What the market expects from Trump


It’s been well over a year since anything’s been published on this blog. Good to be back!

Justin Wolfers, professor of economics at the University of Michigan, has recently argued that the stock markets react negatively to the possibility of Trump being elected President. And indeed, when the FBI announced today that they were looking into some of Hillary Clinton’s email messages again, stocks fell and volatility measures increased.

It’s worth remembering what the S&P 500 index is to see what the market is actually expecting from Trump:

S&P 500 index value = (1/the divisor)*(the price-to-earnings ratio for the whole S&P 500)*(S&P 500 earnings as a percentage of GDP)*(nominal GDP)

What would Trump supporters argue here? They could argue that the market is wrong about its expectations, and that it would initially fall but eventually rise if Trump is elected. In that case, they should bet accordingly by buying in the short-term period after Trump is elected (if he is elected). They could do the opposite if he isn’t elected (namely, once the market rises in the short run, start betting against it).

Or they could argue that the market expects nominal GDP to rise relative to trend but S&P 500 earnings as a a percentage of GDP (we’ll call this E/Y) to fall relative to trend. If there were no change in the divisor or in the P/E ratio, then E/Y would have to fall far enough that E would actually fall (relative to what the market would otherwise expect). What would the reasoning here be? They could argue that S&P 500 companies would lose business, but that smaller firms and/or workers would benefit by a greater amount. Perhaps if Trump encouraged better antitrust enforcement, this could happen. It could also happen if he reduced immigration to the point where labor share of GDP increased, but this would probably reduce nominal GDP, so it would become harder for them to argue that nominal GDP would rise relative to trend. (Also, in most models, immigration doesn’t affect labor’s share of GDP in the long run because the capital-to-labor ratio can readjust.)

They could also argue that Trump being elected would reduce the price-to-earnings ratio (we’ll call it P/E). Trump’s proposed tax cuts might be expected to raise P/E by increasing people’s willingness to invest at current stock prices. But if he is expected to run large deficits, the market might expect the deficits to raise interest rates and crowd out private investment, which would presumably lower P/E. Trump could also create policy uncertainty that would discourage investors and reduce P/E, although this doesn’t seem like an argument that Trump supporters would want to use.

They could argue that Trump would somehow increase the divisor I mentioned earlier. Perhaps more S&P firms will issue new shares and dilute their existing ones, although this doesn’t always actually reduce the share prices (since the firms now have more cash). A potential pathway here is that Trump could cut corporate income taxes, making equity financing more favorable compared to debt financing and thereby encouraging companies to sell shares and pay off debt. (Here is one paper arguing that the current tax system encourages debt financing). However, this could also end up raising the P/E ratio, since investors are willing to pay some amount for an increased book value for the firm. So it’s not clear how Trump’s expected policy proposals would affect anything here.

Lastly: Trump supporters could just admit that Trump would reduce expected nominal GDP compared to what it would be under Clinton. This doesn’t destroy their argument for him. They could still claim that Trump would increase American life satisfaction. Or they could argue that electing him would help foreigners. Or they could argue that Trump would raise real GDP compared to trend but reduce nominal GDP compared to trend, although they would have to then admit that this would make managing the federal debt more difficult. This also seems unlikely, because then market expectations of inflation would fall, but they actually just rose slightly (from a 10-year TIPS breakeven rate of 1.71% yesterday to 1.72% today). So Trump supporters who argue this position would have to say that the market expectations are wrong.

So it seems like the following holds:

  1. The market probably expects that nominal GDP will fall relative to trend if Trump is elected
  2. Trump supporters could either agree that this will happen and still defend Trump, or they could argue that the market is wrong and bet against it.

Which will it be?

EDIT: To add some more data to this, the S&P 500 fell from a high of 2140.61 just before the news came out to 2126.41 right now (trading has closed). That’s a 0.66% fall in the S&P 500. On BetFair, there was a 5.6 percentage point decline in Clinton’s odds.:Screen Shot 2016-10-28 at 7.54.11 PM.png

Professor Wolfers had found an increase of 0.71% in the S&P associated with a 6-point gain for Clinton. So with that ratio, we would expect a 0.66% fall in the S&P 500, which is exactly what we saw.

SECOND EDIT: My co-blogger tells me that it’s worth mentioning arguments against this hypothesis. Prof. Tyler Cowen has a post citing evidence that Trump’s odds aren’t significantly correlated with stock returns.

My view is that betting markets, including conditional ones that can provide information on how markets expect one event to affect the likelihood of another, should be liberalized (and can even provide policymakers with valuable information). I still think that with available data, Trump supporters must face the choice I described in this post.

Immigration and the Zero Lower Bound: A Twist on the “Alien Invasion” Metaphor

I was thinking earlier today about the effect of immigration on interest rates. In particular, I thought of an unusual argument for immigration restrictions when short-run interest rates are at the zero lower bound.

Some New Keynesian economists have suggested that destroying productive capacity can raise current output in said circumstances. (For academic journal articles asserting this, see the beginning of this paper by Johannes Wiedland, also cited below.)

The reasoning is that a negative supply shock can lower expected production, thereby increasing expected inflation. When short-term nominal interest rates are stuck at zero, this has the effect of lowering expected real interest rates. This in turn causes people to spend more money now, raising output and employment.

