May 13, 2021

Efficient Merit Apocalypsea mirror on meritocracy

Power always thinks it has a great Soul, and vast Views, beyond the Comprehension of the Weak; and that it is doing God Service, when it is violating all his Laws.

— John Adams to Thomas Jefferson, February 2, 1816

There’s little hope human beings will overcome all our innate flaws anytime soon. But as consolation, our foibles get ever less mysterious over time, under earnest reflection. Case in Point: our noted bent to be helpfully specific about what’s good for us … and inevitably vague on why we ought to have it.

In computing, the hallmark of this universal affliction has been fairly well beaten to death. “Meritocracy”, as it turns out, is totally true … for all manner of unhelpful, lazy, and otherwise disappointing definitions of “merit”. The rich and famous among hackers bask in the warm glow of a general theory that they’re rich or famous because they’re the best. But there are few better-than-circular arguments for that leap of self-affirming faith.

Few of the famous don’t deserve success. But there are many like them who haven’t come out so well. It helps to be good to get that lucky, but luck isn’t exactly what we mean by merit. Luck in tech exhibits some troubling biases.

But tech is hardly alone in harboring, cultivating, and festering flattering generalities. Everybody does it. Tech’s just sitting at the top of the ego pile at the moment.

For those unfamiliar with similar innovations nominally centered on the other coast of the country, consider the efficient-market hypothesis, the once and ever doubtful self-realizing religion of finance. If you can’t see the warps in the mirror of meritocracy, trace them out in an industry apart.

In wonk terms, the efficient-market hypothesis holds that market prices reflect all the information available to traders in those markets. When the market is public, like the stock market, that means the price of a stock reflects everything the public can know and deduce about that stock and the company behind it. Put another way, if the market is “free” enough, the current market price of an asset reflects the true and proper value of that asset, right here, right now, based on what’s given to know. It’s as good a guess as we’re able to get, and way better than what we could get from any kind of designated oracle.

Wonks being wonks, there are different forms or meanings of the efficient-market hypothesis. Some focus on the kinds of information rolled up into price. Others focus on the degree of fundamental price truthiness. Options range from absolute and fatalistic to suspiciously iffy-wishy-washy. But in any form, at its core, the efficient-market hypothesis lays an erudite economic sheen over the old quip that the value of a thing is what people will pay for it. Markets set prices, and markets are right. In certain circles, “right” is pronounced “efficient”, even enjoys a positive moral valence.

Dismayingly enough, if you take the time to think it through, the efficient-market hypothesis is rather bad news for would-be bazillionaires. Efficiency implies that “beating” the market—doing a better job of pricing assets individually than the market does as a whole—isn’t reliably possible. Individual outcomes may vary, as chance does. But there’s no better authority on value than the market as a whole. Not at the fancy hedge fund across the river. Not between your aching neck and furrowed brows. You might as well buy a total market index fund and shop around for the lowest fees you can find. If you’d rather be a “noise trader”, brokers will happily take your tolls until you fold.

Hardly an inspiring personal credo: “Give up. Go for the ride. The market’s got this.” But fear not. That’s not the field on which memes compete for mindshare. In personal terms, for many traders, all such nuanced implications are necessarily and conveniently lost. Distilled down to an individual level, shaded by self-interest, the message is different. The message is, essentially, meritocracy. Winners’ meritocracy.

If you’ve “won” in the markets, and become rich, you’ve contributed to the process of market efficiency, of ensuring the Great Financial Machine spits out true and correct value assessments for the benefit of all mankind. This is called “price discovery”, and contributes to an ethereal process of “capital formation”.

If your gains came at the expense of others, that’s well and dandy, too. You were closer to truth—to “alpha”—while they rightfully languished in the herd, chewing “beta” cud and imposing their irrationalities on the public weal. They’ve learned a hard lesson. You’ve taught them. And moved their money to nobler, wiser hands.

Whether it’s efficiency in finance or merit in tech, these hypotheses could not be more helpfully reassuring. They esteem winners as just, justified, and prosocial. They decry losers as unworthy, flawed, and deserving. They encapsulate, in pithy phrases, a pleasantly simple, emergent esteem of not just individual plays and outcomes, but the system as a whole. As a winner, you deserved what you won, full stop. And the world should be grateful to give it to you and protect it for you until you’re done with it. Your privileges aren’t merely fair, but just, even necessary.

The awe inspiring psychological convenience of these deductions alone ought to cast heavy doubt on their premises. They are thriving in confirmation bias. That does not make them false, but it does not make them true. It ought to make us wary.

Consider the matter of accounting. When we win financially, we usually know by how much. We can measure it—in dollars—with decimal precision. Banks, regulators, and tax men can audit our books and come to the same numeric conclusion of our greatness, for the lines from our actions to our dollars are very clear.

That is nothing like the situation with efficiency or general deservedness of those winnings. There it’s all theory, generality, and rhetoric. Even if you buy that the theories themselves stand empirically validated—despite vigorous debate among those who actually validate things empirically—the profs haven’t studied us for their papers. They don’t publish certificates of individual worthiness.

Or rather, when they do, there’s no reliable, one-to-one correlation to splendid fortune. In computing, it’s almost trite to point out that Turing, the brightest of stars, got little in the way of transferable gratitude while he lived. Because in addition to being a genius, a war hero, and a member of no racial minority, Turing was gay and admitted to getting laid. That was enough to flip the whole meritocracy machine in reverse, grinding him unto death.

“Openness” in meritocratic systems takes on the eschatological role of “freedom” in efficient markets. In either case, it’s the state of nature: an unregulated, unconstrained rule space that willfully stands by as the magic mechanism—merit, efficiency—does its work.

Read any famous hacker or financier’s autobiography, you’ll likely find emphasis on the opportunities, green fields, and fenceless spaces that lay open to them. Read the biography, by someone else, and the structural factors, subsidies, and protections come to the fore.

Just as with meritocracy, which sees merit as at least partly innate, or at least immutable, given circumstances, and just as with the efficient-market hypothesis, which warns against noise trading, the draw isn’t a logical system that actually plays out to good results under rational analysis. The draw is justification, backward-looking, not forward-looking prescription. Openness and freedom mean winners’ winnings remain safe. There’s no springing obligation to settle up with the those whose work you walked like stepping stones. There’s no looming gains, wealth, or inheritance tax, no civil lawsuit or criminal conviction, to worry about, once you’ve been declared a winner.

There is an even more general pattern into which these self-serving justifications falls: Social Darwinism, a cartoon Survival of the Fittest. I am alive, therefore I am fit.

But it’s not just individual projects, reputations, and bank accounts that struggle and compete. Families, institutions, and other groups also duke it out. Some of those, as it happens, make and enforce rules. Some of them expound values, and impose accountability for advancing those values.

With the right values, and real accountability, they’re stronger for it. They survive.

Your thoughts and feedback are always welcome by e-mail.

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