I just finished listening to this bloggingheads episode with Will Wilkinson and Lew Daly. I haven't read Daly's book, so I can only address his argument as he presents it in the dialvlog (boy, I hate that word). I want to focus on what Daly's argument highlights for me about the deficiencies of a desert-based theory of distribution, and points to the necessity for more fruitful arguments for a system of individual desert and responsibility.
Will Wilkinson gives an excellent summary and refutation of Daly's argument. I find his argument pretty unconvincing, largely because, like Wilkinson, I don't really buy a pure desert-theory of distribution.
Daly claims to be making a political, as opposed to philosophical, argument. I can see what he's getting at. Most people who defend the existing distribution of wealth do so on the basis of desert. I think Daly is using this sort of logic against itself. This is fine, but I would take it more as a reductio of purely desert based arguments, not as an argument for radical redistribution, as Daly would seem to have it.
What this says to me is that libertarians ought to follow Hayek and abandon the desert based argument all together. The tricky part is, I think we should still argue for a desert and individual based ethic, but not on the basis that such an ethic has any sort of basis in fact, but rather because such an ethic is the most conducive to desirable social outcomes.
The problem with this kind of take is that it sets one up as having to sort of hold up a noble lie. I say "sort of" because I don't see as one. For me, its perfectly fine to say the ethic of personal responsibility is endogenous to a just system (to paraphrase DWAnderson, a particular astute commenter on Wilkinson's blog). But for many folks, this isn't going to cut it. People want to believe that their moral instincts have a deep reality behind them. This brings me to a cute way I came up with to describe this problem: Ethical inquiry tends to put us in a position of having to at once critique our culture and participate in it.