28. Success and Luck (claims for meritocracy debunked mathematically)

Success and Luck: Good Fortune and the Myth of Meritocracy. Robert H. Frank

World War II was followed by thirty years of strong economic growth with no increase in economic inequality. This has been followed by forty years of slower growth with rapidly increasing inequality. Compelling evidence suggests that this sequence is counterproductive, not just for the poor and middle class, but for the wealthy themselves. Nevertheless, economic elites advance whatever arguments they can to justify their privileged status. One of these arguments is meritocracy, which is the claim that some combination of innate superiority, ability, and hard work justifies the enormous differences between their wealth and incomes and everyone else’s. In Success and Luck, Cornell economics professor Robert H. Frank examines this claim.

Conservatives correctly observe that people who amass great fortunes are almost always extremely talented and hardworking. Liberals also correctly note that countless others have those same qualities yet never earn much. In recent years, social scientists have discovered that chance events play a much larger role in this difference than once imagined. Nevertheless, it is human nature to underestimate and rationalize fortune’s role in one’s own success, while embracing bad luck as an explanation for failure. The dark side of this delusion is that those who are oblivious to their own advantages are often similarly oblivious to other people’s disadvantages and reluctant to pay the taxes required to support the investments for a good environment for everybody and to help the less fortunate.

Obviously, large numbers of elites who inherited their wealth and opportunity have no claim to meritocracy. In addition, all children of high income parents have greatly enhanced prospects for success, regardless of actual inherited wealth. Children with low test scores and high income parents are more likely to achieve college bachelor’s degrees (30%) than children with high test scores and low income parents (29%) (see fig. 8.2). Nevertheless, elites who made their own fortunes generally are extremely talented and hard-working. Still, it’s one thing to say that 1% more talent or hard work merits 1% more income, but it’s quite another to say that magnification of these small personal performance differences by chance to thousands-fold differences in earnings is merited.

In today’s winner-take-all markets technology enormously extends the reach of one or a few winners from a large pool of similarly talented, hard-working competitors, where luck often plays a pivotal role, so they can take all the gains. For instance, in the recording industry, 15% of sales are accounted for by the top one-thousandth of 1% of titles, and sales are less than 100 each for 94% of titles. Luck plays an important role in this process when critics with highly variable tastes eventually decide which titles will get air-time and the chance for success.

Professor Frank illustrates this situation with a numerical simulation showing that when luck counts for only a tiny fraction of total performance, the winner of a large contest will seldom be the most skillful contestant, but will usually be one of the luckiest. Two factors are involved: 1) The inherent randomness of luck means the most skilled contestant is no more likely to be lucky than anyone else. 2) With a large number of contestants, there are bound to be many with close to the maximum skill level, and among those at least some will also happen to be very lucky. For instance, with 100,000 contestants where luck counts for only 2% and ability and effort count for 98%, 78% of winners do not have the highest score for ability and effort. The math and results of various combinations of luck with hard work and ability are shown in an appendix (see Fig A1.2).

Examples are provided for small differences related to luck that influence outcomes. In professional hockey, 40% of players were born in the first three months and 10% were born in the last three months of the year, presumably because the traditional January 1 cut-off date for youth hockey gave the older players a better chance to be chosen for elite squads. Children born in summer months are the youngest in their classes and less likely to hold the high school leadership positions that are associated with higher wages later in life and better chances to become large company CEOs. Assistant professors of economics in top schools are more likely to be awarded tenure the earlier the first letter of their names appears in the alphabet, possibly because co-authors in economics publications are listed alphabetically. For eight representative track and field world records, seven were set with a tail wind (less than 2 m/ sec), one with no wind, and none with a head wind. Examples are also provided for the importance of chance in individual success of very talented and hard-working people like Bill Gates.

The remainder of this small book (149 pages) discusses reasons for persistence of false beliefs about luck and talent and the consequences of those false beliefs, particularly with respect to increasing inequality and the lack of support for government programs and infrastructure. In the last part of the book, the author presents his case for replacing the progressive income tax with a progressive consumption tax that he thinks would better address these problems, although relevance to the rest of the book is weak.