty’s theory that capitalism naturally tends toward increasing wealth inequality and mentioned John Rawls’s theory of justice as fairness as an alternative to Thomas Piketty’s recommendations. The most famous objection to Rawls’s theory revolves around the idea that NBA superstars obviously deserve to be rich. It also turns out to raise a Piketty-style paradox that strikes at the heart of meritocracy itself. But before we talk about the notorious Wilt Chamberlain argument, let’s talk about Rawls.
It’s impossible to have a serious discussion of inequality and fairness without contending with the work of John Rawls. Ever since he published A Theory of Justice in 1971, it has set the standard for thinking about political theory, becoming required reading in classes in many disciplines around the world. His theory both questions the fairness of meritocracy and suggests a way for society to harness the inequality it produces. While Piketty wants to reduce inequality, Rawls wants to use it to allow everyone to have more.
I’ve already told you the beginnings of Rawls’s theory, because Rawls is, well, just Kant writ large. Remember, the categorical imperative is just a more philosophically grounded version of the Golden Rule. Rawls’s theory of justice is basically the Golden Rule on steroids. Instead of applying it to everyday interactions, he scales it up to imagine what an entire society would look like if it were built from the ground up so that each person treated others as they would want to be treated. That’s why he calls it a theory of justice as fairness.
To imagine this perfectly fair society, Rawls asks us to think of what kind of system we’d all agree to if we negotiated about it from scratch. But there’s a catch: he asks us to imagine the social contract we’d all agree to from a fair bargaining position. That means we have to conduct the hypothetical negotiation from behind what he calls the “veil of ignorance,” blind to particular features of our identities that might bias us, such as our race, class, gender, appearance, sexuality, and talents. That blindness to our distinctive identities is what allows others to know the principles we endorse aren’t just efforts to give our particular tribes advantages over theirs. In Hindu terminology, Rawls is saying fair bargaining about the structure of society requires that we all negotiate as our true selves.
What social contract would we all agree to from this fair bargaining position? Rawls suggests two principles of justice. First and most fundamentally, everyone has to have equal basic rights, including things like the right to vote and hold office, freedom of speech and association, freedom from physical harm, and the right to own property.1 But Rawls is really remembered for his second principle, where he describes the fair way to allow goods beyond basic rights to be unequal: social and economic inequalities are to be arranged so that they are both attached to positions open to all under fair equality of opportunity, and to the greatest benefit of the least advantaged.2
That last part, called the Difference Principle, has become one of Rawls’s most influential proposals. The heart of the idea is that we would all approve of a society with some inequality if—and only if—that relative inequality allowed everyone to have more in absolute terms. From behind the veil of ignorance, not knowing whether we’ll be the richest or poorest members of society when we remove our veils, after ensuring that we’ll have equal rights and equality of opportunity, we’ll want to make sure that if we’re the worst off, we’ll still be doing as well as possible. Instead of embracing perfect equality at the cost of having everyone spending hours each day standing in line at barren supermarkets,3 we’ll choose the world where even the worst off have full bellies, air-conditioning, and smartphones, even if the best off have yachts. And who knows? If the society truly has fair equality of opportunity, we can all dream of owning yachts too, one day, and a few really will.
It’s important to remember that Rawls wasn’t writing in a vacuum. He was theorizing not from an armchair, but during the height of the Cold War, when it still seemed entirely possible the Soviet Union would win the battle of ideas. He knew that the great debate of his era was between the equality of communism and economic growth of capitalism. His theory was actually intended to outline a defense of an idealized, liberal version of capitalism, one that reaped its economic benefits but mitigated the unfairness of the inequality it naturally produces. We’d all want to keep the incentives capitalism offers people to innovate and work hard, Rawls was implying just beneath his abstract language, but we would agree only to a version of capitalism that ensured everyone got to share in its rewards. From behind our veils, not knowing whether we’d end up rich or poor in the society we agreed to, we’d vote to make the economic pie larger, but only if we were sure we’d get an extra piece.
