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Book Review: A Future For Socialism

A boot, stamping on a human face – forever!

No! Wait! Sorry! Wrong future for socialism! This is John Roemer’s A Future for Socialism, a book on how to build a kinder, gentler socialist economy. In my review of Red Plenty, I complained about the book’s lack of gritty economic planning details, and Gilbert commented:

The least unimpressive modern detail-level explanation of how socialism could work is [A Future For Socialism]. I might regret recommending this book, because Scott is the kind of person to fall for it.

With a recommendation like that, how could I not?

A Future For Socialism makes – and I believe proves – a bold thesis. It argues that a socialist economy is entirely compatible with prosperity, innovation, and consumer satisfaction – just as long as by “socialism”, you mean “capitalism”.

The book makes proposals, but you’re not exactly hearing the Internationale playing in the background as you read them. Prices are obviously the best form of allocating goods, so a socialist economy should keep them. Central planning could never work, so a socialist economy doesn’t need it. Bosses and managers seem to be doing a good job keeping their firms profitable, so they can all keep their jobs under socialism. Everyone has different skills, so clearly in a truly socialist system they deserve different wages, in fact whatever wage the market will bear.

So where’s the socialism? Well, socialism is a system where the people own the means of production. Right now corporations control the means of production, and you own corporations by holding stock in them. So if everybody owns stock in all corporations, then if you squint that’s kind of socialist.

Roemer proposes the following: first, you nationalize large industries – or, if you’re a post-Communist country (Roemer was writing in 1992) you start with your large industries already nationalized. Then you split them into stocks. Then you give everyone an equal amount of these stocks. When the corporations make money, they pay them out in the form of stock dividends, which go to the people/stockholders. So every year I get a check in the mail representing my one-three-hundred-millionth-part share of all the profits made by all the corporations in the United States.

Question: won’t poor people immediately sell their shares to rich people, resulting in the rich people becoming wealthy means-of-production-owning capitalists again? (compare question 4.1 here). Answer: yes, obviously. So Roemer proposes a law that stocks cannot be sold for money, only coupons and other stocks. Every citizen is given an equal number of coupons at birth, trades them for stocks later on, and then trades those stocks for other stocks. This allows smart citizens to invest wisely, and allows a sort of “stock market” that sends the correct signals (this business’s stock price is decreasing so maybe they’re doing something wrong) but doesn’t allow stock accumulation by wealthy capitalists.

In this system, businesses would raise funds not by selling stock but by seeking loans from banks. Apparently this is already how it works in Japan, where companies are arranged into “business groups” called keiretsu with each having a bank in charge of lending them money. Roemer hopes his model would work even better than the keiretsu, because the flow of stock coupons would give the banks market-driven information that help them make funding decisions.

So when I read about this I got really excited, because it sounded like a Basic Income Guarantee without the awkward questions about how to fund it. If everyone owns an equal number of shares in a diverse portfolio of the nation’s companies, then corporate profits go to everyone in the form of a check in the mail. Sounds like a good way to help the poor.

Unfortunately, Roemer calculates in the back of the book how much money he expects people to get from such a scheme. Using equations I can’t exactly follow, he finds that every citizen would get about $500, which is about 5% of the 1992 poverty rate. Using slightly different assumptions weighted in his favor, he is able to increase this to $1000 per person. It looks like we will not be solving poverty today.

On the other hand, I recently learned that corporate profits have been rising dramatically lately. If you do a calculation much simpler than Roemer’s – in fact, pure division of the $2 trillion in national profits by the 300 million Americans who could receive them – you get about $6,000 per person. That’s still not enough to reach the poverty line, but it’s something, especially if you’re willing to tax the wealthy’s share to funnel it to the poor.

(on the other hand, maybe fewer than all corporations will be nationalized? I dunno here.)

But Roemer doesn’t even mention this except as an aside, and doesn’t think it’s the most interesting thing about his system. What he’s really interested in is finding a way to control what by analogy to public goods he calls “public bads”. These are all the things that coordination problems form around, like pollution and global warming and selling weapons to dictatorial regimes and so on.

He makes the following fascinating claim: poor decision-making in the current system is driven by an imbalance of costs and benefits caused by the concentration of capital. For example, suppose that using lots of fossil fuel will produce $1 trillion in good economic activity, but also $10 trillion in costs due to climate change. The Koch brothers own lots of capital (in the form of stock, ownership rights of companies, et cetera) so much of that $1 trillion in economic benefits takes the form of increased corporate profits that go directly into their pockets. However, they only suffer the same share of global warming anyone else in the US suffers – presumably 1/300 millionth of the national cost. Therefore, since they get disproportionately large benefits but only proportionate costs, they have strong incentive to try to push fossil fuels. They are rich and powerful and usually get what they want, so probably fossil fuels will continue to be used.

But imagine that we socialized stock. Now everyone in the US gets 1/300 millionth of the national profits from good economic activity, and 1/300 millionth of the national costs of global warming. Since we already said the costs are greater than the benefits, every individual wants to fight global warming. People’s incentives finally match reality.

This is a really pretty idea, but it doesn’t seem quite right to me. By my understanding, very little lobbying is done by rich capitalists personally – and I think the Koch brothers are an exception because they genuinely hold conservative principles, not because they expect the calculus to come out in their favor. See Does Class Warfare Have A Free Rider Problem? Instead, lobbying is done by businesses directly, driven by the leadership of the businesses. Exxon Mobil hires oil lobbyists, Google hires intellectual property lobbyists, Monsanto hires agriculture lobbyists.

Would enraged Monsanto stockholder/citizens launch a corporate revolt demanding the company stop hiring lobbyists to work against the American people? I don’t think so. Corporate revolts are really really hard even nowadays when most stocks are held by a few attention-paying competent rich people. Give them to millions of not-attention-paying mostly-incompetent hoi polloi, and you think they’re going to be able to coordinate something? Besides, since stocks are tradeable, it might be only a few percent of the population who own Monsanto stock in particular; everyone else traded it away for more Google and Exxon Mobil stock. Those few percent of the population would get more money from Monsanto dividends than they would lose in the inevitable revolt of the Mutant Corn People, so their incentives would still be screwed.

So the Basic Income angle isn’t really enough to be exciting, and I don’t find the public goods/game theory angle too convincing either.

There’s also a big set of questions the book leaves unanswered – how do companies get nationalized? How are new companies formed? What happens to them?

Roemer does agree that it would be hard to nationalize all companies in a large advanced nation like the United States. In particular, taking rich people’s stock away from them without compensation would be naked theft, and the government probably couldn’t afford the compensation necessary. So he suggests that something like this be tried first in the post-communist countries or some other nation that already has nationalized industries and wants to know what to do with them.

Fine. That leaves the other big question. Suppose that the US somehow nationalizes all its industries in 1992, and a few years later Page and Brin want to start Google. What happens? Does the government say “Oh, no, sorry, we already have companies, we don’t need more of them”? Are they allowed to start it small, but the government immediately seizes it once it gets past a certain size? Are they just not allowed to sell it for stock and turn it into a corporation? Or if all of those things are okay and they can build Google as normal, what happens once most of the economy is made of these new post-1992 corporations and everything is capitalist again?

Overall there’s nothing terrible about the system in A Future For Socialism. It sure beats Stalin and even Castro. It just seems like a lot of work for not necessarily very much gain.

The last chapter is the only one in which Roemer permits himself to wax rhapsodic into the optimism I normally associate with the socialist cause. He says that he hopes market socialism is just the beginning, that this system of universal stock ownership will cause people to stop promoting public bads and care about the general welfare of the country, and this will take the form of more investment in education to train the next generation of workers, and once everyone has access to good education everyone will be just about equal and able to earn just about equal wages in the free market and then all this social class nonsense will disappear. Man, people who wrote politics before we fully understood how genetics worked were so cute!

But despite my panning the economic proposals, I learned a lot from this book and am grateful to have read it.

First, I was impressed by the assumptions. Roemer starts by explaining that yes, he knows why capitalism is a good thing, it’s reasons X Y and Z, and he’s not going to challenge or ignore that. When I hear someone making a controversial claim I disagree with, my immediate instinct is to assume that person is ignorant. Roemer proves he isn’t in precisely the right way. Before you advocate socialism, you prove that you’re not just totally ignorant of capitalism; that simplifies the process of sorting out the people you can learn from from the people you can’t.

He also makes it clear that he’s not out to change human nature. He hopes human nature will eventually change (see above about education) but he also recognizes that has to track changes in society, not be the cause of them. He writes:

[These proposals should take people as they actually are today, not as they might be after an egalitarian economic policy or cultural revolution has “remade” them. We must assume, as social scientists, that people are, in the short term at least, what they are: what can be changed – and slowly at that – are the institutions through which they interact.

Well put. Roemer establishes himself early on as someone who shares some of my basic assumptions (and can express them better than I can), which means even disagreement will be productive disagreement.

But second, and more important, this book is the first time I really had to think about joint-stock corporations. Like, I know what stock is in a “you buy it and then you get very excited or upset when it goes up or down” way, but I hadn’t thought of it as an important philosophical and political idea before, and Roemer really hammers home that it is.

The book identifies three big principal-agent problems in Soviet and other communist economic systems. First, managers employ workers to make their product, but workers want to slack off or line their own pockets. Second, central planners employ managers to run plants, but managers want to slack off or line their own pockets. Third, The People employ central planners to run the economy, but central planners want to slack off or line their own pockets. The Soviets solved these problems poorly. The central planners had no responsibility to anyone except other Party bureaucrats; the central planners could only punish managers who failed to meet their cooked-up metrics, leading to Goodhart’s Law gone berserk. And managers sometimes couldn’t promote workers in a meaningful way or fire them in a meaningful way, so workers had little incentive to do a good job.

The standard capitalist narrative is that principal-agent problems are very hard and maybe impossible on such a big scale, but this is okay, because in capitalism the people making the decisions are the ones profiting off them.

Roemer points out that’s nonsense. Most real-world capitalism isn’t the plucky entrepreneur founding a startup, it’s the giant corporation, in which a bunch of investors (who profit off of good decisions) hire a manager or CEO type person (who is supposed to make good decisions). Insofar as CEOs keep companies profitable – and it seems they do – the principal-agent problem is solved. If we want the company to be run by Stalin instead of by investors, all we need to do is use current corporate governance structure, but give Stalin the stock, and the company will be just as profitable as ever (as long as Stalin doesn’t try to interfere).

Roemer credits for this the hostile takeover method, where if a stock’s price falls too low, that means some other group can buy out all the stock and fire the manager. It’s a good point, but I can’t help wondering if another part of it is immediate, hard-to-deny feedback: that is, the existence of the stock price at all. First of all, the CEO can’t remain too deluded about her decisions; there has been many a politician who sends a country to its grave all the while hearing from a bunch of toadies that she’s making things better, but stock prices are hard to fudge. Second of all, the investors and the Board of Directors and so on have a mechanism by which they can agree upon whether the company is doing well or not, short-circuiting some of the politics that might cause them to split into factions for or against the current leadership (this is not to say there are no corporate politics, just that they are more resolvable than other kinds of politics).

The principal-agent problem is at the center of a lot of different things, so it’s really interesting to think of something as humble and unassuming as the joint-stock corporation as having in some sense solved it. I’m not sure what the wider implications of this are, but the idea of futarchy is looking better and better.

So in summary, this book’s ideas on stock distribution seem potentially okay but probably not worth nationalizing all industries over, but the real gem is the lucid explanation of the importance of corporate governance.