Intuitive example: You have money in a bank account earning nearly zero interest. A hurricane forms, threatening the supply of various goods. What do you do? Simple: you take money out of the account and buy goods whose prices you expect to go up. The opportunity cost of doing so is minimal, and buying the goods before they go up in price makes you better off.

Paul Krugman’s example of an “alien invasion”: Nobel laureate economist Paul Krugman gave an infamous example of an attack by aliens on Earth, in which governments would scramble to spend money on defense. This example is a bit different from the one I gave, because the spending is done for the purpose of fighting off a potential supply shock, rather than just reacting to one.

However, in the case of the alien invasion, there is an expected possibility of aliens doing damage to the earth, and some diversion of resources towards fighting aliens instead of producing other goods. Both of these raise inflation expectations, lower real interest rate expectations, and increase present-day spending.

What does this have to do with immigration? When the economy is at the zero lower bound, it could make sense (under the model previously described) to further restrict immigration. This reduces expectations of real GDP, thereby increasing inflation expectations and inducing more spending.

Indeed, some people have referred to the existence of an “illegal alien invasion” (Google the term for examples); namely, of people entering the United States unlawfully. (Put aside the question of whether it is accurate to call mostly-peaceful migration an “invasion”.) But, unlike Krugman’s, this “alien invasion” would lower current output! With more immigrants adding to future real GDP, and short-term nominal interest rates stuck at zero, people would expect that goods will be cheaper in the future than they previously thought, and would hoard more money as a response.

A few reasons why I don’t actually endorse this argument for immigration restrictions:

  1. Even accepting the described view on supply shocks, one might not want to trade off future production for present production. Krugman was joking with his suggestion of faking an alien invasion, and it’s unfair to say that people who endorse this model don’t care about the long term at all.
  2. There are empirical issues with the claim that negative supply shocks at the zero lower bound are expansionary. Johannes Wieland of UC Berkeley argues in the previously linked paper “Are Negative Supply Shocks Expansionary at the Zero Lower Bound?” that “financial frictions” prevent this effect from working. He claims that negative supply shocks reduce the value of banks’ balance sheets, thereby constraining their lending and preventing the positive effect on aggregate demand from taking place. Using a general equilibrium model with these “financial frictions” built in, he finds that negative supply shocks at the zero lower bound do hurt short-run output. More research here may be needed, but his case seems plausible.
  3. There are better ways of dealing with the zero lower bound. I don’t want to get into my views on monetary policy here, but it should suffice to say that most people across the various schools of thought find there to be better ways of getting out of the zero lower bound than deliberately destroying productive capacity.
  4. Immigration could raise returns on capital and investment demand, thereby raising interest rates. Generally speaking, expanding the supply of labor is expected to raise the return on capital by acting as a complementary good. However, I say “could”, because the complementarity between labor and capital is very complex, and there are cases in which immigrants act as substitutes for capital. Dartmouth economist Ethan Lewis has done some work on this subject; see, for instance, “Immigration and Production Technology”.

I can’t say I find the “restrict immigration more at the zero lower bound” argument persuasive, but it is at least interesting, and I think I am the first to suggest it.

A Question on Human Rights Abuses and Secession

It is a fairly common belief that secession is legitimate in cases where it is necessary to stop human rights abuses. There is a somewhat less common view that secession is legitimate if it is supported by a majority or supermajority of people in the seceding region, as long as it does not create human rights abuses in that area. (See, for instance, Christopher Wellman on the matter, and Ilya Somin’s discussion relating to Crimea.)

However, what about the possibility of secession creating human rights abuses in the country which a region is seceding from?

Here’s an example: suppose some of the more anti-slavery Northern states in the U.S. had seceded in the decades before the Civil War. (There was some support for this, since many Northerners viewed the Fugitive Slave Act and wars fought for the expansion of slavery as unjust.) Suppose then that it had swung the remainder of the U.S. in a pro-slavery direction. Perhaps some results could be the expansion of slavery into the West, or more strictly enforcing the Fugitive Slave Act in non-seceding free states.

Could one then argue that the seceding states have an obligation to stay in the Union and keep pro-slavery policies from taking hold?

My current thought is that, since it can be very difficult to predict the outcomes of any given secession, a seceding region should not be blamed for these kinds of issues occurring.

In the previous example, it’s also quite possible that the remaining U.S. would have difficulty expanding slavery into the West without Northern military support. It’s possible that the Fugitive Slave Act would be weaker, since escaping slaves would be closer to permanent safety. (Getting to, say, Wisconsin, is easier than going all the way to Canada.)

Nonetheless, it does seem like this question could pose some issues for deciding when secession is appropriate, both in mainstream and less-mainstream theories. Feel free to post your ideas in the comments.

“Money is Not Speech” Misses the Point

The news of the U.S. Senate Judiciary committee approving a constitutional amendment allowing Congress and the States greater power to restrict political spending may bring attention to the issue of campaign finance. A fairly popular phrase in populist circles (especially on the left) used in favor of campaign finance restrictions is “money is not speech“.

Notably, former Supreme Court Justice John Paul Stevens used the phrase when describing his opposition to the Citizens United decision, which allowed corporations and other associations to make independent expenditures on political campaigns. Maryland State Senator Jamie Raskin even claimed that treating the spending of money as free speech would require that prostitution be protected as a form of free speech.