Rawls was America’s best soldier in the intellectual theater of the Cold War. That’s why President Clinton awarded him the National Medal of Arts in 1999, saying, “Almost single-handedly John Rawls revived the disciplines of political and ethical philosophy with his argument that a society in which the most fortunate help the least fortunate is not only a moral society but a logical one. Just as impressively, he has helped a whole generation of learned Americans revive their faith in democracy itself.”4 Although Clinton said “democracy,” that was really his polite way of saying “capitalism.” We’d all choose to sail out into the rising tide of capitalism, Rawls argued, but only if everyone is guaranteed a seaworthy boat.
Historian Adrian Wooldridge has recently produced one of the most extensively researched accounts of meritocracy ever in The Aristocracy of Talent, tracing its development all the way from Plato and Confucius to the modern era. Although he ultimately defends meritocracy, arguing that it’s necessary for the West to keep up with China, he gives Rawls due credit for providing one of the strongest arguments against it:
Rawls argued that… [p]eople no more deserved their success because they were blessed with high IQs than they did because they have rich parents. Differences in talent are as morally arbitrary as differences in class… Rawls’s strictures applied as much to effort as IQ: hard work did not make you any more deserving of superior reward, because the propensity to work hard was also inherited… The difference principle represented an agreement to regard the distribution of natural talents as a national asset—a nationalized industry, as it were—and to share in the benefits of this distribution whatever it turned out to be. Those who had been favored by nature, whoever they were, could gain from their good fortune only on terms that improved the situation of those who lost out.5
Rawls’s genius was that he managed to navigate the debate between capitalism and communism in a way no one saw coming. He took the anti-capitalist premise that even hard work and talent don’t entitle some to possess more than others and used it to justify a liberal capitalist system where the best off shared the fruits of their labors with the worst off. In his system, capitalism’s winners don’t use its losers as mere means to an end because inequality is only permissible when it allows those with the least to have more. Rawls found a way to reject meritocracy while embracing its benefits, an ideological way to have his cake and eat it too.
The Rawlsian vision of a fair capitalist system was dominant in the West during the Cold War and for the two decades after. But as the fear of communism receded and the inequality of capitalism compounded, Piketty’s focus on the growing gap between rich and poor steadily replaced Rawls’s emphasis on raising the absolute wealth of the poor. Having defeated our common enemy and satisfied our basic material needs, our enmity turned inward. We began to resent the fact that some people had much more than others. Rawls may have missed the fact that human happiness is affected by relative wealth just as surely as absolute wealth—once they all have enough food, some monkeys will throw away their cucumbers in righteous anger as they watch others eat grapes.
With the benefit of hindsight and empirical data, Piketty’s theory raises a powerful critique of Rawls: the inequality enabled by capitalism will naturally tend to widen, outpacing the redistribution from rich to poor that Rawls’s fair system relies on. When the one percent become too rich and sheer wealth begins to allow them to rewrite the political and social rules in their favor, the natural inequality produced by capitalism may even allow its winners to undermine basic equal rights and fair equality of opportunity.
This kind of critique that capitalism’s tendency toward inequality overpowers government redistribution was actually raised decades earlier by Robert Nozick, the philosophical father of libertarianism, though he inferred much different conclusions than Piketty would. Piketty would say the government has to try even harder to redistribute wealth through progressive measures such as a global wealth tax. Nozick said that trying to fight inequality in a free market system would be like trying to hold back the tide, because merit will always upset whatever pattern of equality you try to impose. This is the point of his famous Wilt Chamberlain objection to Rawls.