Link: A Future for Socialism

EDIT: Tumblr user fadingphilosophymiracle points out that if private companies were added to the redistribution scheme, it would be enough for ~$12000/person, which sounds more promising.

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306 Responses to Book Review: A Future For Socialism

  1. Steve Johnson says:

    Every citizen is given an equal number of coupons at birth, trades them for stocks later on, and then trades those stocks for other stocks. This allows smart citizens to invest wisely, and allows a sort of “stock market” that sends the correct signals (this business’s stock price is decreasing so maybe they’re doing something wrong) but doesn’t allow stock accumulation by wealthy capitalists.

    Unless people acquire stocks in firms that go bankrupt.

    That’s allowed, right?

    • Also, presumably everyone gets tokens issued at birth or are of majority, so either they (or their parents in the former case) would put them all in a conservative basket of existing companies (given they have no specialist knowledge and this investment would be for life and start paying out immediately).

    • Deiseach says:

      The socialism of the book may not solve poverty (the notional shares being worth some $1,000) but has capitalism done very much better? The Conservative government of the time privatised British Gas in 1986 and an intensive advertising campaign pushed for small investors to take up shares.

      The result being, according to this story from 2011, if you the small investor bought the minimum share allocation and then didn’t claim your dividends for 25 years today you would be entitled to a whopping – £2,000 (around $3,200 at today’s exchange rates).

      That is indeed more than pure socialism would get you, but on the other hand, it’s not solving poverty either.

      • Scott Alexander says:

        I think the argument is you need a stronger incentive to change a system than you do to stick with it, especially given the risks and the degree of change.

      • Mary says:

        Capitalism has solved poverty. Poverty, as the World Bank tells us, is subsisting on less than $1.25 a day. And that’s a recent raise — wasn’t long ago when it was a dollar a day.

        There are large capitalistic countries where no one lives like that.

        • jaimeastorga2000 says:

          There is a sense in which this is true, and a sense in which this is false. There is a class of goods, such as food, clothes, beds, refrigerators, computers, radios, and televisions, whose prices seem to be largely independent of the amount of wealth people earn, and thus poor people in capitalistic countries can easily purchase them. Indeed, even the homeless are quite likely to own laptops and cellphones these days, which they recharge in libraries and other public spaces.

          And then there is another class of expenses, whose prices for whatever reason seem to creep up and take large fractions of your income no matter how much you make, until you are inevitably treading water with little savings and utterly dependent on a receiving a steady paycheck from a job you hate. These include housing, credentialed education, taxes, medical care, and status signals. So there is a class of people in capitalistic countries which can be reasonably called poor because of their problems with the second class of expenses, even if the first causes them little trouble.

          Mind you, this is still infinitely better than poor people in socialist countries, who are inevitably poor in both senses.

          Those interested in this topic should read the comments of this LessWrong thread. Much fascinating discussion happened there, most notably between based Vladimir and our esteemed host, Dr. Alexander.

          • Matthew O says:

            Yes…it is strange that the cost of some goods seems to magically rise as incomes rise to remain a constant % of income, such as housing.

            As far as housing goes, I think part of the problem has to do with how standards for what counts as a “house” have crept up. Most city ordinances will not even let you have a house smaller than 800 sq. ft. or even 1,200 sq. ft. in some cases. Very livable “micro-homes” and even cheaper trailers (you can get decent ones for $5000) are not classed as “homes” and are relegated to trailer parks in inconvenient places on the outskirts of town because of NIMBYism and concerns over status and property values. Nor will people let you put up a tin shack and call that a home. If city ordinances allowed more for either one of these things, you can bet there would be a lot fewer “homeless” people around.

            The truth is, most people in America at least don’t really want to make it easy to be poor or homeless, to live on a small income, to live without working much. I guess it has to do with the Protestant work-ethic thing–the idea that if you are not working, you are a lazy sinner and not doing the lord’s work, and that you need to be compelled to work work work for your own good. If you read Daniel Quinn’s “Beyond Civilization,” you’ll come to appreciate all the little ways that our society goes out of its way to make living as a poor or homeless person harder, so as to compel people to fall in line with the Protestant work-ethic. For example, people don’t like the idea of giving the homeless day-old bagels, even when those bagels would otherwise just be thrown away. That would be making it too easy on the homeless, after all. Homelessness should be unpleasant in most people’s minds.

            Lack of resources in the industrialized countries is not the main problem contributing to bad living conditions anymore. Nor is the biggest problem even the distribution of resources (the problem that socialism tries to solve). Both are problems to a relative extent, in that yeah, it would always be nice to have more stuff and distribute it better. But the real problem is status games.

            With status games, people have Maslow’s hierarchy of needs backwards. They make it harder for others to obtain basic survival goods in order to emphasize the production and maintenance of positional goods. I guess it’s what happens when an ape brain goes ape in a setting for which it was not selected.

          • Abel Molina says:

            Note that in the case of healthcare, this is not the case in a large number of 1st world countries.

          • Anonymous says:

            Abel, in most countries people do not pay for healthcare out of pocket, so it is not relevant to poverty. But in all first world countries, healthcare has been rapidly increasing as a proportion of GDP.

          • blacktrance says:

            Regarding opposition to day-old bagels, does it come from people in general, or from bakeries that don’t want to compete with their own goods? If bakeries offered day-old bagels for free, I think many people (not just the poor) would go for them rather than buy more expensive fresh bagels.

          • oneforward says:

            As far as I can tell, people do like the idea of giving day-old bagels away. Bakeries regularly sell old baked goods at a discount, or give them away and get positive publicity for it.

            There’s even a federal law protecting donors from liability if people get hurt.

            Michael Bloomberg banned such food donations to homeless shelters because the city couldn’t measure the salt/fat/etc. content, but otherwise I didn’t find any opposition. Daniel Quinn just asks readers to “imagine the outrage such a proposal would awaken in the good burghers of our cities.”

          • Irrelevant says:

            That’s the difference between Cost of Living and Cost of Survival. Cost of Survival scales, very rapidly, to consume ~100% of the smallest expected income in the market because a person in a perilous situation will always be willing to shell out virtually everything they have in order to meet the minimal requirements of food and shelter.

          • Tracy W says:

            These include housing, credentialed education, taxes, medical care, and status signals.

            The housing is from zoning and other land-use regulation – the people who already own land zoned for housing near jobs wind up capturing additional money, because people don’t have the option of going a little bit further out to the farmer and saying “can I build some houses on your land?”

            The medical care is interesting. I’m from NZ, where a lot of health care is government-funded and I know a bunch of health economists who work at the NZ Treasury, where they are struggling to control government spending on health care. One of the things they say that happens is that a new methodology develops to say, treat cataracts at a tenth of the price, but, rather than lowering total spending on cataract surgey, GPs start referring people for cataract treatment much sooner. Quality of life goes up presumably, but not total spending. There’s also a lot of pressure on the NZ government to cover new expensive treatments. Finally, there’s a continual struggle against entrophy in the public service, eg managers’ incentives to do something about unproductive staff.

          • vV_Vv says:

            And then there is another class of expenses, whose prices for whatever reason seem to creep up and take large fractions of your income no matter how much you make, until you are inevitably treading water with little savings and utterly dependent on a receiving a steady paycheck from a job you hate. These include housing, credentialed education, taxes, medical care, and status signals.

            Taxes are not a good, so I don’t see the relevance of mentioning them here.

            Unless you are poor enough to qualify for subsides, the price you pay for any given house, educational program, healthcare performance and status symbol does not depend on your income.

            People who earn more may want to buy more of these things and/or buy more expensive variants, which is the same for any good including food, clothes, beds, refrigerators, computers, radios, and televisions.

            It is true that the price of homologous goods tends to be higher in wealthier countries than poorer countries, this applies both to things like food and houses.

          • Mugasofer says:


            >Unless you are poor enough to qualify for subsides, the price you pay for any given house, educational program, healthcare performance and status symbol does not depend on your income.

            True, technically.

            They do, however, depend on the income of those around you; since they can compete more effectively by throwing larger amounts of money at the problem.

            So if you’re lucky enough to be born in a First World country, you aren’t as “rich” as you might seem to someone in a Third World country – you have to bid against first-worlders for your house/education/status, making them cost much more in absolute terms than they “should”.

            And if you’re unlucky enough to be born in First World country with a Third World income, for some reason …

          • drs says:

            Your first class of goods is basically stuff that’s easily tradeable, and thus subject to the Law of One Price, modulo local retail costs and taxes. Your second class is stuff like land and local services, subject to local demand, housing policy, and labor costs (which in turn depends on average productivity in the country.) Also very fresh produce.

            So, like, in Chile, boxed cereal and cars have pretty familiar prices to a visiting American. (Or are even more expensive, due to long shipping distance.) Produce in the summer in the agricultural valley is waaaay cheap. Unskilled labor like maids or prostitutes are pretty cheap, even education is cheap. Housing can range from “whoah, cheap” in some poor neighborhood to fully First World in downtown Santiago hotels.

            Housing costs are a function of tradeable materials, less tradeable labor, and even less tradeable land, subject in most of the US to heavy regulations ranging from legitimate safety or noxisouness concerns to Stalinesque central planning of parking spaces.

            So yeah.

    • Hanfeizi says:

      In the 80s, Peter Drucker and others were pitching the notion that we were moving into an era of “Pension Fund Socialism”, by which the workers had fundamentally taken ownership of the means of production through their retirement savings. (The problem with this was it was only ownership- control was vested in a managerial class, who decided they wanted to seize ownership for themselves- and the last 25 years of economic history consisted of them concocting ways to do exactly that.)

      And yes, of course people would own shares in companies that go bankrupt- I’d assume that everyone essentially would be owning a national index fund.

  2. Steve Johnson says:

    Here’s an alternate method for nationalizing all the corporations in the United States.

    You replace the currency with one that can be printed at will by the government. Anything that “the people” want to buy, they simply print the, hmm – let’s call them – rubles.

    Every year you print more and more rubles – “the people” get to own everything in real terms and it’s all still managed by people who are somewhat competent (for a while – until they get completely replaced by people who’s main skill is getting the ruble printers to print rubles and give it to their corporation).

    • michael vassar says:

      I think you get something that Scott really doesn’t, about the current system actually being, more or less, Romer’s system, and also legitimately socialist, in many of the bad ways.

  3. JTHM says:

    Regarding the value of schooling, I strongly recommend this recent blog post by Bryan Caplan:

    Spoiler alert: Mandatory schooling is almost perfectly useless.

    • Protagoras says:

      A lot of complicated things going on. One interesting point early on in that blog post is that whether schooling is compulsory seems to have much less effect on school attendance than one might have thought (in many cases, apparently no noticable effect at all), which would seem to suggest that evidence of the effect of compulsory attendance laws on outcomes is not going to be very helpful in assessing the effect of education on outcomes.

      • A.Person says:

        So, we can’t jump from saying that because mandatory schooling is useless (in the sense of increasing attendance), that therefore public school as a freely available institution is useless (in the sense of being necessary to allow the majority of people to not be unemployed as adults/allow the economy to function)? It doesn’t necessarily prove what libertarians would want it to.

        Even so, since mass unemployment seems to be coming in decades anyway due to automation, at some point only the STEM people will need education, so the “value of (mass)schooling” may be significantly less in that period.

      • Anonymous says:

        As I understand it the actual point of compulsory schooling is that it makes it impossible to *work* during those hours. This prevents students from having to make a trade off at 12, 14 or 16 depending on your state, between continuing school and going into a profession. It does so by making “go into a profession” impossible.

