The Matthew Effect

One of the big arguments between liberals and conservatives is around the issue of inequality, particularly as it relates to wealth.

My understanding of the predominant conservative position is that those that gain wealth through their own efforts should be allowed to keep more of that wealth, and should not be taxed at significantly higher levels than everyone else, as that would mean they are being penalized for being successful.

I am aware that this might be a caricature, because I can certainly recognise the caricature of the liberal position that I often hear from conservatives, that of ‘equality of outcome over equality of opportunity.’ It is a caricature because I don’t know any liberal that believes in equality of outcome. That is, unless by outcome you mean having access to the nutrition, education, and support necessary to become a functioning member of society with the ability to express your particular talents in a manner that benefits both yourself and society.

Many conservatives seem to want some combination of the market and the individual’s family to sort out the allocation of nutrition, education, and support. Given that some combination of money and time are necessary to gain these things in a market economy, I can understand how it might seem that wealth, as an outcome, is diminished, when the fruits of wealth, i.e. greater access to nutrition, education, and support, are provided for free. However, if nutrition, education, and support are excluded from the definition of opportunity, one is left wondering what conservatives mean by equality of opportunity. It does seem as though equality seems to mean, you also have bootstraps by which to pull yourself up.

pull yourself up by your bootstraps

To succeed through hard work. Before zippers made getting into tall boots less of a chore, such footwear had leather attachments by which the wearer would pull them on (Western boots and some English riding dress boots still have them). Trying to raise yourself off the ground by pulling on your bootstraps sounds impossible . . . and it is (don’t try it—you’ll throw out your back). Therefore to pull yourself up by your bootstraps is to achieve your goals through as much hard work as levitating yourself would take. – Endangered Phrases by Steven D. Price. (2011).

The failure of the conservative position in arguing against redistributive taxation, and the failure of many liberals is to make the following argument strongly enough: the issue is not the money “earned”, but the power that accrues to the money that is out of step with the money itself.

What I am referring to is The Matthew Effect, most widely understood via the phrase ‘The rich get richer, and the poor get poorer.’ Many conservatives, it seems to me, would characterize this as a just mechanism, indicating that the rich are rich, and get richer, through effort, and thus deservedly so, and that, conversely, the poor are poor, and get poorer, through lack of effort, equally deservedly.

 

The Matthew Effect

The Matthew Effect is called such because it relates to the parable of the talents, and the parable of the lamp under a bushel, explained in Matthew (13:12), thus:

For whosoever hath, to him shall be given, and he shall have more abundance: but whosoever hath not, from him shall be taken away even that he hath.

However, the conservative position seems to be a version of the is/ought fallacy, as they seem to take this explanation as how it ought to be, and seek to instantiate it. It could equally be taken as a description of how society is, without assuming it ought to be that way, and thus liberals seek to mollify or ameliorate.

Indeed, conservatives recognise the need to resolve this social issue, but believe in doing so via charity, but charity, it seems to me, is an appropriate approach to special cases (acts of God, as it were), whereas taxation and the social safety net is required to resolve an issue that is inherent and systemic, and thus not something that should be at the whim of the wealthy to do something about it when they see fit.

 

Stigler’s Law of Eponymy

No scientific discovery is named after its original discoverer.

Stigler is saying here that:

Whosoever hath [a name in the scientific community], to him shall be given [credit for a given discovery], and he shall have more abundance [of fame in the scientific community]: but whosoever hath not [a name in the scientific community], from him shall be taken away [fame in the scientific community] even that he hath.

Stigler mentions Robert K Merton, he who called it the Matthew Effect, as the “unnamed” discoverer of the law. In doing so Stigler initially lived up to the law, but virtually ensured that Merton got due credit, as Merton is now more highly cited than Stigler on this particular point.

 

The Ownership of Production and Distribution

A production-line worker puts hours of work into hundreds or thousands of items that are then sold to stores. Those stores then sell those items on to the populace. The smallest portion of the “value” of the item is passed to the production-line worker. The most, per item, goes to the store that sells it to the public. The most, per product (all items of the same make and model), goes to the company that owns the means of manufacture. This, in and of itself is not inherently problematic, but for when the owner of production seeks to diminish what credit (i.e. money) the worker does get, this can be due to the seller beating the manufacturer’s price down, or because the manufacturer themselves wishes to raise capital. Both of these reduce the worker to a means not an end.

Of course, the manufacturer doesn’t truly own the means of production, they own the venue in which the means of production works – this is a solid argument for both robotic workers (that can actually can be owned), and characterizing low-wage (particularly highly physical) work as a form of slavery. Just as the manufacturer is credited as the maker of the product, not the individual worker(s), so, too does the money accrue. Again, this is not necessarily problematic, but for the fact that the Matthew Effect also has a bearing on wealth.

 

Credit Where Credit is Undue

Wealthy people get discounts they don’t need, especially if their wealth comes with some kind of notoriety (though this is also why notoriety can sometimes give rise to wealth). People of moderate means are less likely to get discounts, even though they would actually benefit from them. Moderate means is seldom synonymous with fame and notoriety.

Wealthy people are cushioned from their own mistakes and misfortunes, both by having money to fall back on, and by being able to buy the kind of expert help that will extricate them from the troubles they find themselves in, even where the morality of their decisions is questionable. This is the immunity from consequence that comes with money. People of moderate means can find themselves in financial situations from which recovery is impossible through simple bad luck, or bad judgment, irrespective of whether or not they made the “right” choice.

These facts are not the fault of wealthy people, and wealth is not inherently bad, but neither is this is the fault of people of moderate means. It is a fact about money, and people’s reaction to money that is distinct from the way on which it is earned.

Someone with one pound/dollar in their hand, has little power. They do have the power to buy a widget worth a pound/dollar. Someone with one million times that amount in their hand (asides from having very large hands), has much more than one million times the power, not least the ability to buy one million widgets, and probably still have two hundred thousand pounds/dollars, or more, in their hand. The difference between these two people has nothing to do with the effort they put into the earning of the amounts that they hold in their hands, and everything to do with a fact about money that is distinct from the way in which it is earned. On a unit-by-unit basis, the wealthier person has 25% more buying power.

 

Income inequality

Individuals’ actual needs are not different, whether wealthy or of moderate means, but the difference in the impact of changes in fortune between the two are very different.

People in poverty cannot afford:

  • to buy in bulk
  • the level of nutrition that will better support their immune system long term
  • the type of housing in neighbourhoods that will keep them well long term
  • the time off to be sick, and get well (but equally they cannot afford to be at work with sick people who are contagious)
  • to purchase extended warranties for necessary household products (or put aside the money for a replacement, if necessary)
  • to make the wrong choice in pretty much all purchasing decisions

This is just a quick list off the top of my head, and is by no means exhaustive… indeed, not even close. Wealthy people need not give any of these things a moment’s thought.

That is the difference between giving a person in poverty the equivalent of a year’s wages in a lump sum, and giving that same amount to a multi-millionaire. For the former it is life changing, for the latter it might just about be afternoon changing.

 

Redistributive taxation

Redistributive taxation is frequently painted as stealing from the (deserving) rich and giving to the (undeserving) poor. I am defending it, here, by suggesting that redistributive taxation is a mechanism by which the Matthew Effect is reduced. The power of money – distinct from the way in which it was earned, and thus not related to hard work, dedication, talent, ability, or grit – is somewhat neutralized. This moves the difference in purchasing power back down to being more representative of the work done, rather than an artifact of the money itself.

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