The argument is simple yet powerful. Consider Wilt Chamberlain: 7′1″, 275 pounds, holder of the probably unbreakable record of scoring one hundred points in a game. The man who, after being criticized as selfish when he led the NBA in points and rebounds, decided to lead it in assists the next season. Imagine we gave everyone in the nation an equal amount of money, or imposed whatever pattern of distribution Rawls would recommend. Everyone would still rush to hand their money over to Wilt so they could watch him play and he would very quickly become much richer than everyone else, no matter how you taxed him. Whether he deserves his athletic gifts or not, says Nozick, the fact is that Wilt Chamberlain’s sheer talent will quickly upset whatever pattern of equality you try to impose on the world. There’s nothing unjust about it, because everyone has a right to decide how to spend their money.6
The problem Nozick raised gets even worse when we consider Wilt Chamberlain’s son. Wilt, who died in 1999, claimed to have slept with twenty thousand women and had no children.7 But let us suppose that Wilt Chamberlain had a son and decided to leave his vast fortune to him. Now we have generational wealth that wasn’t earned through merit, free to continue compounding through investment, disrupting whatever kind of equality the government tried to create, and all done through legitimate voluntary transfers of wealth: first from basketball fans to Wilt, next from Wilt to his son. The moral of the story is that your society can have equality or freedom, but not both.
Not only that, but as long as people are free to reward merit with money and the wealthy are free to give their assets to their children, a meritocratic capitalist system is doomed to recreate hereditary aristocracy, just as Piketty fears it has been doing for the last few decades. If the Chamberlain family has a good financial advisor, Wilt’s talentless grandson will be the richest of them all. Instead of working, he’ll hire lobbyists to rewrite the rules to protect his wealth and make sure he and his descendants stay on top.
That’s the paradoxical thing about meritocracy: it contains the seeds of its own demise. The free transfer of wealth in a meritocratic system will create inequality. That inequality will widen and become entrenched as parents pass their wealth to their less-deserving children. And the resulting hereditary aristocracy will undermine the equality of opportunity necessary for meritocracy.
Wooldridge points out that these are very ancient problems inherent to meritocracy. Early in his book, he says, “All thinking about meritocracy is a series of footnotes to Plato,” referencing a similar claim about all of Western philosophy.8 The ideal government Plato described in The Republic was meant to be a meritocracy ruled by philosopher kings. Wooldridge notes that meritocracies throughout the ages have explicitly attempted to model themselves after Plato’s recommendations. In one example I found amusing, Harvard University was founded by a group of would-be Platonic guardians who called themselves the Boston Brahmins9—a strange name, given Harvard’s reluctance to admit Brahmins today.
In Plato’s ideal system, unlike those of his imitators, being a philosopher king came with a heavy price, in order to bypass the problems of inequality and aristocracy exemplified by Wilt Chamberlain and his hypothetical son: “The ruling class must forgo the pleasures of family life and owning property. Anything less will lead to corruption.”10 India’s ancient caste system—at least the pre-British form of it—contains a similar vision.
Judging by Harvard’s record-breaking $53.2 billion endowment11 and its 2022 class of 36 percent legacy students,12 these Platonic ideals didn’t find much purchase in the institution built by the Boston Brahmins. Wooldridge writes that they always “gave people with the right names the benefit of the doubt,” a proud tradition that continues to this day.13 Plato didn’t envision legacy admission into the ruling class; nor did he imagine the guardians of the republic boasting of their 33.6 percent annual return.14 And he’d probably admit a lot more Asians.
As Wooldridge mentions, Marcus Aurelius was another who tried to be a philosopher king in the Platonic tradition. He embodied the ideal more fully than the Boston Brahmins and their descendants, embracing an ascetic lifestyle and ruling the Roman empire with Stoic wisdom and restraint.15 But even he fell short. Surprisingly for such a thorough historian, Wooldridge passes up the opportunity to observe that Marcus Aurelius himself illustrates the way meritocracy almost invariably defeats itself eventually through nepotism.
He was the last of the Five Good Emperors, who were named so by no less an authority than Niccolò Machiavelli.16 Each of the first four had adopted his heir to choose the best ruler for the empire. That system of merit was what had allowed Rome to enjoy the latter half of the Pax Romana during their near-hundred-year reign. When Dio Cassius said that Rome’s history went from a kingdom of gold to one of rust and iron, he was describing the transition from Marcus Aurelius to his biological son Commodus.