Frankly, the “money is speech” characterization is disingenuous. The point is not that spending money on things generally is a sign of one’s preferences and thereby a form of “free speech”. The point is that spending money on resources and labor directly used in the act of communication is protected.

For instance, most publishing companies are corporations. If a publishing company spends money from its general treasury to publish a book containing political advocacy, should that act be protected under the First Amendment? I would say so. In this case, the free speech rights of the authors would be at stake.

And yet this not was the view of the government in Citizens United (see this link, pp. 26-29). The case was later re-argued, and the government decided that there might be other reasons justifying a challenge to restrictions on book publishing (see this link, pp. 64-65), but the same basic argument still applies to broadcast media, which was the issue in Citizens United. Should a TV broadcaster be allowed to spend its general treasury funds on producing and distributing political content?

When the issue is phrased in terms of spending money on speech, rather than just spending money, it becomes clear that restricting political spending is, in fact, a form of censorship.

Can Privilege-Checking be Empowering?

Yes. At the very least in my experience.

Last month I decided to play soccer for the first time in too long and so I went out to the field near the gym to join a pickup game. I played there for roughly two hours (with a superbly diverse group, I must say), and then I took a break at the university library while waiting for 10 PM to come around so I could go join some friends to play even more soccer.

After the second round of soccer, I was thoroughly worn out. I had been kicked in the shins and stepped on a few times too many, and I hadn’t had to run so quickly and dynamically in years. I got on the bus to go back to my place, feeling like a wet rag.

While I was on the bus, waiting for it to leave the bus stop, a disabled black woman rolled up to the bus in her motorized wheelchair. The bus was lowered for her, the platform extended, and she got on, went to the handicapped spot in the bus, and waited for the driver to strap her chair in place.

After I noticed her and the events surrounding her, I looked away and kept thinking my own thoughts, one of which was particularly loud and consisted of my mind screaming at me how tired I was. But then, I looked again at the disabled woman and put my experience in perspective:

– Yes, I was tired, but at least I had the pleasure of playing for so long, while she did not.

– Yes, I was in pain and would likely be sore for a very long time (my knee was in fact weak for the next few days), but no more than a week later I would surely be fine again and up for more high-speed games, while she would not.

– Yes, I felt like a wet rag, but she probably had to suffer from impaired mobility for the rest of her life and often had to rely on help for some of the most basic tasks in her life, which surely can’t be a great elixir for one’s self-esteem.

In short, I checked my privilege. And it was empowering.

Suddenly, the pain and the weariness did not seem so great. Suddenly, I focused on the positives, on the fun I had just had, and on the fun I would have in the future – and even on how I would improve my game in the future.

This led me to come up with the theme for the present article. While privilege theorists believe that privilege checking can help lead to a more just society by helping people reconsider their assumptions and positions of power as they interact with others in social spaces, it’s conceivable that the result could be the opposite. If a privileged person checks their privilege and realizes they have no reason to feel discouraged in their current position, this could prompt them to continue to enjoy their privileges over other people.

In other words, checking one’s privilege could, for some people, be translated as “hey – remember that you have all of this privilege!” This, in turn, could result in them saying “hey – I do! Thanks! I feel a lot better!”

Next time you feel down – check your privilege. You’ll feel a lot better.

A Response to Philluhp’s Video on “Formalizing Privilege” – Systemic Hierarchies

My article on formalizing privilege has received a tiny bit of attention in social media (since I sent it around to a few people) and someone graciously decided to message me with his thoughts and later went on to make a video response to my article:

I’d like to begin by thanking Philluhp for taking the time to both read my article and to make a respectful video (twice!) to voice his views on the matter, which can be summarized as follows:


– When we, as social justice warriors, talk about privilege, we are not talking merely about an individual advantage someone has

– We’re talking about an advantage that a group has due to beliefs or cultural practices that results in social stratification/hierarchies/put people in positions of power over others

– We’re also talking about psychological authority

– Systemic privileges are advantages that certain groups have over each other and over other groups

– We’re talking about ending the beliefs that create these outcomes

– We don’t care about individual/personal privilege

– If someone has genetics that make him 6 foot 8, have large hands, and like basketball, and he goes on to become a successful basketball player – we don’t care about that. By your [Michael’s] definition, he’s very privileged, but we don’t care. We don’t care that the environment he grew up in happened to value his traits.

– We are not talking about people who happened to get lucky with genetics and environment and they happened to coincide.


The above are the main (and only) points Philluhp makes, and I took careful notes to not miss any of his thoughts and build a straw man against him. Still, I do have to admit that it was sometimes difficult to parse out his intention, and so I did the best to reconstruct his argument. Here is one example of an apparent contradiction in what he was saying:

4:12 – “I’m not talking about equality of outcomes, necessarily” – https://www.youtube.com/watch?v=wjzFhT8k6ak#t=4m12s

8:53 – “when I’m talking about privilege I’m giving a particular focus on the beliefs and practices that create these inequalities of outcome” – https://www.youtube.com/watch?v=wjzFhT8k6ak#t=8m53s

Of course, we always give our discussion partners the benefit of the doubt in these cases and assume the best intention on their part.

