Can you guess who said the following?
The concept of success leads me to consider so-called meritocracies and their implications. We have been taught that meritocratic institutions and societies are fair. Putting aside the reality that no system, including our own, is really entirely meritocratic, meritocracies may be fairer and more efficient than some alternatives. But fair in an absolute sense? Think about it. A meritocracy is a system in which the people who are the luckiest in their health and genetic endowment; luckiest in terms of family support, encouragement, and, probably, income; luckiest in their educational and career opportunities; and luckiest in so many other ways difficult to enumerate–these are the folks who reap the largest rewards. The only way for even a putative meritocracy to hope to pass ethical muster, to be considered fair, is if those who are the luckiest in all of those respects also have the greatest responsibility to work hard, to contribute to the betterment of the world, and to share their luck with others. As the Gospel of Luke says (and I am sure my rabbi will forgive me for quoting the New Testament in a good cause): “From everyone to whom much has been given, much will be required; and from the one to whom much has been entrusted, even more will be demanded.” [My emphasis-MS]
This was said by Ben Bernanke, the head of the Federal Reserve, in his commencement address to Princeton University back in May.
Some people make the argument that the US is a meritocracy, and thus that those who are successful (at least in material terms like wealth and possessions) must therefore, almost by definition, be the most gifted and hardworking. Of course I think this is rubbish. Much of our success in life is due to sheer luck and so was pleased to get support for this view from a somewhat surprising quarter.
Paul Krugman also approves of the sentiments of the speech and examines the consequences for tax rates. How much should be required from those who have been lucky to get the most?
The question then becomes one of numbers. In particular, how high should we set the top tax rate? From a Rawlsian perspective, the key thing about very high incomes is that making them a bit higher or lower basically doesn’t matter — if you are lucky enough to find yourself in the top 0.1 percent (say), the marginal value of a dollar to your welfare is trivial compared with the value of that dollar to almost anyone else. So the top tax rate should be set solely with regard to the amount of money it raises for other purposes; essentially, you should soak the rich up to the point where any further rise in the tax rate would actually reduce revenue.
And we have a pretty good idea, based oncareful statistical studies, of where that optimal top rate lies; 73 percent, say Diamond and Saez, maybe 80 percent, say Romer and Romer.
I would like to see a much more progressive tax scale with top rates of the size he recommends. But it is going to take a long time to get there.