Commodus was the first Roman emperor to be born during the reign of his father—born in the purple. He was as cruel and foolish as his father had been wise. He immediately devalued the denarius to fund lavish games where he often fought and killed humans and animals. Commodus once threw an attendant into an oven after he found his bathwater lukewarm. In the arena, although he would spare gladiators because they always submitted to him, he would bind together amputees and club them to death, pretending they were giants. Americans even made a movie about his reign, although in our version Russell Crowe kills him to save Rome.17
Commodus was actually strangled in his bath by his wrestling partner Narcissus after the Senate grew tired of him. Afterward came the Year of the Five Emperors, a year of bitter civil war which saw Septimius Severus survive and take power; you may remember him as the black emperor, in spite of my efforts. But with Commodus, Rome’s age of merit had ended for good and it entered its long decline.
Marcus Aurelius did everything right except one: he could deny himself, but not his son. He trusted Commodus too much and gave him too much, and with that one decision Rome began to die. History’s most successful meritocracy was inevitably undone, as Plato had foretold, by a father’s love for his son.
Preserving a Stable Meritocracy through Inheritance Taxes
“For all his extremism,” writes Wooldridge, “Plato remains as relevant as ever. He identified the most profound problem with meritocracy: the tension between the natural instinct to look after your children and the meritocratic imperative to provide equality of opportunity.” But, he adds, “Plato’s own solution to this problem—state-sponsored orgies and communal child-rearing—was clearly far-fetched.”18 As was often the case, Plato’s questions were better than his answers.
Meritocracy has many virtues, but to preserve it as a stable system undistorted by widening inequality and nepotism requires some kind of extreme measure. Piketty’s preferred solution is a punishing global wealth tax. He was advocating a one-time global 90 percent wealth tax on all assets over $1 billion back in 2014, years before Bernie Sanders or Elizabeth Warren favored any kind of wealth tax.19
A decade later, Piketty’s thinking has won the day on the left, though it’s still catching up to the extreme degree of his recommendation. A wealth tax is quickly becoming the drumbeat progressives rally behind. In his platform during the 2020 Democratic primary, Sanders advocated an annual progressive wealth tax starting at 1 percent on married couples with net worth above $32 million, rising to 8 percent on wealth over $10 billion.20 In March 2021, Warren and progressive House Democrats Pramila Jayapal and Brendan Boyle proposed a 2 percent annual tax on households with net worth between $50 million and $1 billion, with an additional 1 percent for those with more than $1 billion. The details constantly change, but it’s clear the left is increasingly rallying around a wealth tax as the main solution to inequality.
At first glance, the idea makes perfect sense: if widening wealth inequality is the problem, a wealth tax must be the solution. It sounds good, but in my opinion it would undoubtedly cause a market crash, one that would cost the middle class and poor far more than the wealthy.
Here’s what progressives miss: every multimillionaire subject to the wealth tax would have a statutorily mandated incentive to write down the value of his or her assets. While today we often seen multimillionaires overstate the value of their assets (to receive a mention on the Forbes 400 list or whatever), the exact opposite is destined to occur if the government were to assess a significant annual tax on absolute wealth. Every wealthy individual with a net worth above $50 million (using Elizabeth Warren’s proposal as an example) would have an irresistible incentive to artificially deflate the value of any illiquid asset they hold—say, investments in private companies, investment funds, real estate, art, and so forth.
What is a piece of art worth? What’s a private company worth? What is land really worth? Value is often a very subjective question, and with a wealth tax, everyone who owns these hard-to-value assets would suddenly say they were all worth much less.
Why is that a bad thing? Because when everyone devalues their assets at the same time, we have the recipe for a financial crisis, just like we did in 2008. The initial devaluation of assets would be bad enough: if all investors in private companies had an incentive to say those private companies were suddenly worth less, then those companies would be worth less. That’s because their value is defined by the willingness of those same investors to buy more shares in those companies. This in turn would reduce the ability for those companies to raise money, which in turn affects the number of people they hire.