Anyway, my thoughts:

Philluhp’s response doesn’t alter my analysis in any way, because it was already broad enough to encapsulate all of his points.

Philluhp’s main theme (which is likely one that any social justice warrior [1] would have brought up “against” me) is that privilege is “an advantage that a group has due to beliefs or cultural practices that results in social stratification/hierarchies/put people in positions of power over others.”

The fact that the privilege is a feature that pertains to a group instead of just an individual is not especially relevant if the outcome is the same. Not only this, but all group privilege is a type of individual privilege – each individual receives this privilege when he/she is part of a group. Furthermore, if many individuals have what Philluhp calls an “individual privilege,” then there is a group of people that has this advantage over other people, and hence it becomes a group privilege.

Does Philluhp not care about individual privilege because he does not think that these specific privileges create group advantages that are all that large (like being naturally built in a way appropriate for basketball)? If so, then he’s ignoring a mainstay in feminist theory – interlocking privileges. Simply because 10 individual features by themselves are not very influential does not mean that when put together they will not have a significant impact. But even that ignores the point that simply because the greater power these individual privileges confer is not as great as other “class” privileges it does not mean that it’s not important to discuss it.

But I digress. The most important answer to Philluhp is: my analysis already takes into account class privileges/social stratification/hierarchies/putting people in positions of power over others. As he explains, my analysis is quite broad, and even by his definition of privilege it subsumes [2] the concept of privilege. I talk about both “individual” and “class” privileges (thought I doubt the distinction is in fact existent) because I address privilege as a thing that has the features that both individual and class privilege share. None of my analysis breaks down when you replace each instance of “privilege” with “systemic privilege” in my essay (and Philluhp has failed to point out why my analysis would break down). No part of my analysis said one’s privilege (as I defined it) may not be in part due to a prevailing social attitude. Here’s an analogy: Say I am writing a paper on why it’s impossible to just lift a book and leave it to float there by itself, and in my argument I say “all items are pulled toward the earth because of gravity. Therefore, if there is no other force to hold the item suspended, it will fall.” Someone responds, saying “aha – but you are wrong, my dear Michael! We are discussing the issue of books falling – not just ‘items’!” Well, yes, we are, but since “a book” is a generic particular [3] of “all items,” what is true for “all items” is true for “a book.”

Fundamentally, I think Philluhp’s argument is inconsistent. He states “We are not talking about people who happened to get lucky with genetics and environment and they happened to coincide.” And yet this is exactly what white privilege is, for example. A person happened to get lucky with genetics (being white) and environment (a society where whiteness is valued) and they happened to coincide. Yes, his environment’s liking for his whiteness is a systemic thing – this does not change the analysis.

Try another line of argumentation: Suppose all NBA players are wealthy or at least have a fairly large yearly income (my guess is that this does not strain the imagination). Suppose an NBA player walks into a soup kitchen, sits down, turns to the homeless man to his right, and starts complaining about how he can’t afford the mortgage on his third home and how his Lamborghini just broke down, etc. etc. I think that many people would think that a good “check your privilege” would be healthy for the basketball player right at that moment No? Well, suppose that the homeless man starts complaining back about how he’s got no home, how he’s in debt, how he’s got a mental illness, and how his friends all abandoned him. The basketball player, with a look of disgust, says “well, why don’t you just become a basketball player like me and make tons of money?” In this case, a “check your privilege” would definitely be required, since the basketball player is ignoring the pathways through which he achieved his success and is failing to realize that the homeless man likely cannot do the same. Aha – so we see that “privilege” is indeed a good word for the basketball player’s characteristics.

Moreover, take beauty privilege or thin privilege. Both of these have various causal “individual privileges” (by Philluhp’s verbiage) as their roots – whether this is genetics or how health-conscious a person’s parents are or how stressful a child’s environment was.

To summarize:

– Most importantly (and again, I cannot stress this enough) – my analysis already takes into account class privilege, because nothing I said is specific to “individual privilege.” Even if all of the following points are in fact wrong, this point by itself is enough to hold up my entire thesis. My original essay remains entirely true unless someone can show my analysis does not hold for class privilege.

– There is no useful distinction between individual and class privilege in my opinion. All class privileges are characteristics of individuals [4]. And all characteristics of individuals separate people into groups and determine their success/power/hierarchical relations.

– Even Philluhp’s “class privilege” is exactly what he said it’s not –  “people who happened to get lucky with genetics and environment.” I repeat – all privilege is a mix of genetics and environment, including class privilege – to no lesser extent!


[1] In my experience, “social justice warrior” is used somewhat derisively, but since Philluhp approached me using this terminology, I figured that it is a label accepted by the community.

[2] Subsume – to consider or include (an idea, term, proposition, etc.) as part of a more comprehensive one.

[3] A “proof by generic particular” as I learned it in Discrete Mathematics is a proof where you say “we have a category Y. Take any generic item y in that category. By virtue of being in Y, it satisfies conditions a, b, and c, from which we can deduce d, e, and f.” It’s relevant to this conversation because I said “take a generic type of privilege. By virtue of being in the group of privileges, we can deduce so and so from it.” Simply because the privilege can also be a specific type of privilege, it doesn’t invalidate things that are true for all privileges.

