BERKELEY – The best review of Thomas Piketty’s Capital in the Twenty-First Century that I have read so far is the one published by my friend and frequent co-author Lawrence Summers in Michael Tomasky’s Democracy Journal. Go read the whole thing now.
Still here? You are, you say, unwilling to read 5,000 words? It would be time well spent, I assure you. But if you are still here, I will offer you neither a synopsis nor highlights, but rather a brief expansion of a very small and minor sidelight, an aside in Summers’s review about moral philosophy.
“There is plenty to criticize in existing corporate-governance arrangements,” Summers writes. “I think, however, that those like Piketty who dismiss the idea that productivity has anything to do with compensation should be given a little pause.” Why? “The executives who make the most money are not...running public companies” and “pack[ing] their boards with friends,” says Summers. Instead, they are “chosen by private equity firms to run the companies they control. This is not in any way to ethically justify inordinate compensation – only to raise a question about the economic forces that generate it.”
That last sentence points out that our moral-philosophical discussion of who deserves what has become entangled with the economics of the marginal productivity theory of income distribution in a fundamentally unhelpful way. Suppose that it really is the case that there are decision-makers who are willing to pay an absolute fortune to hire you in a genuinely arm’s-length transaction, not because you have given them favors in the past or because they expect favors from you in the future. That, Summers says, does not mean that you “earn” or “deserve” your fortune in any relevant sense.