"We have been taught that meritocratic institutions and societies are fair" said Ben Bernanke recently. It's a view that seems widely held. In his effort to defend (pdf) the 1% Greg Mankiw suggests that a big reason for increased inequality is that:

Changes in technology have allowed a small number of highly educated and exceptionally talented individuals to command superstar incomes in ways that were not possible a generation ago.

What this view misses is that meritocracy is no evidence whatsoever of the justice of a social system.

Imagine a Stalinist centrally planned economy. The dictator knows that central planning is a difficult job requiring intelligence, skill and hard work. He therefore ensures a system of rigorous exams and hiring to ensure that the best people occupy key positions.

Such a society will be highly meritocratic, in the sense that there'll be a strong correlation between individuals' success - their position in the hierarchy - and their "merit": their IQ, capacity for work or (if you like) the "soft skills" which enable individuals to move up the hierarchy.

Indeed, it's quite likely that this society will be more meritocratic than free market economies, where dumb luck is so important. For example, Jamie Barton got £5000 for winning last night's Cardiff singer of the world contest whereas losers in the first round at Wimbledon get £23,500. It's hard to call this meritocratic, unless you define "merit" circularly as "whatever makes money".

So, is our Stalinist economy just? Not at all. Most of us - including Professor Mankiw I suspect - would argue that it is unjust because nobody should have the power over others which a centrally planned economy gives them.

What made the USSR an unjust society was not that there were deviations from meritocracy, but that there was colossal unfreedom and inequality of power.

This brings me to another point of Mankiw's. He says:

The most natural explanation of high CEO pay is that the value of a good CEO is extraordinarily high.

But our Stalinist might have justified high pay for central planners with the exact same argument: the value of a good planner of the bread supply in Nizhny Novgorod is extraordinarily high.

And in both cases, the counter-argument is the same. It is unjust that any individual has so much power - and, we might add, inefficient too, but that's another story.

The point here is that you just cannot infer the fairness of an economic system from its degree of meritocracy. An unfair system might be very meritocratic - as in my example of an idealized centrally planned economy. And a fair system might be unmeritocratic; Nozickeans would claim this for free societies in which people freely give others' stuff willy-nilly.

The correlation between individuals' "merit" and their individual success is, logically, independent of the question of the justice or not of the basic social structure.