As if that weren’t bad enough, this initial devaluation would also trigger a domino effect that follows from another practical reality: debt that is tied to those same assets whose value would be written down. As it turns out, wealthy people do the same thing with their homes and other assets that everyone else does: they borrow against what they own. As the value of all those assets suddenly plummeted, they would need to sell more of those very assets in order to repay debt borrowed against them—what experts would call a deleveraging cycle. Soon enough, everyone’s selling all their assets to pay their debts as the banks come calling. This is the anatomy of a market crash of the kind we saw in 2008 and in 1932, especially from the starting point of a market near all-time highs today.
So it’s no mystery that the stock market winces and drops as a knee-jerk reaction each time candidates on the far left start speaking publicly about the wealth tax or other policies like it. They pretend that only the very wealthy buy stock or participate in financial markets. But they like it too, along with everyone who has a retirement account or pension plan, which includes most Americans. A 2021 Gallup poll found that 56 percent of all American adults owned stock, whether through shares in individual companies, mutual funds, or retirement accounts. Stock ownership wasn’t just a game for the wealthy: 63 percent of Americans with incomes between $40,000 and $100,000 had exposure to the stock market.21
So if we had a wealth tax, the stock market would crash, and everyone with a retirement account or pension would suddenly be a lot poorer. But it wouldn’t just be the elderly and the middle-aged. College students who trade on Robinhood to avoid commissions would go on Reddit to console each other with memes about their portfolios getting cut in half.
My own life would remain mostly the same if the market crashed. But my friends’ and family’s wouldn’t. Ironically, the people who wouldn’t be fine are the very people who the wealth tax was designed to help in the first place: the retirees who thought they’d saved enough to get by but now wonder how they’ll survive without the same investment income, the workers fired by companies whose access to capital disappears in a market crash, the would-be homeowner who no longer has the same easy access to a mortgage.
The far left’s Manichean worldview doesn’t allow it to see that the real world is more complex than it is convenient. Everything must be good or evil, and since wealthy people must be bad, taxing what makes them bad must be good. People on the far left sometimes seem to derive their facts from their values instead of other facts. This approach often makes their ideals sound more reasonable than their prescriptions.
Preserving meritocracy and preventing wealth inequality from creating aristocracy requires some radical measure, but Plato’s recommendations of denying elites property and requiring communal child-rearing are nonstarters, while the modern focus on a wealth tax hurts those it’s intended to help. Sky-high progressive income taxes like those recommended by Alexandria Ocasio-Cortez would be even worse.
Ocasio-Cortez has pushed for raising the top marginal tax rate to 70 percent on incomes over $10 million, but any kind of income tax would leave the wealthiest Americans entirely unscathed and prevent others from joining their ranks. Raising income taxes would increase tax evasion, decrease social mobility, and widen wealth inequality, as even Bill Gates has observed.22 Income taxes prevent the middle class from accumulating wealth, tying a heavy anchor to it while leaving the richest untouched. They also give people incentive to take it easy instead of working hard, since they know they’ll just hand a hefty chunk of the fruits of their labor over to the government anyway. That incentive to be lazy reduces economic productivity, ultimately dragging everyone down. As Piketty argues, when economic growth slows but return on capital stays constant, wealth inequality widens.
The way to save meritocracy from degenerating into aristocracy is to give inheritance and estate taxes real teeth, while cutting the progressive income taxes that penalize those who work hard and create value while they’re still alive. Tax someone’s wealth heavily, sure. But wait until they die. You can’t take it with you, after all. Neither should your kid.
This approach is both efficient and fair. Unlike an income tax, it encourages spending money rather than uselessly hoarding it, because most people would rather spend their money while they’re alive than have it taxed heavily when they die. Unlike a wealth tax, it gives no incentive for wealthy people to simultaneously deflate the value of all their assets, avoiding a market crash. And, most importantly, a hefty inheritance tax with no gaping loopholes gives us the best of meritocracy while avoiding the worst: people have an incentive to work hard and innovate during their lifetimes, but their children must start fresh, without getting to ride on their parents’ coattails.