        • Anonymous says:

          But if compulsory schooling fails to raise attendance, it doesn’t actually cause people to make the choice the backers wanted them to make. Instead of choosing work over schooling, they choose delinquency over schooling, which most people consider a worse outcome.

    • Hanfeizi says:

      Compulsory national education has been one of the key drivers behind poverty alleviation. Countries which have effectively lifted their population to 90%+ literacy have almost universally managed to develop to at least a “second-world level”. So I don’t know if I’m buying this.

  4. Interesting that in order to get a plausible “socialism” you have to go most of the way to capitalism. (See also: China.)

    I think that both you and Roemer gloss too quickly over the problem of the poor simply selling their shares for whatever. You imply that you can sell shares for coupons (which is necessary for the “stock market” to have liquidity), but it seems that once you’ve opened that door you’ve made it inevitable that someone will find a way to trade coupons for cash or goods. The ways of doing so are endless, from the obvious (buy one share of this worthless stock with all of your coupons and I’ll give you $10K cash as a bonus) to the more subtle (owners of this stock are entitled to lodging in this apartment building). Plus you’re completely ignoring the various kinds of derivatives which already exist or which could quickly be brought into existence in order to meet this demand. If you make all of these things illegal, you’ll simply lower the cash value of coupons and force stock-coupon traders onto the black market, where the poor and desperate will sell their patrimony at far below market prices.

    • Scott Alexander says:

      In the book, Roemer proposes that all sales of coupons are computerized through a central government database. I don’t know how he solves the “trade this at a very low price and I’ll give you some money on the side” problem, but perhaps one could restrict sales to within a certain band of market price?

      But I agree it would be more of a problem than he thinks. It’s hard to stop people from selling things.

      • Mary says:

        I also note that that traditionally, new companies prefer to issue stock where established ones prefer bonds — the lending he’s looking for. The thing is, the new company is extremely high risk. By offering stock, it’s offering a less reliable shot at a much bigger pay-off.

        Edit: Hmmm. I didn’t mean this as a reply to Scott’s. I wonder what I hit wrong.

        • RCF says:

          So, what did you intend it a reply to?

          Also, there a certain amount of risk in a start-up. If the start-up is fully equity funded, then that risk is equally shared among all its investors. If it’s leveraged (that is, it’s issued bonds), then the holders of equity have more risk, and the bond holders have more, but the total amount of risk isn’t changed.

      • JTHM says:

        Rather, one type of coupon would simply become money. What I mean by that is that a highly divisible, easily portable commodity with a long shelf life always becomes a common medium of exchange in a barter economy. Salt, metal, cigarettes, and spices were historically common, but it could just as easily be a stock, a future, a share of a mortgage, etc, and libertarians have a long history of proposing using mutual funds as currency. Sellers would start listing prices of things in terms of a single good for comparison purposes, thereby creating a Schelling point that would become the new currency.

      • Tracy W says:

        Restricting sales like that would restrict the price information stocks could provide, eg if a company made a really bad decision, or had some really bad luck, or a competitor just suddenly brought a really good product to market, a market price should be falling rapidly.

        • Tracy W says:

          On thinking about it a bit, the problem is even worse. Let’s say a stock is trading at $100, and a piece of bad news means that its market price “wants” to fall to $50. But, government restrictions mean that the price can only fall by $20 in each 24 hour period. So, a lot of people want to sell their stock, but the least they can sell it for is $80. And who would buy at $80 when they expect that in the next 24 hour period that $80 share will fall to $60? So, at least as a first approximation, the stock never sells and the government price-band restriction remains centered at $100.

          If the government price-band restriction comes off after x days of no trading then the trade of “sell at a low price and I’ll give you some money on the side” can happen just by moving through a low-liquidity stock.

          Although maybe diversity amongst buyers and sellers might give us a few mad optimists who buy at $80. It would be interesting to test.

      • Mary says:

        Now I remember what I wanted to say to this.

        What we have here is a black market. Black markets can be very functional. However, their means of enforcing standards can be — severe.

    • RCF says:

      Moreover, apparently corporations in this system issue dividends. So… what’s to stop a corporation from simply selling off all of its assets, and distributing all its cash as dividends?

      • Anonymous says:

        That allows a conversion of shares to cash, but I think the point of the system is to prevent a conversion of cash to shares. Cash is for consumption, not for ownership (“capitalism”).

        • Tracy W says:

          “Cash is for consumption, not for ownership” implies that we don’t want people ploughing spare resources into productive investments. “You had a good year on your farm for once and want to buy a tractor? Nope, go out and blow your money on a holiday to Disneyland.”

          • vV_Vv says:

            I think that under the proposed system, a farm can reinvest cash to buy a tractor. The tractor will be owned by the farm which would be owned by the public through this shares system.

            What you wouldn’t be allowed to do is to use a personally-owned tractor to generate income.

          • Tracy W says:

            So you can plough spare resources into investment, but you have about three-hundred-millionth of an incentive to do so, compared with the current system?

          • vV_Vv says:

            Not really. The farmer either is compensated by either a fixed salary or according to some fraction of what the farm makes.

            The point is that even if the farmer is the only employee of a one-person company, they don’t own the farm’s assets.

          • Tracy W says:

            I’m really not getting the point of this system at all. What’s the difference between a farmer being the sole employee getting some fraction of the farm’s income and the farmer owning the farm and paying taxes on his farm income?

          • vV_Vv says:

            If I understand correctly the point of this system is to prevent capital accumulation.

            In the capitalist system, the farmer can use the farm income to buy additional assets (e.g. a tractor) which he will personally own, or other farms, or invest them in the stock market, etc. This creates a “the rich get richer” effect where you can increase your share of the total wealth by passive investment.

            In the proposed system, the farmer, as the CEO of the farm, can make the farm buy additional assets and if that results in increased income, increase his own salary. But in principle the farmer can be always fired by the share holders if at some point they become unsatisfied with the farmer performance.

          • Tracy W says:

            So it does aim to discourage people from investing spare resources. Also, if the farmer is approaching retirement or just wants a change of career, he lacks an incentive to maintain the productive capacity of his farm because he won’t get any money from selling it.

  5. Anonymous says:

    Some additional thoughts.

    It seems that the wealthy would be an even more exclusive club in this economy that in today’s. Even if the stocks are initially of the same value they will not stay that way and since you cannot trade stocks except for other stocks if your stocks fall in value your stock with being low stock for life in a position even worse than in today’s economy (since at least in today’s economy you could save up cash to buy stocks on and hope to get lucky the second try) . I seems that a few people would be lucky enough to own Apple stocks when they are distributed would become fabulously rich and everyone else would be kind of stuck. So while you might not get accumulation of stock in the quantity sense you would in the quality sense.

    In addition, how do young people enter this economy. Are they randomly assigned stock when they pass a certain age? If so where from? Can you inherit stock? If you can it makes the position of the good quality stock class from earlier have an even more unassailable position.

    • Tracy W says:

      And if you can’t inherit stock, then the elderly (and anyone with a terminal illness) have a strong incentive to pick stock in companies that boost short-term cash returns at the cost of long-term productivity.

  6. Douglas Knight says:

    I don’t see how requiring stock to trade for stock prevents stock accumulation. It means that someone who is currently cash-rich cannot become directly become stock-rich. It prevents leverage and it prevents compounding dividends into larger ownership of a company. But how does it stop accumulation? Steve Jobs basically traded shares of Apple for shares of Next and Pixar, and then literally traded them for shares of Apple and Disney, winding up much richer at the end of his life than when he first left Apple (first having accumulated a lot of stock in a way not compatible with this program). Warren Buffet would be a better example, though he would have to structure his deals differently.

    I wonder if he also wants some additional assumption, not only must one trade stock for stock, but also in equal numbers of stock. If stock A is worth twice as much as stock B, that is represented by a straight-forward trade of one A for two Bs. But if one must also pony-up a near-worthless share of C to make the count balance, that sounds like a drag on the system. And I don’t think that actually has an effect on accumulation.

    Added: maybe the point is to prevent generational transfer?

    • Tracy W says:

      What’s more, if you have to trade equal numbers of stock you lose the price signal from the stock.

  7. Mary says:

    One notes that the prices will have to be expressed in dollar amounts, since otherwise figuring out the value of two stocks relative to each other would be just too hard.

    What if one’s selling for 110 dollars and you have only two 60 dollar shares to trade?

  8. Daniel Speyer says:

    > The principal-agent problem is at the center of a lot of different things, so it’s really interesting to think of something as humble and unassuming as the joint-stock corporation as having in some sense solved it.

    How rare is it for a CEO to gut a company’s long-term value while driving up short-term metrics, collect huge bonusses for the “success” and bail before the consequences hit? It’s the sort of thing you hear a lot about, but generally vaguely. I don’t know if it’s the norm or the exception.

    • Douglas Knight says:

      People talk about it so vaguely, I don’t think they know anything.

      One example that annoys me is Enron. People at Enron did do a lot of bad things, but I can’t tell which one, if any, people mean when they allude to it. One is the manipulation of California electricity prices, which was looting California, not Enron. It is certainly true that in the last couple of years of the company, they executives committed frauds to drag out its existence, just as you say. But most of its price for most of its existence was not the result of such simple fraud. My understanding is that its big problem was letting salesmen of long-term contracts fabricate the value of the contracts they sold. Large numbers of them inflated the value, collected personal bonuses, and decamped long before the end. It’s not clear that the executives understood that the company was worthless at the end, let alone why. Or perhaps they thought that if only they could keep the company going for a couple of years, they’d come up with another opportunity like California.

      (Specifically, Enron stole ~$1 billion from CA; the accounting frauds produced an illusion of similar scale. But the company’s market cap for $10s of billions was the result of a long history of inflating the value of contracts.)

    • david says:

      This is difficult to measure. How would one determine a company’s “long-term value”?

      There is definitely some shareholder concern in this direction, given that long-term compensation plans are increasing as a share of executive compensation. Still, that presumes that future shareholder value is a good proxy for long-term social value, which is not necessarily the case.

      • Tracy W says:

        There are no good proxies for long-term social value. In part, because we can’t agree on what long-term social value is.

        Every measure I’ve seen proposed misses out some major components and has pretty arbitrary weightings.

    • Tracy W says:

      Not common enough to stop overall stock returns from being positive across decades.

      And note that there’s plenty of other ways a company can lose money, including CEO incompetence, regulations going against them, someone inventing a new product that steals their market share (eg camera-film makers: digital cameras), or just bad luck. So the situation you describe is just a subset of company negative returns.

    • Eric Rall says:

      I get the impression that it’s not uncommon for companies to fall into a “picking up pennies in front of a steamroller” business model: i.e. one that produces steady profits most of the time, but occasionally yields catastrophic losses. A recent high-profile example is holding high-interest tranches of mortgage-backed securities and hedging the risk with credit default swaps.

      This is generally understood primarily as a risk-estimation problem: people tend to underestimate risk when nothing has gone catastrophically wrong for a while, and people tend to overlook the risk that their risk estimation model is incorrect. But an agency problem can also play a role: CEOs tend to get more reward for steady profits most of the time than they take losses for rare catastrophic losses. I doubt the agency cost angle here is conscious, but I can see it playing a role through motivated cognition.

      • Douglas Knight says:

        Do you have an example that is not finance?

        (Incidentally, your examples are like Enron: most of the aggregate value went to the salesmen, not the executives. But the executives certainly benefited from the situation.)

  9. Vaniver says:

    By my understanding, very little lobbying is done by rich capitalists personally – and I think the Koch brothers are an exception because they genuinely hold conservative principles, not because they expect the calculus to come out in their favor.

