Can Markets Make Us Equal?
(Bloomberg Businessweek) -- Proposed solutions for inequality are depressingly familiar. Liberals want to raise taxes; conservatives want to cut them; populists in the Trump mold want to exclude immigrants and restrict foreign trade. The centrist business community triangulates between stale agendas. Doesn’t anybody have anything new to offer?
Actually, yes: One big new idea is to unleash the awesome power of markets and push them into parts of life where they have never operated before. And at the same time, to design mechanisms that harness markets’ power to uplift the poor. The agenda is conservative in its means, because conservatives like markets, but liberal in its ends. It’s like letting a tiger out of its cage and throwing a saddle on its back. And it just might be what the world needs now.
Taking markets more seriously is the thrust of a surprising book, Radical Markets: Uprooting Capitalism and Democracy for a Just Society, scheduled for publication on May 8. It’s by Eric Posner, a University of Chicago Law School professor, and Glen Weyl, an economist and principal researcher at Microsoft Corp. They’re smart and iconoclastic, and their book bursts with ideas like kernels of corn on a hot stove.
Certain ideas are dismissed as impossible or offensive until they’re adopted, at which point they’re mysteriously reclassified as obvious all along. The ideas in Radical Markets are still very much in the first stage: impossible, offensive, or both. Weyl claims to be untroubled by that. “Students have a very different reaction than older people,” he says. “Most of the older people are just dismissive. That reaction fuels the students’ interest. When they hear an impassioned argument for a better future, they see it as a chance to rebel.”
The authors’ first counterintuitive idea is to let people decide how much they want to pay in property taxes by setting their own valuations for their property. Every kind of property, not just real estate. Why wouldn’t people put extremely low valuations on their belongings to cut their tax bills? Because there’s a catch: You are legally required to sell each item to whoever wants it, whenever they want it, at the price you claimed it’s worth. That incentivizes honesty. To make sure people’s keepsakes aren’t snatched away from them, there could be an exclusion for heirlooms. (No fair calling your Picasso in the living room an heirloom.)
The upshot of such a system is that nobody would truly own anything. They’d effectively be renting their stuff for the amount of their annual tax bill. Echoing the radical leftist slogan “property is theft,” the authors declare that “property is monopoly”—and they don’t like monopolies.
Putting possessions essentially up for grabs would make infrastructure easier to build without resorting to seizing land by eminent domain. People whose properties are essential to a project would be required to sell at their published asking price. That’s an enticement for business. For the poor and middle class, the Radical Markets approach would shift the tax burden onto the rich, who own most of the world’s things.
Self-assessment isn’t a brand-new idea. A time-tested way of dissolving 50-50 partnerships is to require each partner to submit a bid, after which the winner has to buy out the loser at the average of their two bids. (It’s called a “Texas shootout.”) The authors cite economists who have expanded on the idea but acknowledge that no one has pushed it as far as they have. They suggest starting small by applying the approach to public goods such as internet domain names, airwaves, and grazing rights in the American West.
There’s not enough room here to air out all the ideas in a 337-page book. But one other big one is to fix democracy by giving people a budget of votes to use as they see fit—skipping some elections to save up votes for a candidate or issue they care a lot about. You could also cast your votes against a candidate, a tactic that isn’t currently possible. The purpose is to determine “whether the intense preferences of the minority outweigh the weak preferences of the majority,” the authors write. To keep fanatics from dominating elections by spending all their votes in one place, each additional vote you cast for an issue or candidate would be worth less than the one before. In a gesture only a nerd could love, the authors call this “quadratic voting,” because voting power would increase as the square root of the number of votes cast.
Like self-assessment of property values, quadratic voting encourages people to be honest about their preferences. It also tends to help centrist candidates who don’t attract a lot of “no” votes. The authors estimate a moderate Republican probably would have won the 2016 election if it had been conducted by their method, and Donald Trump “would have come in last.” Aside from elections, quadratic voting could be used right away to improve polling and the ratings systems of such companies as Airbnb Inc. and Uber Technologies Inc., the authors write. They and two others have founded a company, Collective Decision Engines, to commercialize the approach.
To fight monopoly power, Posner and Weyl propose tying the hands of giant asset managers such as BlackRock, Vanguard, Fidelity, and State Street. They point to research showing there’s less price competition in industries such as airlines and banking where big investors own stakes in multiple competitors. A price war might help the one company that wins and gains market share, but it would harm overall industry profits, so it’s not in the interest of big investors, who can quietly influence chief executive officers to ease off. Their solution is simple: Without accusing the giant firms of wrongdoing, they say they shouldn’t be allowed to own a big share (i.e. more than 1 percent) of more than one company in a given industry. Passive holders could own as much as they wanted.
