EP:
This article is probably pertinent:
http://www.epi.org/blog/compensationproductivity-link-broken-vast/
This is somewhat related, but this guy vocalizes one other reason I'd like a shitload of $$:http://www.interfluidity.com/v2/3487.html
Steve Randy Waldman doesn't post a lot but he is pretty interesting I believe he nearly completed a PhD in econ, and then became some kind of securities attorney but I'm not certain.To your point, I think there are a lot of obvious ways that we do not live in a meritocratic society. The whole idea of less regulated capital leading to greater meritocracy requires some type of balance of power in labor markets. If capital in general has greater bargaining power than labor (and I believe it does), then it is not clear less regulated capital leads to anything other than greater returns to capital at the expense of labor. Further, I believe this is an endogenous problem. That is, three things are true: 1) capital tends to accumulate in greater concentration over time, 2) greater capital leads to greater political power, 3) eventually everyone who has power will use it to further their own ends.
You can see this empirically in a lot of ways. For example, raising minimum wages does not generally tend to increase unemployment in many studies. Productivity for all but the very wealthiest is rising significantly faster than real wages. How rich your father is leads to dramatically better future income even after controlling for education and ability.
I think there are a number of systemic reasons for this. Obviously the fall of unions is one. Unions are in a lot of ways suboptimal, but it is not clear to me that they are actually any less suboptimal than a system in which capital has unchecked power. White collar crime/malfeasance is not really punished. Massive principal agent problems at corporations and acquiescent boards is another issue. I think there in general asymmetry in labor markets, leading employers in aggregate to capture more gains over time. Our IP system is another issue, which often glorifies one "great man" despite the fact that his invention may be derivative or built on the backs of others. Yet another example is that most of the richest people in the country are financiers, and non-financial executives (read: run someone else's company). The whole reason we ostensibly organize our economy in this way is to encourage entrepreneurship. Yet all the great rewards go to people that take almost no risk, and if anything, our lack of a social safety discourages people from quitting their jobs and starting a business.
I'm not sure what will turn this around though. Americans have a pretty powerful narrative around themselves as individualistic hard workers, that have no one but themselves to blame for their own failure. You see a lot of people go against their own economic interests in order to maintain this internal narrative. I think it is also hard because the guys at the top aren't necessary bad people, unintelligent, or not hard workers. So the response is "I went to Harvard, am a certified genius, and work 80 hours a week. Of course I deserve to make $10M a year!" It can both be true that the system is massively tilted to the already wealthy in unfair ways, but those wealthy few are still hard-working and smart (just overpaid).
As a final point, I think it's especially ridiculous because we spend money in stupid ways because we essentially only care about our country's philosophy and not outcomes. Objectively, there are a lot smarter ways to spend money to close the gap in childhood achievement than just throwing more money at teachers or charter schools. It would actually probably cheaper to provide food, shelter, early childhood education, and basic income (for the parents) to poor kids. Especially when the alternative is unemployment, disability, or jail, and subsidized healthcare at inflated prices. But even without racist undertones to objections (of which there are plenty), providing this kind of safety net goes against what many few as our national character.
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