    Even this isn’t really correct. The Koch Brothers do very little lobbying. Like everything else associated with the Kochs, what they do is clever (in a way that makes you think Eliezer might be right about the world being mad, if that’s all it takes to be clever).

    Others have run the numbers, and I won’t link them here, but I’m fairly certain the Kochs have donated more to ballet and more to medicine (each individually) than they have to politics, and compared to other politically-minded billionaires they’ve actually been rather stingy. But they said “what’s the most effective use of political donation money?” and decided “we should fund a surprisingly good economics school that gives a place to people who agree with us politically who otherwise would have left academia.” (Bryan Caplan’s autobiography describes how George Mason was the only school that offered him a position.) This took approximately $50M and approximately 20 years.

    • Nornagest says:

      That is clever. It also sheds some light on why politically active Blue academics (and people in academia-adjacent professions like journalism) seem to hate the Kochs so much.

    • Eli says:

      It’s clever, but not uniquely clever. The entirety of the American Right more-or-less had the shit scared out of it by the counterculture in the ’60s (and yes, I realize most youth of the time were not hippies — still!), and decided to get their shit together by building a right-wing “counterculture” of ostensibly objective, professional organizations and institutions that all just somehow seemed to collaborate with each-other in pushing Rightist ideology.

      It’s what makes neoreactionaries’ talk of a “Cathedral” so humorous: it’s projection! Where else but the American Right can you go to high school, attend university, attend graduate school, and then work in policy for your whole career without once seriously engaging non-Evangelical or non-libertarian ideas? They maintain excellent ideology coherence by making sure no outside ideas pollute them.

      • Jaskologist says:

        The fact that both the American Right and Center can handle Ideological Turing Tests, while the American Left can’t really blows a hole in your whole thesis.

        • Matthew says:

          That’s not actually what Haidt found. What he found was that the right and center were bad at ideological Turing tests, but that extreme liberals were even worse.

          • Jaskologist says:

            Fair point. I don’t want to be part of a chain magnifying a study’s results into something they weren’t.

        • drs says:

          I’ve hung out a lot among libertarians online, and dip into conservative sites. I’d say the observed median ability to pass an ITT about liberals is zero. I see lots of pontification about how liberals think that has no relation to how liberals or leftists actually think. Note that I’m going deeper than simple beliefs about policy issues (or statements about beliefs.) A conservative might be able to parrot that a liberal wants universal health care or welfare, but they often are ludicrously wrong about why.

          The same may well be true in reverse; certainly as an ex-libertarian I’ve sighed at a lot of liberals who give no credit to libertarians for having moral beliefs (if different ones) or being anything other than selfish bastards. I still remember the moral clarity I felt about the Non-Coercion Principle, and it wasn’t at all about “I’ve got mine, hands off.” (OTOH, there are certainly a lot of libertarians who do sound like that…)

      • Nornagest says:

        The existence of a more-or-less fully enclosed rightist academic+policy track doesn’t disprove weak versions of the Cathedral hypothesis, especially if it was created in response to perceived leftist hegemony over the academy and civil service fields. Which to be honest sounds more plausible to me than fabricating an entire vertically integrated educational establishment out of whole cloth because you’re squicked by a bunch of hippies.

        Bear in mind too that most of the neoreactionaries we’re familiar with are culturally Blue and won’t know e.g. Oral Roberts University from a hole in the ground.

        (Christian rock, now, that’s inspired by the counterculture.)

      • Right, because if you want you can grow up listening to Switchfoot, go to places like Oral Roberts University, and then when you graduate you lead the youth group at your church of 300 people. It’s a bubble! It’s ironclad!

        Whereas on the other track you go to places like Yale, and then when you graduate you become a journalist or a professor and present your ideas to thousands of America’s best and brightest.

        Somehow these two outcomes are not quite the same.

      • anonymous says:

        “It’s what makes neoreactionaries’ talk of a “Cathedral” so humorous: it’s projection!”

        I wish SSC commenters stopped talking about “neoreactionaries” as if they were the same thing or even part of the American right.

        Neoreactionaries are an extremely tiny group of mostly cultural blue tribers who hold unconventional ideas many of which the actual American right would find crazy.

        • Hainish says:

          “cultural blue tribers”

          I don’t care whether they live in cities and eat arugula (if that’s what you mean by this). That doesn’t make them blue tribers in any but the most superficial sense.

          • Protagoras says:

            Yes, the cultural issues are pretty tangled anyway. Since I tend to think that my Ph.D. from an Ivy makes my ivory tower intellectual credentials absolutely bulletproof, I personally do plenty of counter-signalling by openly indulging my various low-brow tastes; I don’t eat much arugula. And I’m not the only person I know who tries to signal being above this signalling nonsense by insisting that they eat food that tastes good and pursue activities that are fun.

          • Army1987 says:

            You think that Curtis Yarvin’s residence and diet are the only ways he’s more like other people in the Bay Area than like people in Appalachia?

          • Hainish says:

            You think that Curtis Yarvin’s residence and diet are the only ways he’s more like other people in the Bay Area than like people in Appalachia?

            Army1987, since I have never heard of Curtis Yarvin, I could not possibly say. However, if I’m to decide whether he’s more like people in the Bay Area vs. those in Appalachia (in terms of political philosophy), I would judge according to his statements *about* political philosophy. I’m not sure what saying that he’s culturally similar to blue tribers would achieve, other than to (conveniently) distance him from red tribers.

          • Army1987 says:

            @Hainish: He blogged on Unqualified Reservations under the pen name Mencius Moldbug.

          • Hainish says:

            He’s in tech? He has money? I’m not seeing a good case for classifying nrx as blue tribe. (And why are Appalachians standing in for the entire American right, anyway? It does include the educated, urban, and wealthy.)

          • nydwracu says:

            There’s a few things going on.

            The circle that formed around Unqualified Reservations had a lot of ex-libertarians from the DC area (including Moldbug, even though he switched coasts) who had experience with USG.

            Once the word ‘neoreaction’ was coined and started to get publicity, it started drawing people off from paleoconservatism; they do a lot more Red Tribe signaling.

            More recently, there’s been emphasis on taking up aspects of ‘traditional masculinity’ that show up as Red Tribe signals — lifting, shooting, and so on.

      • Tracy W says:

        There’s a lot of groups that maintain excellent ideological coherence that way. The problem is that by refusing to engage with outside ideas makes it almost impossible to influence said ideas. The only people you’ll get joining you are ones who already basically agree and who want to withdraw from the world, so them joining will decrease your ideas’ influence by removing their advocates from public life.

  10. social justice warlock says:

    My own pet market socialism would have the coupons be a constant right to rent productive property from the state.

    A Future For Socialism makes – and I believe proves – a bold thesis. It argues that a socialist economy is entirely compatible with prosperity, innovation, and consumer satisfaction – just as long as by “socialism”, you mean “capitalism”.

    I should say that the ownership structure over productive property is the traditional way of distinguishing socialism from capitalism among self-identified socialists, inasmuch as there is one, and even though most such people are not market socialists.

    Roemer points out that’s nonsense. Most real-world capitalism isn’t the plucky entrepreneur founding a startup, it’s the giant corporation, in which a bunch of investors (who profit off of good decisions) hire a manager or CEO type person (who is supposed to make good decisions). Insofar as CEOs keep companies profitable – and it seems they do – the principal-agent problem is solved. If we want the company to be run by Stalin instead of by investors, all we need to do is use current corporate governance structure, but give Stalin the stock, and the company will be just as profitable as ever (as long as Stalin doesn’t try to interfere).

    ((neocameralism joke))

    • Tracy W says:

      My own pet market socialism would have the coupons be a constant right to rent productive property from the state.

      If it’s a constant right and the right can be traded with others, then I don’t really get the difference between that and private ownership plus government taxes.
      If it’s a non-constant right, or it’s not tradeable, then you’re reducing the interest of the renter in making long-term investments in the property, especially given the government’s major knowledge problems in monitoring the quality of capital assets. The less constant the right, the bigger the problem.

  11. Anonymous says:

    I am not sure if you are aware of the way Russia (and other post-soviet countries) did the complete opposite thing – privatization, but using the same idea: giving each citizen a share of all the state’s property (in the form of a voucher) and letting him/her exchange it for stock. You couldn’t sell it for cash, but you could sell the stock afterwards.

    It did not turn out well. It really, really did not.

    • Douglas Knight says:

      It turned out well in some countries.

      I’ve never been able to track down the details of how it was structured in Russia and what went wrong. In particular, you say that people couldn’t sell the vouchers for cash, but your link seems to claim that’s what most people did, and why they did badly.

      I believe that the vouchers were not a uniform slice of the economy, that a humble investor could just sit on, but had to be invested in particular enterprises. But there were additional restrictions on investment, such as showing up at the company, with the sole purpose of allowing insiders to acquire the company.
      The companies owned by insiders turned out to be valuable, while the companies with dispersed ownership turned out to be worthless, probably because the insiders controlled both and cut deals in favor of the former. In particular, my understanding is that common people who disposed of their vouchers did better than those who tried to invest, contrary to the wikipedia claim.

      (That reminds me of a conflict of interest in American history that I just learned: Howard Hughes bought airplanes and leased them to TWA, an airline he controlled.)

      • Anonymous says:

        (I am the same person as grandparent of this post). I have lived through this process in Ukraine (I was a kid, but saw what my parents did). I believe that at least in Ukraine you couldn’t sell for cash, but you could get shares and then sell them on the spot. Many people did that – they were the smart ones actually, since they got something out of it. Most people, including my family, invested them in Ponzi scheme “investment funds” that promised good returns, and got exactly nothing. Some “investors” (usually guys with connections in the old soviet government, or directors of factories, etc) did buy out actual industrial giants using tons of these vouchers obtained at a cost of a bottle of Vodka (but nominally worth hundreds to thousands of dollars) and became the new oligarchs. I believe many-to-most 90’s era Russian billionaires came out of this process. This is why Putin found it so easy to deal with them.

        Just get a random Russian (also, Ukrainian, etc) on the street and ask them what they think about vouchers. Try not getting hit in the face. All the people associated with that project are complete political untouchables in Russia, even though they are doing well economically. As they should, they stole or abetted in stealing billions of dollars. The only person I can think of who was more hated than Anatoly Chubais might be Gorbachev (who is probably the most despised person all around – except outside the former USSR, of course).

        • Douglas Knight says:

          Yes, it was definitely a crime, but I don’t understand the details. When I said it worked well in some countries, I mean places like Czechoslovakia, not ex-Soviet.

          Oh, yeah, I forgot about the “investment funds.” That makes sense. What I don’t understand is what happened to people who tried to use their vouchers to buy a few shares themselves (rather than through the “investment funds”) and hold on to them. Did they wind up with worthless companies? Were they somehow forced to name a custodian who stole the shares?

          In the second to last sentence of your first paragraph, you seem to switch back to people selling vouchers. If they could sell vouchers, that fits with my story – the insiders acquire lots of vouchers, which are only useful to themselves, because they can go to the special auctions. But if the vouchers have to be converted to shares first, then either it was possible for ordinary people to acquire shares in good companies, although most of them sold them cheaply to oligarchs; or it was was not possible, and the oligarchs used few vouchers at the closed auctions. But in that case, why did they pay anything for shares or vouchers from ordinary people?