That’s not only good for everyone else; it’s also good for would-be trust-fund kids themselves. There’s nothing that ruins character as much as having everything in life handed to you on a silver platter. I’m fine with Wilt Chamberlain becoming rich, but if his hypothetical son is no basketball superstar, there’s no need for him to get that NBA wealth. He can work for a living, and he and everyone else will be better off for it. I want my son to work for a living. I want him to build things, not be handed them. That’s part of what it means to be a citizen: to contribute to the nation instead of feeding off it.
Although Piketty is known more for his suggestion of a global wealth tax, he’s a supporter of high inheritance taxes too. Remember, according to him, capitalism naturally produces wealth inequality because returns on investment tend to outpace economic growth, and therefore outweigh returns on labor. Once capital is free to compound over generations, this advantage of invested wealth over earned income leads capitalism to harden into aristocracy. If Piketty’s right, then the path to capitalist nobility can be short-circuited simply by cutting off the transfer of wealth from parents to their children.
Piketty and Emmanuel Saez have written a paper called “A Theory of Optimal Inheritance Taxation.” It’s quite rigorous and thorough, though I cannot recommend it; only an economist could love it. One thing that’s striking about it is that beneath all the economic jargon and pages of equations, Piketty proposes a compromise between his solution to inequality and Rawls’s.
You see, when deciding the question of how high inheritance taxes should be, it turns out a lot depends on whose interests you care about. If you care about the preferences of the wealthiest people along with everyone else, it turns out that some academic work suggests the best inheritance tax rate is zero.23 Piketty and Saez end up making their theory revolve around a Rawlsian argument that we should choose the inheritance tax rate that’s best for the worst off, defining the worst off as those who don’t receive inheritances at all:
One normatively appealing concept is that individuals should be compensated for inequality they are not responsible for—such as [inheritance] bequests received—but not for inequality they are responsible for—such as labor income. This amounts to [setting aside the interests of people who receive inheritances] and [caring only about what’s best for] zero-bequest receivers. About half the population in France or the Unites States receives negligible bequests. Hence, this “Meritocratic Rawlsian” [approach] has broader appeal than the standard Rawlsian case.24
Just as Rawls was defending capitalism against communism beneath all his jargon, Piketty and Saez are having a furious debate with Rawls beneath theirs. They’re saying that Rawls is going too far when he claims that people don’t deserve to profit from the talents they’re born with, that they don’t even deserve to profit from the work ethic they’re born with or taught. He’s giving too much ground to the communists. People do deserve to make more than others through talent and hard work, Piketty and Saez are saying, so allow inequalities that stem from income. That’s just the beauty of the free market. Let Wilt Chamberlain become as rich as he can; his height is not a national asset. Only a communist would think so. But don’t let his son become rich riding the coattails of his father, because he’s done nothing to deserve it.
Who are the worst off? That’s a question I raised in Woke, Inc. as an objection to Rawls.25 Should we be making the gay black woman or the disabled white truck driver as well-off as possible? I have no idea. Even worse, a Rawlsian approach makes the two yell at each other as they compete to be the biggest victim. Because almost every little intersectional group can make a plausible claim to be the worst off, in the nation Rawls helped make, we all end up competing over who’s the biggest victim. Who are the worst off? No one really knows, but everyone suspects it’s themselves.
But Piketty and Saez are proposing a dry yet elegant answer to the question, one that both tells us who the worst off are and helps us prevent Wilt Chamberlain’s talentless grandchildren from ruling the world. The worst off in a capitalist meritocracy, they’re saying, are the 50 percent of us who inherit nothing. This is also an elegant solution, they suggest, because that’s an answer at least half of us could get behind.
Once you plug in those who inherit nothing as the worst off and choose the inheritance tax that makes them as well-off as possible, Piketty and Saez’s equations spit out the answer that the optimal inheritance tax rate in the United States is 59 percent.26 That’s neat.
Why is the optimal inheritance tax rate from the perspective of those who inherit nothing not 100 percent? After all, that would cost them nothing in inheritance money. Well, you have to factor in stuff like the fact that if the inheritance tax was 100 percent, every rich person would be hell-bent on spending all their money during their lifetime, so the 100 percent tax would actually collect about $0. You also have to factor in social mobility—some of the 50 percent who inherit nothing expect to become rich, so they don’t want a 100 percent inheritance tax either. Factors like these are why Piketty and Saez have so many equations.