The book’s boldest idea—or at least the one that’s gotten the most people mad—is to allow each U.S. citizen to sponsor one guest worker from another country for an indefinite period. The migrant would pay the American an agreed-upon sum; the American would be fined if the migrant disappeared. The authors say the biggest beneficiaries would be the migrants, whose wages would soar vs. what they could earn back home. But Americans would profit, too, in part because of one especially controversial feature: no minimum wage.
Citizens who compete with the guest workers for jobs could suffer from the downward pressure on wages, but they could also make some money off them, which they can’t do now, Posner and Weyl write. That, they say, would be an improvement over the current situation, in which corporations and well-to-do patrons of au pairs (foreign babysitters) are the only entities that can sponsor and benefit from guest workers.
The harshest critics have compared the concept to involuntary servitude. Damon Young, editor-in-chief of the website Very Smart Brothas, said the idea would be a nominee “if there were a Pulitzer for ‘Writing While Aggressively White.’” Responds Weyl: “If people were gaining benefits from migration, it would gradually expose them to both what’s wrong with the world and the benefits of the free flow of people.”
Posner and Weyl are used to making people angry. Posner is a prolific essayist and just as much of a free thinker as his father, Richard Posner, the recently retired federal appellate judge. Weyl is also a mold-breaker. He managed to be valedictorian of his class at Princeton in 2007 while simultaneously completing most of the work for a doctorate. “I don’t think I’ve ever taught a smarter student,” says New York University professor Kwame Anthony Appiah, who taught philosophy at Princeton at the time. Yet a decade later, Weyl is working for … Microsoft. (Although he’s also a visiting scholar at Yale.) In an email, Weyl writes that “pursuing the themes I have has not helped my academic career much and has not endeared me to economists.”
It’s no surprise that fellow iconoclasts are among Posner and Weyl’s biggest fans. One is Vitalik Buterin, the 24-year-old Canadian-Russian who co-founded Ethereum, the second-most-popular cryptocurrency after Bitcoin. In a scholarly essay about the book on his website in April, he agreed with the authors that markets and property rights are, in his words, “socially constructed,” not just objects found in nature, and can be designed in ways that are “potentially far better than what we have today.” He blessed a chapter in Radical Markets about how to help people gain control over their personal data through market forces, writing, “well, look what the Ethereum community is working on: markets for personal data.”
Radical Markets is likely to get a cooler reception from people who’ve been conditioned to think of markets as devices for making the rich richer and the poor poorer. But not all liberals see things that way. If you were trying to name someone who would hate the book for sure, you might think of Michael Sandel, the Harvard political philosopher whose books decry the tendency of markets to crowd out moral and civic ideals. He recently launched a video podcast based on his latest, What Money Can’t Buy: The Moral Limits of Markets. Yet Sandel finds a lot to like in the pro-market book. “Their case for taxing property and wealth rather than labor should win them a hearing among those like me who are skeptical of market solutions to all public problems,” he writes in an email.
Politically, Weyl is the more liberal of the two authors. He describes Posner as a cynic who despises “socialist crap” and whose goal is to “show how ridiculous standard worldviews are,” while calling himself an idealist who is inspired by The Internationale, a socialist anthem. He says the two handed chapters off to each other for reaction and polishing. “Both of our perspectives show up in the book. It’s stronger for that,” he says.
Radical Markets is dedicated to the memory of William Vickrey, a Canadian-born economist at Columbia University who studied how auctions could be used to solve social problems. Vickrey was “the Master Yoda of the economics profession,” the authors write, “silly, carefree, reclusive, absentminded, and a fount of often inscrutable yet world-changing insights.” He died of a heart attack in 1996 just three days after being announced as a winner of the Nobel Prize in economics. He’d been on his way to a conference in Canada when police found him slumped behind the wheel of his car 30 miles north of New York City.
Milton Friedman, the great libertarian economist and Nobel laureate who died a decade after Vickrey, inspired Posner and Weyl for another reason: his fearlessness. “Friedman was uncompromising,” says Weyl. “He would go after things that everybody believed. He just made the argument, even if that made problems for people. That was an incredibly persuasive style.”
To put it differently, Posner and Weyl didn’t test their messaging with PR firms or focus groups. They acknowledge that “human nature has a way of defeating the best thought-out schemes, both through stubbornness and through its occasionally extreme malleability.” But they point out that some of the ideas in Radical Markets are already seeping into daily life. For example, advertising space on the web is constantly being reallocated via the type of auction proposed by their hero, Vickrey. “Most novel concepts,” they write, “initially seem far-fetched.”
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