          • Anonymous says:

            My recollection/understanding is hazy, but I’ll do my best. I think the way this worked was that a voucher was a piece of paper, and you could hand it over to someone else (maybe you countersigned it) in exchange for your shares of some investment fund or organization. So, an unscrupulous person walks up to a random alcoholic, and offers a bottle of vodka, in exchange for his voucher. The guy signs that he received some shares in return. Technically, I think, it’s illegal, but who cares. The government could check the serial number, but the certificate is completely transferable – it has to be, so that an investment fund could make deals, etc.

            I think the idea was that people would form groups and buy out organizations that they actually worked for, or ones in their neighborhood. So, until the factory is privatized, it obviously has no stock. Then, the government puts it up in an auction (with some ridiculously low reserve, in practice) for vouchers (no cash), your local voucher cooperative buys it, and now owns the factory. You don’t own shares in the factory, directly, you own shares in your cooperative, which maybe owns many factories. In reality, Berezovsky owns 90% of the shares in your cooperative and has control of your factory. Theoretically, it’s because he is a good businessmen and bought off everyone else’s shares (not vouchers) cheaply. It also so happened that no one else was bidding for your factory, so he bought really cheaply even if you took vouchers at their face value.

            Basically, an individual investor could not directly buy a _share_ of anything the state sold, only the whole thing at once. You could buy a share of a private enterprise which was usually run by crooks.

          • Douglas Knight says:


          • Lalartu says:

            >what happened to people who tried to use their vouchers to buy a few shares themselves

            Nothing special. For example I still own shares of some metallurgical corporation. They send paper mail with some annual statistic, but don’t pay any dividends.

        • Steve Sailer says:

          Lots of the most respected economists in America like Larry Summers and Stanley Fischer helped come up with that shares plan for Russia in the early 1990s. That history certainly doesn’t seem to have hurt their careers, so maybe how it turned out was more feature than bug?

          • Matthew says:

            Jeff Sachs stopped speaking to Andrei Schleifer as a result of the Russia debacle, if I recall correctly. Different people may have had different motives.

          • Douglas Knight says:

            And the Schleifer incident is probably the biggest reason Summers lost his job. But the Schleifer incident is a pretty minor detail of privatization, and it was pretty clear how the bulk of privatization had turned out by the time he got that job, let alone when he returned to government.

      • Mary says:

        Communism makes you corrupt. Decades obviously makes you very corrupt.

        Really, it’s been tested. They got some Berliners to play a game with a chance to cheat, and picked out the cheaters by their statistical improbable results. They were much more likely to have grown up in Communist East Berlin than West Berlin.

        • drs says:

          Does Communism make you corrupt, or does a Western high-trust culture make you less likely to cheat? Perhaps the West Germans were the WEIRD ones.

    • Tracy W says:

      I’m surprised to hear that in Poland, the Baltic states, the Czech Republic and Slovakia you couldn’t sell your shares for cash.
      I’m also surprised to hear that you think things are working out *that* badly for Poland, the Baltic states and the Czech Republic and Slovakia. Obviously they’re far from perfect, but then, what countries are?

      And even Hungary isn’t doing that badly economically, although its government sold shares when privatizing for cash, and its current leader is certainly worrying (one of my workmates is Hungarian).

    • Hanfeizi says:

      China instituted similar systems with earlier privatizations. Peasants often had no idea what the vouchers were for, so the few that could figure it out bought them out at a pittance and often roamed from town to town buying up vouchers.

      Later privatizations were much clearer, for instance, the 1997 real estate privatization, where work units simply gave everyone title to the apartments they were living in. But even that ran into issues…

  12. Scott Elliot says:

    If you enjoyed thinking about the structure and goals of joint-stock corporations, I highly recommend one of my favorite papers of all time: “Caveat Investor: An Alternative to the Fiduciary Theory of the Corporation,” by Waheed Hussain, a Wharton professor. A short and easy read, but a thought-provoking exploration of what corporations ought to be maximizing.

  13. david says:

    Returns on investment by its sovereign-wealth funds account for about 15% of government revenue in Singapore. That’s a sort of public ownership of corporate assets, funded through the state diverting a massive chunk of the postwar explosion in growth.

    Hong Kong also funds about 15% of revenue based on returns on state-held assets, albeit the asset here is land (the fabled 100% land value tax; note that the govt of Singapore also ‘owns’ a large chunk of its own land via its funds invested in entities that own land. Difference is mainly in whether the govt relies on partial non-govt governance of these assets, a point that is non-trivial, as you’ve realized in Roemer).

    The Norwegian government also owns a huge share of corporate assets that exist globally – there is a commonly-quoted figure of 1% of all stocks and bonds worldwide, but I cannot find the source. This is albeit funded through windfall oil wealth rather than nationalization. I am not sure how much is drawn down for annual revenue but the long-term target is apparently 4% of the fund (as a percentage of the fund, not the revenue).

    It is worth noting that in Roemer’s framework there is nothing that prohibits a socialized trading system from owning merely a large proportion of all corporate assets rather than all of it – most of the ‘public bads’ would also be internalized, rather than all of it; that might be good enough in social-welfare terms. However, observe the agonies which Norway goes through to purge its oil investment fund of ethical violations. Governance is simply not easy.

    • Douglas Knight says:

      I don’t think the Norwegian government draws down its investments at all. The point is to save the oil windfall for when the oil runs out.

      • david says:

        No – the entire structural non-oil deficit is paid for by any return on petroleum fund investment. Returns into the fund, returns out of the fund. It is not postponed into the indefinite future. Norway has been running a persistent and deliberate non-oil deficit for years.

        Optimizing the net present value of consumption includes present consumption, it does not mean putting a zero value on present consumption.

        • RCF says:

          If the optimum spending level is lower than the oil income, then the fund will not be drawn down.

          • david says:

            no – the net present value of the oil fund is the value of all present and future flows, as amplified by investment, discounted at their point of consumption. It is not the present balance of the fund that matters. It is the optimal consumption path that is smoothed; the optimal path of the balance can swing in any direction, even into negative territory (e.g., if the investing entity can find returns that are higher than the market rate on interest on debt, e.g., Singapore. That’s not completely ridiculous, especially for a sovereign wealth fund that has the lifespan and diplomatic power of a state-as-investor-and-creditor behind it; it can access investment opportunities unique to states).

            So when we say ‘draw down’, the only meaningful economic sense is consuming the NPV. Which Norway is indeed doing, by consuming any of the fund at all. It so happens that this portion is presently smaller than the returns on investment, but nothing magic happens the portion becomes larger, save that the nominal balance of the fund will begin shrinking – but again, it is not the nominal balance that generates social welfare. The nominal balance is likely to switch from growing to shrinking multiple times, since both oil revenue and investment returns are more volatile than demographic-driven structural welfare expenditures.

          • RCF says:

            David, if you think that you post rebuts mine, I really don’t see how. I’d try to refute your argument, but for the life of me I don’t know what it is.

        • Douglas Knight says:

          Yes, not all the oil money goes into the fund. But I don’t think any money has ever come out of it. last 10 years; older (source;source).

          • James James says:

            Norway doesn’t withdraw from the fund, however they do have government debt. In theory people will be willing to lend more/at lower rates, because of the existence of the fund.

            In practice, while the net worth of the Norwegian state is negative, it’s less negative per capita than most other European companies.

          • Anonymous says:

            No, the debt is 200 billion dollars, while the fund is a trillion dollars.

      • nydwracu says:

        Wouldn’t surprise me — Nauru tried to do the same thing with phosphates. But they fucked up.

        • Anthony says:

          One wonders whether an independent Scotland would fuck it up. If they set up the fund in the first few years after independence, I’d bet yes. If they waited (or reformed it) after Scottish politics got boring again (a few years after independence) they’d probably have a good chance of doing something not-stupid.

    • Richard says:

      Just clearing up a few things about Norway:

      The Norwegian National Budget is approx. 1200 arbitrary units.
      Of these, roughly 600 comes from direct taxes, another 300 comes from the ‘interest’ on the oil fund and the last 300 comes from the state controlling 56% of the value on the national stock exchange. (last I checked)
      The actual income from oil production goes to the fund which currently sits at roughly 6000 arbitrary units.
      The interest on the fund is expected to be 4% on average, the current consumption is around 2.8-3%, so unless the fund underperforms, it should grow even with no additional income from oil. (albeit at a lower rate than inflation) Since 1998 when it was set up in its current form, the actual rate has been 5.7%.

      The government owns a majority in a few ‘strategic’ companies that controls things like electricity supply and a minority interest in a lot of other companies (often 34% so that they can block major decisions they disagree with.)

      Norway does have debt, but not in the sense that the country is running on borrowed money. Norway’s debt is comparatively short term and significantly lower than it’s reserves.

      With regards to the topic of this discussion, it seems that Norway is actually implementing some of the ideas in the book by controlling a significant portion of the stocks and spending the money on things like free education and healthcare. It does not work terribly bad although the system could probably do with a few tweaks.

  14. It’s like we have these giant superintelligences (corporations) running around optimizing things and hardly anyone studies how exactly we can make them more friendly (corporate governance improvements).

    • david says:

      there is plenty of research on corporate governance improvements, but results depend very much on ideological frameworks and proposed counterfactuals – controlled experiments are difficult

      and worse, changes in the field are readily erased from memory. The rise of index funds, the advancement and then decline of hostile takeovers (and the fact that hostile takeovers were a tiny fraction of takeovers to begin with), the rise and fall of corporate debt – these were large shifts but are readily forgotten. It’s not even a matter of whitewashing the past inasmuch as assuming the past is and has always been like the present, it’s bizarre

      • Eli says:

        assuming the past is and has always been like the present, it’s bizarre

        Welcome to the human species! Here’s your ID card!

    • Tracy W says:

      There are entire research journals dedicated to corporate governance.

      I suppose this could be described as “hardly anyone”, because this is just a subset of the fields of economics, law and accounting, and those in turn are merely subsets of the fields of scientific research and whatever-the-branch-term-is-for-law-and-accounting, and those fields in turn are just one employment area, but it’s not obvious to me that directing say, 5% of academia to studying corporate governance would be an improvement overall. Physicists and biologists and doctors and environmental scientists and the like do some useful work too.

    • no one special says:

      This is what I was trying to say in the Moloch thread when I was talking about higher order life.

    • Anthony says:

      these giant superintelligences (corporations) running around optimizing things and hardly anyone studies how exactly we can make them more friendly (corporate governance improvements).

      Well, actually, those giant superintelligences (rather, a subset of them), has been studying just that. The problem is their definition of “friendly” is not your definition of “friendly”. Also, they haven’t been able to run a lot of experiments, so their results aren’t that good by their own lights, either.

    • Andrew says:

      That is a good way to think of it.

  15. soru says:

    For anyone who wants to get a picture of how this would work without reading a whole economic textbook, there’s a fictionalised version on a spaceship in Ken McCleod’s Learning the World.

    It explicitly deals with the startup problem; everyone in the coming-of-age plot is obsessively pursuing ventures that, if succcessful, will make them rich (i.e. own a lot of shares). There’s nothing in the rules that says you can’t exchange _labour_ for shares. It’s just that there is no connection between not being wealthy and not receiving all the materiel benefits society has to offer, from accommodation to health care to, equally expensive on a spaceship, air.

    The point about it being perhaps $600 a year per person different from the better contemporary societies is a feature, not a bug. The real difference comes in the future when automation makes society as a whole unimaginably rich, while dropping the market value of any labour that requires supervisation to practically zero.

    At that point, only North Korean levels of oppression could keep a capitalist system running; something like the contemporary US would have more people in jail than out.