[4] Any students of economics reading this will appreciate here a mention of methodological individualism. If this means nothing to you, no worries.

Formalizing “privilege” and exploring its logical conclusions

Recently, a friend of mine (incorrectly) told a new acquaintance of mine that I didn’t “believe in privilege.” As my new acquaintance began explaining how she couldn’t imagine how anyone could deny the existence of privilege, I decided to think more precisely on what privilege is, whether it exists, and who has it. I’ve now decided to write this post to formalize the idea of privilege and see where a consistent application of the logic behind it leads.

A good starting point for defining privilege is to describe it as a condition in your life that you did not pick but that had a benefit for you. For example, white people tend to, on average, have higher salaries than black people. White people usually did not become white of their own merit, yet they reap the benefits of this physical feature. Why? Some reasons are that they have historically been more free to accumulate capital, have not been the subject of race-based oppression by the government, and have been a majority in the US for a long time. These things often lead to higher confidence, higher income, higher levels of education, more positions of political power, etc.

One way of formalizing the idea of privilege, then, is to ask “All else being equal, does having this characteristic mean that I will be more likely to be successful?” Example: Take a person born into a middle-income family in a middle-income neighborhood. If we let the person live his entire life, then went back in a time machine and changed only his race, would this have led to a better/worse life outcome?

The next step to take is to notice that sometimes our characteristics can take on a variety of values, such as race, instead of being a binary “yes/no.” For example, a person can be white, black, Hispanic, Asian, or any number of sub-categories of these and other races, as well as a mix of various categories of races.

Therefore, we begin to see privilege as a relative concept that can be ascertained given two possible values for a specific characteristic: “All else being equal, for a given personal characteristic ci, does value cib create a more favorable outcome than value cia?”

At this point we need to add another refinement. It seems like a good idea to define privilege in relation to a specific goal that an individual has. If a person doesn’t care about total life income, having a value for a personal characteristic that only increases life income relative to alternative values for that characteristic doesn’t matter – the person doesn’t care about life income anyway. Similarly, if a person has a specific underprivilege that would only affect a goal about which he doesn’t care, then this is not a disadvantage to him, and he shouldn’t be considered to be underprivileged [1].

Given the goal-directed nature of privilege, the next step is to realize that since individuals have a variety of goals, some often polar opposites of other people’s goals, a certain value for a characteristic could be

– a privilege for one individual

– an irrelevant characteristic for another

– an underprivilege for a third

Insofar as a set of goals of individuals tends in the same direction (loosely speaking), a given value for a characteristic that is useful will tend to be a privilege for each individual, and hence can be termed a mark of privilege for the group. That is, it makes sense for two individuals in that set to look at each other and judge how privileged each is compared to the others by the values of their numerous characteristics and how they affect the achievement of the goals they all happen to share.

Let’s list some examples of privilege in the US. Each item assumes that all members of the society (the US) have identical preferences. I give some caveats in parenthesis to show examples of when an item would not be a privilege, either because there is a reasonable chance of a preference for a goal not being identical among individuals or because the specific value of the characteristic in question would not be conductive to achieving the shared goal:

– Being white (caveat: your words as a white person might hold less water when trying to convince a group of black people of something in some situations, all else being equal)

– Being male (caveat: if one of your main goals in life is to spend time with your children and you’re going through a divorce, it’s more likely your ex-wife will retain custody, your masculinity here being an underprivilege)

– Being intelligent (caveat: in some circles, intelligence might be viewed with suspicion as a sign of eliteness and superiority)

– Being physically attractive (caveat: beauty is in the eye of the beholder; being attractive to one group in society doesn’t guarantee being attractive to another)

– Higher family income (caveat: you might lead a miserable life [by your own judgment] if your parents only care about money)

This list shouldn’t be too controversial. In very many cases, having one of the above qualities will, all else being equal, make life nicer for you, and should be considered a privilege.

Now, let’s return to the definition of privilege. It’s useful to distinguish between goals you’ve achieved thanks to your privilege and goals you’ve achieved thanks to you merit. Therefore, success can roughly be modeled as a function S=f(P,M) – that is, a function of privilege and merits. The privileges are the environmental variables that made you more successful, all else being equal. Your merits are the efforts that you put in independent of your privilege. Keep these two categories in mind as we dig deeper to see whether this distinction is at all sustainable.

Let’s look again at the S function: S=f(P,M). P is some combined measure of various types of privileges a person possesses, perhaps a vector in Rn. Once again, each privilege value is defined in respect to a goal an individual wants to achieve [2]. M is some measure of how much effort a person is willing to put in to achieving success, and hence the level of merit of the person. I list M here as scalar, although it might very well be a modeled as a vector in Rm. It’s reasonable to say that this function is monotonically increasing in each variable, or that the partial derivative of S is positive with respect to either variable. That is, keeping merit constant, the more privilege you have, the more successful you will be (by the definition of privilege). Also, keeping privilege constant, the more meritorious you are, the more successful you will be as well.

We can now determine your marginal “success-productivity” of privilege (MSPP) and the marginal “success-productivity” of merit (MSPM). The MSPP tells you by how much your success will increase if you keep merit constant and increase privilege by one unit (don’t worry about what these “units” are – we’re discussing general intuition here). The MSPM tells you how much your success will increase if privilege is kept constant and merit increases by one unit.