Let’s not take that 59 percent inheritance tax rate as gospel; there are a lot of assumptions behind it, as the authors observe. The point is that the inheritance tax rate should be very high. If anything, I’d take the figure Piketty and Saez arrive at as a minimum. We shouldn’t allow people to become billionaires just by having rich parents.
Redistributing Duty
Nozick would cry out that preventing this amounts to a major imposition on freedom—after all, your wealth is your property, and you can give your property to whoever you want. One could also argue that a very high inheritance tax would also remove an incentive for value creation. Some people spend their lives building empires precisely so they can pass them down to their children; they want to build dynasties that will outlive them.
My response is that we should think of high inheritance taxes not just as a way of redistributing wealth, but a way of redistributing duty. Yes, by definition preventing parents from creating dynasties is a restriction on their liberty. Civilization itself amounts to a collective agreement for each individual to give up some liberties so that the group can prosper. The purpose of a high inheritance tax is to preserve the meritocratic system that allows wealth to be built in the first place—including the flat (and low) income tax regime that I would favor for everyone while they’re still alive. If a talented person benefits from that system and becomes rich, they owe it to everyone else to preserve meritocracy so others have the chance to do the same. The goal of creating a hereditary dynasty is an illegitimate one in a meritocracy. It’s the duty of a successful citizen to preserve the way of life that allowed them to succeed.
With great power comes great responsibility. That’s a very American idea. Those citizens who have the power to destroy our meritocratic system have the duty to accept restrictions preventing them from doing so. They are still free to create business empires, companies that last hundreds of years after their deaths; it’s not as if all their works will crumble when they die. They should also be free to make sure their children won’t starve or be homeless after they’re gone. They should be free to accumulate wealth and spend their money as they see fit under a system of minimal taxation for as long as they’re alive. But what a citizen in a meritocracy is not free to do is create hereditary dynasties that undermine the very equality of opportunity that allowed them to thrive.
A high inheritance tax isn’t just about making parents better citizens; it’s also about doing the same for their children. Toward the end of Woke, Inc. I argued that teenagers should do national service during summers as part of their high school education.27 The main goal of that wasn’t for the nation to get free labor—the labor of teenagers is often not terribly valuable. The purpose of national service is to better those who serve, to make them conceive of themselves as citizens working together to build a nation. In the same way, a high inheritance tax would remind the wealthiest children that they’re citizens embarked on a common project with everyone else. It would remind them that they’re no better or worse than anyone else. It would remind them that we’re bound by our shared pursuit of excellence under conditions of equal opportunity.
Making their own way in the world, on their own merit, not only makes children better citizens; it makes them better people. A high inheritance tax is as much for the sake of those who would inherit as anyone else. People should be given the chance to stand on their own and find out who they are. They should have the opportunity to be underdogs instead of incumbents, to fight against long odds and win. The underdog who claws their way to the top understands things the lifelong favorite will never know.
Nobody cries for rich kids, but in a way, they’re necessarily deprived. They’re deprived of the chance to define themselves outside the shadow of their parents’ wealth. Rich or poor, everyone deserves the opportunity to find out what they’re made of instead of having their parents’ bank accounts decide it for them. Being born in the lap of luxury is just another powerful illusion wrapped around someone from birth, always distorting their view of the world and themselves.
That’s what happened to Commodus. Being born heir to the empire warped his worldview from an early age, poisoning his character. He grew up in the grip of the illusion that the world revolved around him, that there was something fundamentally better about him than everyone else, and so he came to believe that the empire was meant to serve him instead of the other way around. Dio Cassius wrote that he was “not naturally wicked but, on the contrary, as guileless as any man that ever lived. His great simplicity, however, together with his cowardice, made him the slave of his companions, and it was through them that he at first, out of ignorance, missed the better life and then was led on into lustful and cruel habits, which soon became second nature.”28 Being denied his grand inheritance wouldn’t have been bad for Commodus at all; on the contrary, it would’ve given him the chance to become a decent man.