    • Tracy W says:

      I’m a bit lost. If there’s no connection between getting shares and receiving material benefits, why is everyone in the plot obsessively trying to get a lot of shares? Is this like a MMO, where the person with a lot of shares gets awesome virtual armour and virtual castle? Or if you fail to get a lot of shares do you get socially-ostracised? But if it’s the latter, then the logical response would be to get together with the other socially-ostracised people and look down on the ones with lots of shares.

      And, is it just everyone in the plot who is obsessive about this, or everyone on the spaceship? If it’s everyone on the spaceship, where are the people who don’t care about getting the awesome virtual armour in MMOs and instead spend all their time commenting on random websites?

      Plus, once you’ve earned your shares and gotten your awesome virtual armour, what do you then do?

      • MugaSofer says:

        Nah, I think they’re all rich *relative to us*. Some of them are even richer, because they have shares.

        So they all have “the materiel benefits society has to offer, from accommodation to health care to, equally expensive on a spaceship, air.” It’s just that the rich people have other things: fancy signalling-laden gourmet food, and bigger quarters hung with modern art, and probably tons of prostitutes.

        • Tracy W says:

          If that’s the case, then, as SF settings go, it sounds rather unimaginative. “Dallas but on a spaceship!” sort of thing.

  16. Daniel says:

    Scott, you can solve “how do we get there?” You can also solve “what do we do about new companies?”

    Just have an annual wealth tax.

    Each year, your government will tax 5% of private wealth above $10 million. Proceeds go to the Basic Income Fund.

    Then, after 30 years, what’s happened? About three-quarters of major private fortunes, about three-eighths of all wealth, has been moved to the Basic Income Fund.

    (Actually, you need to adjust the rate and threshold annually to account for profits and inflation. But let’s not get technical.)

    As long as the tax is kept in law, any new private fortunes will likewise mostly move into the public Fund over about a generation.

    Companies are formed in the usual way, and traded in the usual way. The government acquires its ownership of them over time, by taxation.

    So the Basic Income Fund would start out providing a very small income, but over 30 years it would rise to a quite substantial payout.

    You need some special rules for taxing nontraded corporations, but the American tax code already has those rules, for existing taxes. Ditto for taxes due on houses people are living in. So you don’t need major new rules.

    At “above $10 million”, you get something like half of private wealth. You could get almost all of it if you push the threshold down to “above $1 million”, but that’s politically much harder and brings in more of the tricky distortion-inducing assets like people’s houses.

    If you let each citizen choose a personal “Fund manager” for their share of the fund, then you can let existing pension fund management companies (Fidelity, etc.) take care of the decisions about which stocks to buy and sell. 401(k) plans already work this way.

    The Basic Income Fund becomes a really huge 401(k) system, with existing pension companies as subcontractors. The difference from a 401(k) is that the Fund pays out an annual income instead of providing a retirement cushion.

    If you’re concerned about private wealth being needed for venture capital, just make sure that Fund managers are allowed to invest some fraction of the holdings they manage into venture capital firms.

    Fund managers are motivated by competition, the same way as rival 401(k) managers are today.

    As long as you don’t let people withdraw or irreversibly pledge their Fund holdings, and you keep the annual wealth tax in effect, neither complete poverty nor invincible wealth can return.

    Incidentally, this helps with “what if robots take all the jobs?” If worker income all gets turned into corporate profits, that gets paid back through the Fund. What you lose as a worker, you gain back as a citizen.

    And I would agree with soru above: the reward is less about ending poverty today than insuring against coordination failures and inequality catastrophes tomorrow. Whether it’s the Robot Revolution, or just a continuation of existing trends: inequality was much less in 1970, and Piketty argues we should expect it to go on getting worse. An insurance policy against an economy of lords and serfs might be a good idea.

    I assume an annual wealth tax is politically inconceivable in the near future. But there’s no logical problem with an annual wealth tax.

    What about technical implementation problems? Well, the estate tax is a form of wealth tax, so basically you can examine any implementation concern about a wealth tax from the existing literature on estate taxes. Of which there is plenty, so I won’t repeat it here.

    • Anonymous says:

      You need some special rules for taxing nontraded corporations, but the American tax code already has those rules, for existing taxes.

      Does it? I guess it does for estate tax, but on the whole the tax system emphasizes taxing people when they come into money, for good reason.

    • Tracy W says:

      Why would anyone bother accumulating wealth over $10 million? Under this scheme, you’re clearly not just taxing potential returns on wealth, you’re planning for the taxes to be higher than the returns, as you say “Then, after 30 years, what’s happened? About three-quarters of major private fortunes, about three-eighths of all wealth, has been moved to the Basic Income Fund.”

      Plus you have all the problems with government ownership of wealth that socialism ran into.

      • Daniel says:

        You’re right that such a system would heavily tax large windfall gains, like being a Google founder — after 30 years your $100 million profit has been taxed down to $25 million.

        But wait a moment — how much does the Make Huge Money incentive actually matter?

        We have some data on this. For the generation between World War II and the 1980s tax cuts, America had huge income taxes at the top — as high as 91%.

        These income taxes zapped away attempts to accumulate large fortunes quite effectively.

        So if the “Huge Money Is A Necessary Incentive” hypothesis is correct, we’d expect that the generation from 1945 to 1980 would be marked by low growth and technology stagnation.

        What actually happened?

        Just the opposite.

        Average productivity growth over the period 1945-1980 was terrific. So much better than recent years, in fact, that some economists talk seriously about a *slowdown* in innovation in the last thirty years, a stagnation compared to what’s before.

        So, no, 90% tax rates at the top don’t stop people from innovating.

        Why not?

        Because innovation isn’t actually about the hope of huge money. If it’s about one single thing, it’s about the hope of glory.

        Even the hope of Pretty Good Money often seems less important in innovators’ lives than the hope of Huge Glory. Huge Money is a distant third.

        Linux does not exist because of Torvalds’ hunger for profit. Nor, for that matter, does C, or Ruby, or much of the technology stack that drives modern software. What gets charged for is what *can* get charged for, or what’s so expensive to make that it *has* to be charged for. A surprising amount of stuff gets invented deliberately for free.

        So Huge Money is surprisingly weak as an incentive to cause individual breakthroughs.

        Actually it would be very strange if humans, who evolved before there was this weird thing called “money”, needed “money” as a primary reward to do great things.

        Something like the Olympics or the Nobel Prize seems far more attuned to primal human instincts than Huge Money.

        So, sure, you can tell a story about a species that needs Huge Money payoffs in order to get innovators to innovate. But the data on our species mostly seems to say that a $100 million lottery ticket is not really that much more motivating to innovators than a $1 million lottery ticket.

        You’re right that the *total* funding to the whole *industry* still matters. That controls how many potential innovators can be funded in the first place.

        Even if no programmer really cares whether they personally might get $10 million or $100 million, $100 million pays the rent of a lot more programmers to try for the next breakthrough.

        So it would be a bad thing if some government official, at the top, were deciding how much money each industry or each company would get.

        But that’s not how these hypothetical plans work: there is no central planning. Instead, each individual citizen chooses their fund manager based on where they think they’ll get the best return, and the fund manager does likewise with individual firms — the same as your 401(k) plans and pension funds today. Which, I should note, make up the great bulk of *today’s* stock market activity.

        So if you think today’s system allocates investment money efficiently, the hypothetical here would do the same.

        And no individual citizen is likely to have to worry about the wealth tax when planning their investment allocations, for the same reason that most people don’t worry about “what if I get $10 million?” in their 401(k) or pension today.

        It isn’t meaningfully “government ownership of wealth” if the allocation choices are made by individual citizens seeking maximum investment return.

        The fact that I originally acquired my Basic Income investment account through taxation doesn’t magically “governmentify” my incentives or my investment manager’s.

        If I think software is where all the growth is, I’ll pick an account manager who assembles software-company portfolios, because (if I’m right) that’ll get me the highest income.

        Same incentives as with your 401(k). No government influence.

        • Tracy W says:

          Firstly, your history is off. Kennedy cut the top marginal tax rate from 91% to 70% in 1964.

          Secondly, the top marginal tax rate is not the same as what is actually paid. The CBO calculates that the effective average tax rate of the top 0.01 percentile of houses in 1979, so before the 1980s tax cuts, was 42.9%, not 90%. Incidentally, the same file shows that the richest’s share of federal income tax liabilities has risen from 2.7% in 1979 to 6.5% in 2005. I have heard that the 90% top rate had an awful lot of exemptions, though I don’t have an authoritative source on that one. For example, corporate benefits weren’t taxed so companies brought their executives flash cars and made interest-free loans to them.

          Thirdly, software is unusual in that copying costs are nearly zero, particularly when one considers the marginal cost once you’ve already got onto the internet. Outside software, innovation by itself isn’t enough. For example, the discovery of antibiotics by itself doesn’t save lives, what saves lives is the system by which antibiotics are manufactured and distributed en masse. The invention of a more efficient lightbulb is useless in and of itself, it’s only useful once manufactured en masse. We eat food, not slightly-more-productive farming systems. And rolling out these innovations on a mass scale require a lot of people doing very nearly the same thing day after day after day.

        • Tracy W says:

          On the government ownership, you’ve restricted trade in shares to Fund Managers, who are apparently also the only ones allowed to invest in venture capital firms. So you’re only accessing a very limited set of knowledge of the economy. No more angel investors in Silicon Valley or biotechnology or Broadway who know something about the technical possibilities of the relevant areas.

          And the fund managers personally get only a small share of the return on the investments they make of other people’s shares, so their incentive to dig out investment opportunities is much more muted.

          What’s more, the sensible fund managers will be aware of how liable they are to get bamboozled by smooth-talkers in all the areas they don’t know much about, reducing their own desire to invest.

        • Eli says:

          Innovator technologist type here. Not in it for glory. In it for the science.

      • Mugasofer says:

        The same reasons people accumulate wealth now, I imagine. (Except for inheritance, which I think would cap out at $10M in terms of incentives.)

        In order to spend it on things. In order to have a higher “score” than other people. In order to have a safety net to ensure you’ll still be rich if you lose a large sum of money somehow. Probably a few other reasons.

        You would *eventually* lose all money over $10M, but only if you don’t spend it first, and you still *have* it in the meantime.

        • Tracy W says:

          If you’re spending your wealth/spare incomes on consumption, you’re not investing it. So this system would favour, say, wild parties, at the expense of expanding a factory.

          As for the others, maybe. It would be interesting to do a study on how strong those effects are. For example there are a number of ways of diversifying existing wealth to protect it.

        • Lesser Bull says:

          You’d also constrain the kinds of things rich people can consume.

          Hookers and blow, OK.

          Fine art and SpaceX, no.

    • Jake says:

      Why bother with complicated wealth taxes at all. Just print the money required for the Basic Income Fund and let inflation act as a de facto wealth tax. Of course, you’d have some issues with wage stickiness, but that could be addressed with a mandatory COLA adjustment that would probably be much more politically feasible than a new tax on wealth.

      • Daniel says:

        Oh, you’re right! That would be simpler and better.

        Government automatically deposits dollars equal to X% of estimated private wealth each year, spread equally among all citizens’ Basic Income Fund accounts. Paid for through inflation. Done. No wealth tax required.

        The cost to the wealthy occurs implicitly, through the burgeoning supply of dollars held as wealth. Much simpler than explicitly hunting down everybody’s wealth (so many ways to disguise it!) to make them pay taxes.

        Just keep the rule that people can only withdraw the income, not the underlying assets, and you reproduce all the good features while dodging most of the bad ones.