The key idea to take away from this seemingly over-formalization is that the marginal effectiveness of being more meritorious can depend on your current total privilege. Similarly, the marginal effectiveness of being more privileged can depend on your current total merit. I will give an analogy from economics to explain what I mean:

In economics, the output of a firm is a function of its quantity of capital and its quantity of labor. For example, Q=bKaL1-a, where Q is output, a and b are some constants, K is the amount of capital, and L is the amount of labor. (Note: this specific form of the production function is called a Cobb-Douglas production function). Now, intuitively, say that a person is willing to invest 10 days into making cars. If the capital he has at his disposal is no more advanced than that available in the mid-19th century, he might be able to produce one car in ten days. If, on the other hand, he has very modern capital including various kinds of powerful and versatile machines, in 10 days he might be able to produce 3 cars by himself. We see from this example that the marginal productivity of his labor (in this case the additional cars he can make with each additional 10 days of work he puts in) depends on the capital he has available. The more capital (or, in this case, the higher quality the capital), the higher the productivity. This can be seen if the partial derivatives of Q are taken with respect to K and L – the higher the K, the higher the benefit of adding one more unit of labor. The higher the L, the higher the benefit of adding one more unit of capital.

Moving back to privilege, we can see how this applies: If your environment is very poor, increasing your personal efforts (separate from your success due to privilege) will result in small increases in success. If, on the other hand, you are very privileged, each additional unit of merit has a high impact on your success. Similarly, if you are not very meritorious, adding more privilege won’t help as much as if you’re very meritorious, all else being equal. [3]

Now, let’s try to further refine the definition of privilege. We stated before that factors like family income confer privilege. These are environmental factors external to the choices a person makes that affect his success. Let’s look at the privilege of being attractive. This is a privilege with which you were born, and it exists thanks to the good genes of your parents and also thanks to pure chance. Sure, perhaps you spend a lot of time working out and dressing well, but there is some degree to which your attractiveness is a privilege by birth – that shouldn’t be controversial.

To better explore the limits of privilege, let’s look at the other alleged component of success: merit. How can we nail down merit? Well, merit, which may loosely defined as the effort a person puts in, is (by construction) a variable separate from privilege. But can merit ever actually be separated from privilege? After all, how industrious and hardworking a person is is due in part to their education. Generally speaking, more educated people are probably more willing to put in effort to achieve something, all else being equal. And since education is very much affected by family income, merit becomes entangled in privilege. Furthermore, the effort one puts in also depends on the values instilled in him by his parents. This, too, was out of his control, and is a part of privilege. Successful parents who care about their children will pass on better life lessons. The third big factor affecting one’s effort in life is his genetics – both his propensity toward hard work and the IQ that is conferred by his genes. The person did not choose his genes. In fact, from our discussion of the privilege of being attractive, we saw that genetic traits are a form of privilege.

We see that all the factors that affect merit (“how much effort, work, and sweat a person ‘chooses’ to invest”) are in fact a type of privilege. If merit is a function only of privileges, then there is no real category of “merit” separate from privilege. All the efforts you’ve put into life have been a product of either nature or nurture. In either case, they’re privileges (or underprivileges) that were conferred to you externally.

We arrive to the conclusion that everything is a privilege and no one deserves anything due to “merit.”

Lest you think this conclusion too radical, consider the following thought experiment:

Imagine taking a person who, in 2014, was upstanding, smart, tolerant, respectful, and considerate and instead magically making him be born in a war-torn nation in the ancient world populated by mostly racist and ignorant people. This person would likely not have turned out tolerant, respectful, and smart. If in 2014 he could have learned integral calculus and the intricacies of DNA replication, in the ancient world he would have believed that storms are caused by the gods and that the sun goes around a flat Earth. This thought experiment makes it apparent just how strongly who we turn out to be is influenced by our environment (which, insofar as it is conductive to our goals, can be called our privilege).

Our conclusion so far has been that every single part of your life that led you toward success has been a privilege, and that you didn’t really make any choices that made you deserve your success in any moral sense. This discussion about privilege, then, begins to look very much like a discussion about determinism, and I’d argue that privilege could be just a face of determinism – the one that specifically deals with people’s success. Since we saw that success in life is fully determined by privilege, it is natural to make the symmetric argument that failure in life is also determined by privilege – or, in this case, the lack of privilege, or underprivilege. That is, if something very bad happens to a person, it is because they were underprivileged.

Now, let’s analyze privilege under two different scenarios of rape:

1) A perfectly rational man living in a world with no uncertainty one day rapes a woman. He is sentenced to death for this. Question: since his action led to a state of being that any normal person would deem unfavorable (ie, being executed), and since we concluded that failure is just as much the result of privilege (and is due to no merit or dismerit of one’s own), does it make sense to say the rapist is underprivileged? After all, his environment conspired in such a way as to make him end up being convicted. And just like successes are not due to one’s merit, the same goes for failures. The woman who is raped, on the other hand, continues living. Her life is doubtless much worse for having been raped, but at least she is alive. I doubt it’s easy to argue that being raped but alive is worse than being dead (though I suppose, in my ignorance, that it could be possible). Hence, it makes sense to actually ask whether the woman who was raped was more privileged than her rapist, who will go on to be killed. However, in this case, the answer must necessarily be “the fact that he will die is not enough to show he is less privileged, despite death being really bad.” Since the man is perfectly rational (by construction) and there is no uncertainty in the world, his action maximized both his ex-ante and ex-post satisfaction (which I will use as interchangeable with success or utility). Therefore, before he committed the act, he knew perfectly, 100% well what would happen and chose to do it anyway. This tells us something about his preferences: the act was to him more valuable than life itself. Given that he chose an action that he valued more highly than all the possible satisfaction of life, it appears that the criminal may be much more privileged than the woman. Of course, there exists the possibility that this isn’t the case, but it is not easy to show that this would have a high probability a priori.