The biggest downside to my proposal of a high inheritance tax is actually that it would end up benefiting the children of the wealthy. This relates to that idea from Piketty and Saez—the higher the tax is, the harder the wealthy will try to spend their money during their lifetimes. That’s not necessarily a bad thing, since that increased consumption will generate economic activity. But it’s an inevitable consequence of my proposal that parents will try to give their money to their children before they die, and they’ll likely do it in the form of giving them the best educations money can buy. The children of the wealthy will still end up forming a kind of aristocracy, but one that comes not directly from inheriting wealth, but from having developed their knowledge and talent.
This is the main objection Daniel Markovits makes to meritocracy. Markovits argues that the real source of inequality is not a wealth gap, but an education gap that turns into an income gap that perpetuates itself:
Elaborate elite education produces superordinate workers, who possess a powerful work ethic and exceptional skills. These workers then induce a transformation in the labor market that favors their own elite skills, and at the same time dominate the lucrative new jobs that the transformation creates. Together these two transformations idle mid-skilled workers and engage the new elite, making it both enormously productive and extravagantly paid. The spoils of victory grow in tandem with the intensity of meritocratic competition. Indeed, the top 1% of earners, and even the top one-tenth of 1%, today owe perhaps two-thirds or even three-quarters of their total incomes to their labor and therefore substantially to their education. The new elite then invests its income in yet more elaborate education for its children. And the cycle continues.29
Although he’s a proponent of meritocracy, Wooldridge identifies the same problem Markovits does, expressing it concisely: “And from the 1980s onwards the [meritocratic] revolution began to consume itself as merit made money and money purchased education.”30
This is a serious problem, although it’s not one caused by a high inheritance tax, but simply one that might be exacerbated by it. In our present world, the very richest already send their children to $50,000-per-year preschools. What a high inheritance tax would change is that it would give others who are not quite as rich incentive to do the same.
In some ways, this is a good problem to have—we have at least made significant progress if the rich perpetuate their advantage by training their children to be skilled and hardworking instead of simply giving them all their wealth. If this path still leads to a form of aristocracy, at least these aristocrats will have character and ability, which is good both for them and the nation. But there is still more that can be done to address this merit-based path toward aristocracy. As Wooldridge puts it, “The answer to [this problem] is more meritocracy: we need to redouble our efforts to remove formal advantages for the rich while also developing better ways to distinguish between innate ability and mere learning.”31
Wooldridge suggests that a system of standardized testing focusing on innate ability and fully funded national scholarships would help level the educational playing field. He points out that the SAT, for instance, measures innate academic ability more than people often think: “A 2006 analysis of a large collection of studies found that coaching for the SAT produced an improvement of 50 points on a scale of 1600; a more recent study found a 20-point improvement. Neither of these numbers is insignificant, but they are both small compared with other affluence-related advantages and much smaller than on tests of knowledge rather than reasoning.”32
In another intriguing solution to the problem of educational advantages, Wooldridge proposes that “National merit scholars might also be given free university educations in exchange for agreeing to spend a certain number of years in the public sector. This would address the public sector’s growing problem with recruiting high-flyers… It would also repair the fraying link between public service and intellectual excellence.”33 He notes that this kind of bargain was proposed by Thomas Jefferson when he designed the University of Virginia, and that Singapore, one of the world’s most successful meritocracies, “obliges scholarship winners to pay off their debt by working for the state. It is worth reintroducing the idea more widely in a West where public service is going out of fashion.”34
I find Wooldridge’s solution to the problem of education appealing. The answer to inequality produced by education is not to deprive the rich of good educations, but to provide them to the poor. And by giving generous scholarships in exchange for public service, we would find yet another way to instill civic virtue while maintaining meritocracy. Through the combination of high inheritance taxes and scholarships given for service, we would remind both rich and poor that excellence and citizenship are two sides of the same coin. Today’s Republican Party would do well to consider it: a theory of justice as duty might just be our missing shade of red.