        Of course, the potential amounts of inflation involved are big, if you do it wrong. We’re talking trillions of dollars moved into Fund accounts each year — that’s trillions in investment purchases, not actual consumption, but the potential knock-on effects are still large if you did this policy stupidly.

        You’d want a competent central bank, at least. Else you’d get some nasty unstable inflation.

        But yes, you’re right, printing money is basically a better answer — a lot harder to mess up.

        You still have the same concerns as with 401(k) plans about people making default investment choices instead of wise ones, and Tracy W points out that a universe where all wealth is held through institutions needs some provisions to make useful angel investing still happen. But these are comparatively technical points.

        Caveat: Roemer apparently thinks his plan would make it easier for people to coordinate against “public bads” like pollution. This plan wouldn’t do that, but then I don’t see how the weatlh tax or Roemer’s original plan would do that either.

        These all seem to me simply like anti-inequality and/or anti-“lords and serfs future” programs, and should be judged on those bases.

        I assign some fair probability to a future Robot Revolution making owners rich at the expense of all workers. That’s why I like the idea of making everybody owners.

        Edivad mentioned Alaska, where every citizen gets an annual cut of the oil revenues. I’d like a future where every citizen gets an annual cut of the technology revenues.

        But if I didn’t believe in the danger of much worse inequality than present, I wouldn’t find these ideas interesting. If we just want to alleviate present poverty, there are simpler ways.

        • Daniel says:

          Alas! Anonymous, immediately below, points out the problem with this otherwise more-elegant approach. As long as the government deposits mere currency, you could just get an unbounded inflationary spiral in the price of real assets (land, etc.) rather than actual wealth transfer.

          The implicit tax would end up being paid by other people trying to convert cash into investment assets, as opposed to people already owning investment assets.

          Darn it.

      • Anonymous says:

        Inflation is nothing like a wealth tax. Inflation is a tax on cash. And only cash in one currency. It’s not a tax on real assets, such as wheat, petroleum, and land.

        • Daniel says:

          So if you tried to implement purely inflation-funded wealth deposits, you might just get an unbounded spiral in the dollar price of real investment assets. No real wealth transfer, just a derangement of prices, and everybody loses.

          Print more dollars and assets like land, as you point out, can just spiral their dollar price up and up.

          And it was such a *nice* simplification. Much nicer than an annual wealth tax. Oh, well.

      • Andrew says:

        Then you need to do it on a global rather than national level, because your “de facto” wealth tax is reaching non-citizen owners.

    • Michal Polak says:

      The proposal is very similar to the ‘Meidner Plan’, conceived in the 1970s by one of the architects of the welfare state in Sweden, the economist Rudolf Meidner and sorta-kinda adopted by the country’s powerful trade union organisation.

      The Meidner Plan focused on issuing stock rather than on taxing companies, but the effect was to be much the same. Companies were to deposit 20% worth of their annual profits in the form of newly issued stock in the Wage-Earners’ Funds, which would thus over time acquire a controlling stake in the Swedish economy.

      The plan failed not due to economic reasons, but because of politics. However much the Swedish capitalist class had come to an accommodation with the Swedish labour movement, this was simply a step too far – as might be imagined, the corporate owners did not look kindly on an idea whose explicit purpose was to expropriate them, even if it did not require any such nastiness as a bloody revolution:

      “This idea scandalized business, which launched a great campaign to discredit it – a task that was greatly simplified by the fact that the funds never attracted broad popular support. The Social Democrats and the unions watered the plan down, and a weak version was adopted in the early 1980s. The funds quickly began behaving like ordinary pension funds; their managers, in a vain attempt at legitimation, began trading stocks in an effort to beat the market averages. Eventually, late in the decade, the wage-earner funds were euthanized.

      Why did they fail? For at least two reasons. First, business correctly saw the initial version as a challenge to capitalist ownership, a reminder that finance is central to the constitution of a corporate ruling class. And second, they never attracted popular support – essential to any serious challenge to a corporate ruling class – because they were so abstract. As Pontusson (1992, p. 237) put it, “when collective shareholding funds are reduced to deciding whether to buy shares in Volvo or Saab,” it’s hard to muster popular enthusiasm. More direct interventions are required – active public industrial policy and greater worker control at the firm level – if ordinary people are to get interested. The stock market, on the other hand, is the home turf of financiers, and any games played on their turf usually end up being played by their rules.” (Doug Henwood, Wall Street, 1997)

      Regardless of whether one agrees with the claims about the reasons for failure, the truth is that if such a proposal could not really get off the ground in Sweden in the ‘seventies, with possibly the most powerful social democracy the world has ever seen, it is kind of doubtful that it would have much chance of success in the US, even in the medium term future.

      (A bit more context on the origins of the Meidner Plan is provided here:'+funds%22+meidner&source=bl&ots=nprbtxlqcp&sig=Lb21o29zi6aWTOWBf61IsewF2q4&hl=sk&sa=X&ei=Q_ZRVLyqONOvaeqlgMAI&ved=0CB8Q6AEwAA#v=onepage&q=%22wage-earners'%20funds%22%20meidner&f=false)

  17. RCF says:

    “In this system, businesses would raise funds not by selling stock but by seeking loans from banks.”

    Equity is just the lowest seniority tranche of debt, with voting rights. Selling bonds is the same thing as selling equity and buying call options.

    Stock prices are currently based on the expected net present value of all dividends. This system would make a stock’s “ownership” (and it’s true full ownership, if one cannot sell it) worth the expected net present value of all dividends during the current owner’s lifetime. This would change the incentive structure for a lot of stocks, especially growth stocks.

    • Anonymous says:

      If stocks can be inherited, then there is no lifetime limit. If not, old people prefer to own companies that are producing large dividends by liquidation, while young people prefer to own companies that reinvest their profits rather than pay dividends. Does this distort incentives?

    • david says:

      What currently determines the value of stocks that pay no dividends?

      (seriously, though: selling bonds is not identical to selling equity and buying call options, precisely because one would be surrendering control in the latter, and the market for finance is a hell lot more efficient than the market for corporate governance)

      • RCF says:

        “What currently determines the value of stocks that pay no dividends?”

        The expected net present value of all dividends.

        “selling bonds is not identical to selling equity and buying call options”

        Not identical, but the point is that if you buy bonds and the company doesn’t pay you back, then you own equity. So how does one allow companies to issue bonds, but prohibit them from selling equity, when debt is converted to equity upon default?

        • david says:

          Uh. I wasn’t really being serious with my first question, but now I am curious as to why you object to the net value of assets owned by the firm being included in the valuation of stocks. You are aware that there are stocks that pay no dividends whatsoever and have no intention of changing that, right?

          (the perfect market of which would generate Modigliani Miller and its irrelevance-of-dividends result. Also the irrelevance-of-debt-vs-equity result! But of course you cannot be invoking M-M for that result if you are seriously defining the value of stocks as the NPV of dividends)

          The conclusion you are trying to argue for isn’t unusual, but your argument is bizarre. How would one prevent a company from selling equity, but allow it to sell debt? Easy: limit the collateral that it can promise debtors, to, e.g., non-operational physical assets, or even nothing whatsoever. Interest rates will just rise to match. This is the bankruptcy law that generally governs state entities or quangos, for instance.

          You can also do the reverse – oblige companies to sell equity but not debt, that’s just Islamic banking.

          • Alex Godofsky says:

            You are aware that there are stocks that pay no dividends whatsoever and have no intention of changing that, right?

            There are no stocks that intend to never pay dividends ever in the future at all forever. Merely stocks that intend not to pay dividends for a very long time.

            If a stock credibly communicated that it would NEVER pay out any cash at all, that stock would be worth nothing.

          • Jadagul says:

            Your argument is probably stronger and clearer if you replace “dividends” with “cash payouts.” A company that plans to release earned cash to shareholders through stock buybacks instead of dividends has positive value. As does a company that will be hostilely taken over by another company paying cash for shares. Or one that will be liquidated and have its assets sold off and the returns distributed to shareholders. “Dividends” is an oversimplification.

          • RCF says:

            “but now I am curious as to why you object to the net value of assets owned by the firm being included in the valuation of stocks.”

            I never said that I do, and if you think that my comment implies that, it helps to explain how. Assets provide a source for dividends. It would be silly to not include current assets when calculating how much dividends one expects to be disbursed.

            “But of course you cannot be invoking M-M for that result if you are seriously defining the value of stocks as the NPV of dividends”

            One can more precisely say “transfers of money from the corporation to shareholders” rather than “dividends”, but apart from that, any other valuation is a pyramid scheme. Other than that, I don’t see how I cannot invoke M-M.

            “How would one prevent a company from selling equity, but allow it to sell debt? Easy: limit the collateral that it can promise debtors, to, e.g., non-operational physical assets, or even nothing whatsoever.”

            Sure, you could allow a corporation to have a mortgage on property that is backed by nothing but the property, but that isn’t what’s commonly understood by “corporation-issued debt”.

            “You can also do the reverse – oblige companies to sell equity but not debt, that’s just Islamic banking.”

            Actually, there are some situations where Islamic law requires debt and not equity. For instance, employees must be paid with debt rather than equity. But of course that just causes Islamic financiers to package one to look like the other.

      • Anonymous says:

        >What currently determines the value of stocks that pay no dividends?

        Anticipated future dividends.

        Seriously, why do you think people buy stocks that aren’t currently paying dividends?

        • Doug S. says:

          In the worst case, someone (or a coalition of someones) can force a company to pay dividends by acquiring 51% of its voting stock. Private equity firms have been known to buy undervalued companies to “loot” them…

  18. galin says:

    So when I read about this I got really excited, because it sounded like a Basic Income Guarantee without the awkward questions about how to fund it.

    Can someone point me to a good explanation of why simple cash redistribution wouldn’t work? I assume that’s why no one’s talking about it, unless I underestimate the power of taboo.

    Man, people who wrote politics before we fully understood how genetics worked were so cute!

    Say what? We understand social class now because we understand genetics? This seems like a fantastically over-the-top claim to me.

    • Tracy W says:

      Ed Nolan is a fan of a UBI, and his costing, for the USA, comes out at a UBI of $4,452 a person (with healthcare left untouched but the other middle-class tax deductions eliminated). Ed Nolan works this out as being about 75% of the US poverty line for a family of four.
      Which is not much for those people who are totally reliant on the UBI, especially the severely-disabled.
      I will repeat that Ed Nolan is a fan of the UBI.

      • James James says:

        UBI doesn’t have to be the only benefit. You can have extra disabled benefits as well.

        • gattsuru says:

          The more means-tested or personalized benefits you have, the less it makes sense to run a UBI in the first place — you’re using it to avoid administrative overhead and disincentives to work that these external benefits have in their nature. They also eventually all come from the same source of money : generous disability benefits will quickly tap into the UBI fund.

        • Tracy W says:

          Sure. That would mean raising taxes or cutting other government spending. Do the costings and see how it works out. But remember Nolan has already eliminated a whole bunch of tax deductions.

    • ckp says:

      The genetics part is about the “if we only educate everyone, we’ll eventually get a proper egalitarian society” idea. This assumes that people are blank slates that respond the same way to the same educations. Modern genetic research has made this position untenable.

      • Hainish says:

        We’re still a heck of a long way from everyone having access to “same educations.”

        • RCF says:

          What is the point of saying that?

          • Hainish says:

            I means that there is still a lot of utility to be gained from better-educating everyone. We haven’t yet reached the point where “bad” genes diminish returns.

      • MugaSofer says:

        Well, now. I think that depends on what you mean by “proper egalitarian society”.