2) A man with bounded rationality and imperfect information one day rapes a woman. He is sentenced to death for this. In this case, does the same analysis as before apply? Notice we have removed the assumption of perfect rationality. Now, it could very well be that the man was very irrational and couldn’t properly assess the consequences of his actions. Moreover, he had imperfect information, and maybe he had no idea that facing death in an hour would be so awfully terrifying. The rapist goes on to lose his life, which may reasonably be assumed to be very tragic for a person. Once again, the rapists’s actions were due to his environment/privilege. In this case, since his environment conspired to lead to an outcome where one of the worst things that could happen to a person did indeed happen, his environment conferred upon him severe underprivilege. The woman who was raped is, once again, alive but very distressed by the occurrence. Yet she still can go on to have a meaningful life. (Before you disagree with me for being callous, consider what disagreement with that statement would mean: that rape victims can never have meaningful lives after the crime). Hence, the woman is in a better position to achieve success, happiness, and satisfaction than her soon-to-be-dead rapist is. As such, by definition she is more privileged than her rapist. Why? Once again, because the actions of each individual are wholly determined by environment, and privilege exists when the environment is such that the events in one’s life result in success, relative to the alternative. Since the rape victim is able to have more future satisfaction than her rapist (or present discounted value thereof), she is more privileged than he is. Of course, it could be that the rape victim could go on to have a miserable life, in which case it can be argued that no, her rapist was in fact more privileged. This is true – but I am talking about the range of possibilities. And if you object to rape as an example, use another sexual crime that is not commonly considered as heinous – perhaps some more general form of sexual assault. In that case, it’s more and more likely that the criminal is less privileged than the victim, especially if the punishment is very harsh.

We now come to the topic of telling people to check their privilege. When one checks his privilege, this can be described as him exploring the privileges that led to his present (and future) success and seeing their relative contributions toward this success. He also compares his levels of privilege to either those of the person asking him to check his privilege or to those of a group which the person asking him to check his privilege is discussing. I can see a few legitimate reasons for someone being told to check his privilege, which I shall label as Types:

Type 1) “Check your privilege: You’re failing to realize how my/the group’s lack of privilege in some dimensions is leading to my/their lower success. By doing this, you are making me/them feel bad, which is bad for me/them.”

Type 2) “Check your privilege: You’re failing to realize how my/the group’s lack of privilege in some dimensions is leading to my/their lower success. By doing this, you’re failing to understand causal pathways in society, leading to an underdevelopment of your own understanding of how society functions, which is bad for you.”

Type 3) “Check your privilege: You’re failing to realize how your privilege in some dimensions is leading to your higher success. As such, you overestimate the privilege of others, you think that others are undeserving, and hence you do not support efforts (voluntary/coercive) to improve their success.”

What are examples of justified and unjustified instances of asking someone to check their privilege? Take the example from this blog post (caution: language), where the author tells white cis college girls to check their privilege when they complain they don’t get a weekly allowance. Her complaint is of Type 1 – other people’s complaining makes her feel bad because she does not have the privileges others have. Is this a legitimate complaint? Depends on your standpoint. If you’re a third-party person reading her post in America, perhaps this seems reasonable. But if you take a global perspective, the blogger’s own complaint is itself whiny from the perspective of a starving African child. In this case, that child could easily also tell the blogger that she should stop complaining since she is privileged to live in the US. Symmetrically, the girls who complain they don’t have allowances could easily complain about someone even richer than them complaining they aren’t wealthy enough. Taking this global perspective, it becomes difficult to say when asking someone to check their privilege is appropriate. The person doing the asking surely has someone below them on the success scale who has even less privilege. It appears that the solution, then, is either to say that almost everyone should be able to tell everyone else to check their privilege or that very few people (if any) should be telling others to check their privilege when it comes to Type 1.
Another example further muddies the waters: the familiar one of the woman who is raped by a rapist with bounded rationality and imperfect information. Say that she is able to go on and have a very successful life, due to being from a very successful family and having very supportive friends. If it is acceptable to tell people to check their privilege merely because they have otherwise high success, it would not be illegitimate for observers of the rape to tell the woman to “check her privilege.” Since she will go on to have a successful life and her rapist will be killed, her success value (in present discounted value terms) is far higher than that of her rapist. Hence, if you are allowed to tell someone to check their privilege when the gap between your and their success values is high, it would be legitimate in this case to tell the woman who is raped to check her privilege. It appears to me that this is a good reason to reject the “gap” criterion in Type 1 privilege policing as legitimate. Simply because someone is more privileged than you, it is not legitimate, when taking a global standpoint, for you to tell them to check their privilege if they are complaining about something.
Checking your privilege for fun and profit

Is it useful for you to check your own privilege? It can indeed be in cases 1 and 2 – when failing to do so either makes other people feel bad or when it prevents you from understanding your own source of success.

