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In a meritocratic society, there is positive correlation between talent and success. But how steep should this relationship be? If the talent-success slope is v

In a meritocratic society, there is positive correlation between talent and success. But how steep should this relationship be? If the talent-success slope is very steep (i.e., a small talent difference causes a large capital gap), you might end up having a wide distribution of wealth (severe economic inequality). On the other hand, if the slope is quite flat (i.e., a big talent difference makes little difference in capital), the society has weak meritocracy, which may disincentivize people from achievements. The right degree of steepness depends on how one defines fairness and how much inequality a society can handle. This discussion misses one important element of returns to talent: more capital in the hands of more capable people should result in better allocation of resources, and consequently better outcomes for society as a whole. Too little inequality would, according to this view, result in destruction of capital over time, and in consequence impoverish the society.

Retric 9y ago
You assume the ability to gain capital has anything to do with the ability to invest well. A quick check of sports stars shows this is very far from the case. Talent is not universal, being a great Doctor has little to do with being a great painter or investor.
- quotemstr 9y ago
  > Talent is not universal, being a great Doctor has little to do with being a great painter or investor. You might like to think so, but g says otherwise.
  - Retric 9y ago
    Correlation != a 1:1 relationship. Top Hollywood actors might do better than the average person on average, but plenty of high income people live in vast amounts of debt.
    - solidsnack9000 9y ago
      It just has to be better on average, though, for the broader social implication to hold: allocating capital to able people isn’t just about rewarding them, it’s about what they go on to do with that capital.
      - Retric 9y ago
        That would only be relevant if their was absolutely no other way to allocate capital and maximizing ROI was the only relevant metric. Building, a X$ Yat may count to GDP as X$ worth of healthcare, but society does not care about them equally. What's important is the outputs of society, not the accounting that occurs between effort and consumption.
        solidsnack9000 9y ago
        All people engage in consumption, though — less able people as well as more able people. The issue is, when they aren’t, what are they doing with that capital? This relates not only to how people run a business but also how they engage with civic projects, charities and institutions like schools and universities. There are marked differences in styles of consumption. Some of the things the Romans did, for example, are simply too destructive and wasteful for our tastes today. If you’re saying, we can allocate capital not to more or less able people, but in some other way — to institutions or something — well, that’s true; but there still will be capital managed by individuals. When talented, constructive people rise to the top of the heap and run laundromats, computer companies, and other businesses, we are ultimately all better off for it, because those services are (a) available and (b) good. But to run such businesses people do need to accumulate capital.
        Retric 9y ago
        My point is there is no reason to use indirect means. If you care about efficient use of capital then add a capital tax of say 1%. Now, people who get a higher ROI accumulate wealth faster rather than those who simply conserve wealth. When accumulation of wealth is more tightly coupled with the ability to invest rather than the ability to let compound safe investments create wealth you increase efficiency. Beyond that I don't think capital accumulation needs any incentives. People don't invest more because of changes to the tax code they simply get more money from the same investments.
- solidsnack9000 9y ago
  “Talent” in the article seems to be specifically ability to improve one’s store of cash independently. Some athletes may have that talent, and some not — enterprising and disciplined people are broadly effective in life while the merely gifted struggle to tie their own shoes in the morning. Allocating capital to these latter people often does result in its destruction, as you point out. There is a social cost when capital ends up in the hands of people who can’t grow it.

Retric 9y ago

You assume the ability to gain capital has anything to do with the ability to invest well. A quick check of sports stars shows this is very far from the case. Talent is not universal, being a great Doctor has little to do with being a great painter or investor.

quotemstr 9y ago
> Talent is not universal, being a great Doctor has little to do with being a great painter or investor. You might like to think so, but g says otherwise.
- Retric 9y ago
  Correlation != a 1:1 relationship. Top Hollywood actors might do better than the average person on average, but plenty of high income people live in vast amounts of debt.
  - solidsnack9000 9y ago
    It just has to be better on average, though, for the broader social implication to hold: allocating capital to able people isn’t just about rewarding them, it’s about what they go on to do with that capital.
    - Retric 9y ago
      That would only be relevant if their was absolutely no other way to allocate capital and maximizing ROI was the only relevant metric. Building, a X$ Yat may count to GDP as X$ worth of healthcare, but society does not care about them equally. What's important is the outputs of society, not the accounting that occurs between effort and consumption.
      - solidsnack9000 9y ago
        All people engage in consumption, though — less able people as well as more able people. The issue is, when they aren’t, what are they doing with that capital? This relates not only to how people run a business but also how they engage with civic projects, charities and institutions like schools and universities. There are marked differences in styles of consumption. Some of the things the Romans did, for example, are simply too destructive and wasteful for our tastes today. If you’re saying, we can allocate capital not to more or less able people, but in some other way — to institutions or something — well, that’s true; but there still will be capital managed by individuals. When talented, constructive people rise to the top of the heap and run laundromats, computer companies, and other businesses, we are ultimately all better off for it, because those services are (a) available and (b) good. But to run such businesses people do need to accumulate capital.
        Retric 9y ago
        My point is there is no reason to use indirect means. If you care about efficient use of capital then add a capital tax of say 1%. Now, people who get a higher ROI accumulate wealth faster rather than those who simply conserve wealth. When accumulation of wealth is more tightly coupled with the ability to invest rather than the ability to let compound safe investments create wealth you increase efficiency. Beyond that I don't think capital accumulation needs any incentives. People don't invest more because of changes to the tax code they simply get more money from the same investments.
solidsnack9000 9y ago
“Talent” in the article seems to be specifically ability to improve one’s store of cash independently. Some athletes may have that talent, and some not — enterprising and disciplined people are broadly effective in life while the merely gifted struggle to tie their own shoes in the morning. Allocating capital to these latter people often does result in its destruction, as you point out. There is a social cost when capital ends up in the hands of people who can’t grow it.