Take the example of a restaurant owner in a middle-class neighborhood that has some percentage of its patrons be poor families. Say this restaurant owner dislikes poor people and takes any chance he has to poke fun at them for not being successful. In this case, he might very well alienate patrons and have them stop coming. If he checked his privilege, he could become more understanding of their troubles and stop poking fun at them. They wouldn’t leave, and he would have more patrons.

Another example is that of the entrepreneur. If he understands that a certain social structure creates a cycle of poverty (which is, presumably, undesirable from the perspective of the individuals in poverty), he could try to start a firm that sells a product that helps people escape poverty (by, say, increasing people’s human capital). By checking his privilege and understanding why the poor people were poor, he is able to create a product to circumvent these social circumstances.

I will have more to say on the topic of why privilege checking can be of utmost importance – even to people who would consider themselves “conservative.”


In summary, we have learned a few things:

– Privilege exists relative to the goals of an individual.

– Since the importance of goals to various people cannot be compared (interpersonal utility comparisons are impossible), subjective privilege cannot in fact be compared.

– If we ignore this important theoretical point, we may say that insofar as people’s goals are the identical, everyone has privilege relative to an alternative value for a given characteristic.

– The social justice discussion on privilege is, at its core, an argument about the deterministic nature of the universe. Privilege is one face of determinism.

– Just as privileges reduces the emphasis on personal merit in achieving success, it similarly reduces the emphasis on personal fault for failures – including crimes against victims.

– As Peggy McIntosh points out in her seminal paper on privilege, privilege is not necessarily bad. In fact, I would argue that the goal should be to increase everyone’s privilege as much as possible.

– Analyzing events in the framework of privilege can give us odd conclusions – such as the fact that in a framework of bounded rationality and imperfect information, a woman who is raped may in fact be more privileged than her rapist. Such language is likely foreign to the discussion of privilege that exists among those interested in social justice, but is one that follows from our careful definitions.

Impact of conclusions

It is not my purpose to tie the arguments presented here into a larger philosophy in order to tell people how they should change their actions. I merely sought to follow the logic of privilege to its conclusion. Whether the framework itself is accepted is another matter. Still, I will note two impacts of my analysis:

– The existence of privilege cannot be denied by any reasonable person. The fact that you are far more successful in 2014 America than 2014 Congo, 1900 America, or 1900 Congo is stark enough evidence. Your place of birth significantly affects your prosperity.

– The importance of privilege analysis will rise and fall with the importance society places on an acceptance of a deterministic view of the world. If society decides that determinism shouldn’t affect how we view the moral positions of various actions and individuals, it logically should also not assign much importance to privilege analysis. On the other hand, if much weight is placed on determinism, much weight should be placed on privilege analysis as well. Conversely, if society decides privilege analysis is important, it should consider all the implications of determinism – for they are part and parcel of privilege analysis.


Much of this article makes arguments of the form “if X is accepted as valid, Y follows.” This is not meant to be interpreted as “X is valid, and therefore Y is true.” Furthermore, I have not passed moral judgment on almost any topic related to privilege. For example, saying that privilege analysis in the case of bounded rationality points to the possibility of a woman who is raped being, overall, more privileged than her rapist does *not* imply that I think that her rapist is a more moral person than she is because he is less privileged. I simply state he might be less privileged, whatever the moral implications of that are. This stems from the definition of privilege. In fact, the hypothetical rape scenario I discuss and its conclusions on privilege are one of the reasons I find privilege analysis to not be a very good framework of normative analysis (normative specifically – it is still useful for positive analysis).

I’d like to thank my co-blogger for taking the time to slog through this post and offering constructive advice. Any hatemail you have should be directed to me, for the ideas presented stand behind my name.


[1] Once we see privilege as being evaluated within the means-ends framework, we need to take into account the fact from economics that interpersonal utility comparisons are not possible. That is, even if a person has a privilege that objectively allows him to achieve a certain goal more easily than a person without that privilege, and even if the two people have an identical rank of their goals, it cannot strictly be said that the first is more privileged, since utility cannot be compared among people. Therefore, it is necessarily correct to say that privilege is actually *unable* to be compared across people when privileged is couched in terms of subjective valuations of ends. In the remainder of this article, I will ignore this and pretend that this utility among individuals can in fact be compared, despite believing that this is not possible even in theory and that it doesn’t make very much sense. I do this because most people do this subconsciously, and I will play along, ignoring the majority of the economics profession.

[2] The implications of the functional form and of the form of the variables P and M allow the model to generalize to intersectionality of privileges and interlocking hierarchies. For an intuition, see the economic analogy to capital and labor in an economy.

[3] I will add here that it is possible for the function f() to have a negative second derivative – that is, for your success to increase with both P and M, but more and more slowly over time. That is, the marginal benefits of increases in P and M go down as you have more of both P and M. An example would be increasing your merit in a very capital-poor society. No matter how meritorious, you likely will never be able to send a spaceship to the moon.