        Sure, education can’t make everyone’s labor earn the exact same amount of money; some people will be unemployable, and some people will be exceptional.

        But we already knew that. Physically and intellectually disabled people exist. Raw talent pretty clearly exists (look at athletes,) but even if we attributed that all to “education”, people have different skills and those are going to be worth different amounts even if they all have the same amount of training.

        But that isn’t what class means, is it?

        What we want to get rid of are three things: poverty where some people are homeless/starving/lack medical care etc, tribal “classes” where the elites view themselves as a separate tribe in competition with the other (enemy) “classes” in society; and some people being too poor to do as well as they could while others are rich enough that their uselessness doesn’t matter (feedback loops.)

        This plan supposedly eliminates the third (feedback loops,) and helps with the first (poverty.) I think it’s reasonable to suggest that better-integrated education systems would at least help with the last two.

        I certainly don’t think any of these are “inevitable” as a result of genetic differences; any more than they were inevitable as a result of disabled people or differing skill-sets.

    • gattsuru says:

      Can someone point me to a good explanation of why simple cash redistribution wouldn’t work? I assume that’s why no one’s talking about it, unless I underestimate the power of taboo.

      – Absolute cost. If you want everyone in the United States to have a basic income equivalent to about full-time minimum wage, you need around five trillion dollars. By comparison, the current total spending of the US government, including many things we don’t want to redirect, come just around three point five trillion dollars. That’s /a lot/ of cash to redistribute. You might be able to get it by going after corporate or total savings…
      Once. Maybe twice, I think total big corporate savings are somewhere around five or six billion. But you need five trillion dollars a year, on the year, and you run out of wells to tap quick.
      – Money flees, especially the money you want to take. Barring extreme capital controls — which may not even be possible in the United States, and certainly aren’t constitutional or politically practical — if you even /hint/ that you’re thinking about making a move to tax savings or stocks or pretty much anything, especially at the levels needed to fund a significant UBI, large portions of that thing will promptly stop existing.
      A number of UBI proposals thus instead tax things of value, instead of seizing the money directly. Land’s high non-fungible, and property taxes are well-established. But there’s not as direct a link between property value and the sort of things we want to tax, the people we /do/ want to tax have high ability to deflect those costs, and it’s pretty easy to accidentally have a massively regressive system pop into existence if the rich pass the costs of taxes down.
      – Once you’ve made one giant redistribution, it’s much easier to make another… which isn’t necessarily a good thing. When you’re talking trillions of dollars, it quickly becomes highly valuable to try and coopt this decision-making process. Public choice theory strikes.

      ((This is in addition to the other issues with basic income concepts, like workforce participation or the political costs toward immigration or the political feedback effects.))

      • MugaSofer says:

        I think they meant redistributing all the money in the economy, not just the amount of cash the government is currently giving out for other purposes. This could absolutely be achieved by simply cancelling the currency and starting fresh with a UBI, and it is absolutely not being considered because of a taboo.

        However, I think your point that this would require a constant flow of cash, not just a one-time infusion, still stands … unless you redistribute assets as well, maybe, which would have a hard time fleeing?

        (Also, um, I’m really not sure what any of this would do to the economy. Still, there have currency collapses and revolutions before, so it should be possible to make a pretty good estimate.)

        • Tracy W says:

          Yes, it’s quite common that schemes for a UBI would involve raising taxes significantly. That’s hard for UBI proponents to sell to those who would be paying taxes, so they tend to look around for other options.

          Why would “cancelling the currency” help with redistributing all that money? It strikes me as being at best a major distraction.

          As for redistributing assets, most of the value in the economy comes not from raw natural assets but from assets that have been invested in in many ways, eg generally farmland is as valuable as it is in part because it’s kept clear of weeds, nitrogen is continually returned to the field somehow, it’s fenced and the fences are maintained, there’s access routes which are maintained, etc. A building generally only retains its value if it’s nearly continually maintained. Ditto a factory or an office. If you take assets away from people you take away that incentive to keep investing in those assets. The assets wouldn’t flee, they’d decay. Which is worse.

          • Mugasofer says:

            >Why would “cancelling the currency” help with redistributing all that money?

            Because, if the old currency is no longer valid, everyone who owned said currency has – at a stroke of the pen – had them effectively transferred to the Mint. Which can then begin by issuing everyone their starting share of the new currency.

            >A building generally only retains its value if it’s nearly continually maintained. Ditto a factory or an office. If you take assets away from people you take away that incentive to keep investing in those assets.

            This sounds like it could be solved the same way the AFFS “solves” it – by confiscating “shares” of or rights to the asset, while leaving it physically unmoved and still maintained by the ex-“owner” in exchange for money as usual (unless the new “shareholders” decide to rearrange things.)

            In practice, I’m not sure who to give the “shares” to that would actually work … perhaps they could simply be sold at auction in our newly-equal economy?

            All these elaborate ideas, however, still don’t actually solve anything. They create a temporary equality, and that’s … pretty great, actually, but I somehow doubt it would immediately immanentize the Marxist eschaton.

  19. Tracy W says:

    In his global warming analysis, John Roemer ignores the consumer surplus of the activities that lead to global warming. The problem is not the accounting profits from global warming, it’s that people like being warm in winter and cool in summer, and being able to travel to visit friends and family, and having concrete to help build homes and schools and roads, and etc.

    This is very depressing for the prospects of preventing climate change. I wish I could be a climate change denier.

    • Illuminati Initiate says:

      Nuclear power would help greatly in letting people do those things without generating nearly as much greenhouse gasses.

      For some unfathomable* reason environmentalists tend to dislike nuclear power though.

      *OK, it’s kind of fathomable, but it’s still really, really stupid.

      • Protagoras says:

        Existing nuclear power technologies are extremely expensive and have some worrisome safety issues. There are, of course, nuclear power enthusiasts who argue that if it were done right, it could be done a lot more cheaply and more safely, but while I find some of the technical arguments for this interesting, I can’t help but notice that not much progress has been made. As a result, it appears that the obstacles to implementing cheaper, safer nuclear power must be pretty substantial, perhaps greater than can practically be overcome. Some of the obstacles are probably political rather than technical, to be sure, but “political” /= “easily overcome.”

        One obstacle that seems particularly tricky is the danger that nuclear fuel/waste might be weaponized. The secrecy and security which are considered necessary to nuclear operations in order to protect against those risks are likely great hindrances to efficiency (since secrecy and security generally are horrible for efficiency), and a way of removing that source of inefficiency is not apparent. I thus suspect that the various clever new approaches nuclear enthusiasts are always talking about will end up being much less efficient in practice than predicted, just like current nuclear technologies.

        So, in sum, I don’t think disliking nuclear power is stupid.

        • Douglas Knight says:

          Maybe nuclear power is not viable for political reasons, but that’s not relevant to II. He said that environmentalists actively oppose it for stupid reasons. Being non-viable is not a reason to actively oppose it. Moreover, the environmentalists are the political reason. Justifying their opposition on grounds of political non-viability is circular.

          • Protagoras says:

            I gave an example of a political problem which doesn’t come from environmentalists. Another huge problem is NIMBYism, mostly from people who don’t usually care about environmental issues. It still doesn’t look stupid to me for environmentalists to think that investment in nuclear would just be taking money away from more promising options (for example, while solar is pretty expensive, its cost seems to be steadily dropping, while nuclear costs seem if anything to get higher over time), and the reasons why nuclear does not seem to be practical are by no means all or mostly the fault of the environmentalists themselves.

          • Mugasofer says:

            >Another huge problem is NIMBYism, mostly from people who don’t usually care about environmental issues.

            I think nuclear NIMBYism is actually environmental. Just misinformed. People are, after all, imagining that it would have adverse effects on animals, air quality, crops etc.

            (Whereas those effects are actually much worse from coal power plants, but this isn’t widely known.)

          • Army1987 says:

            (Whereas those effects are actually much worse from coal power plants, but this isn’t widely known.)

            Usually they are, but with nuclear power you can have black swans like Chernobyl, whereas I don’t know what’s the worst thing that could possibly happen with a coal plant but I’d guess is several orders of magnitude less bad.

            (OTOH, torture > specks.)

          • Douglas Knight says:

            The two week death toll of the London Smog of 1952 exceeds most speculations about 80 year death toll of Chernobyl. So, no, it is coal that is several orders of magnitude worse.

          • Army1987 says:

            I’m surprised I hadn’t heard of the Great Smog of ’52 before. Why haven’t people mentioned it whenever possibly relevant until people get tired of listening?

          • peterdjones says:

            Re Smog/Coal

            1. You can burn coal outside population centres, and move the energy to where it is needed using a technology called wires.

            2 1950s.London, and equivalent cities, had the tripple whammy of industrial polution, household.fires and tobacco smoking.

            3. Its not like environmentalists are very enthused about coal either.

          • Army1987 says:

            Wires aren’t that efficient, hence the quest for room-temperature superconductivity.

        • Tracy W says:

          The safety issues of burning fossil fuels are vastly more worrisome than those of nuclear.
          As are the safety risks of going without winter heating, or clean drinking water or sewage systems or reliable food transport, to pick some things for which we use energy intensively.

        • Tracy W says:

          There is a long and extensive history of deaths associated with <a href="; coal mining.
          And that’s leaving aside the carcinogens coal-burning produces and the global warming threat.

      • TallDave says:

        The opposition to hydropower is even more wrongheaded, but thankfully much more limited globally.

        Hydropower is ridiculously efficient, so much so that every time I see one of those post-apocalyptic shows like The Walking Dead part of me is always urging the protagonists to find a dam somewhere and rebuild modern society.*

        *and why doesn’t anyone ever put the zombies on treadmills or giant hamster wheels to generate power? come on, you have a boundless source of energy that defies all known physics and you DON’T immediately think of ways to harness it? are there no engineers in Hollywood? okay I’m going to stop before this become a ten-page rant

        • peterdjones says:

          That might have something to do with the fact that actual deadmpeople tend tone inntheir seventies or eighties, whereas hollywood zombies are always in their twenties or thirties.

        • drs says:

          Dams have high costs, especially as many of the best sites are already taken.

          “An expected 3700 major dams may more than double the total electricity capacity of hydropower to 1,700 GW within the next two decades”

          1.7 TW. By comparison, the world uses 18 TW of energy now. If the world were to use 5 kW per capita (US uses 10), that’d be 7e9*5e3= 35 TW. And a lot of that is burning fossil fuels for transport or heat; we’d need a lot more electricity to really de-carbonize.

          Hydro’s nice but the world population is too big for it to be The Solution.

    • TallDave says:

      I wish I could be a climate change denier.

      All it takes is a better understanding of scientific epistemology. But maybe this will cheer you up.

    • drs says:

      No. The problem is that the people enjoying that consumer surplus aren’t paying the costs of it. Perfectly standard negative externality problem. I enjoy a warm home and flying around for cheap, some Bangladeshi loses their farm to rising sea levels.

      The obvious technical solution is a high tax on fossil fuels, especially with the funds distributed evenly per capita. The likely political outcome is us drowning in our waste, poor people first.

  20. Tracy W says:

    That’s still not enough to reach the poverty line, but it’s something, especially if you’re willing to tax the wealthy’s share to funnel it to the poor.

    Firstly, I suspect the numbers you are using for corporate profits include self-employed income structured through companies. So, if you’re a farmer or a doctor or a small shopowner or a tradesman, who uses a corporate structure for the limited liability, you’ve just had all your income taken away from you.

    Secondly, once you’ve divvied up all of America’s corporate profits and then divided it equally amongst the American population you’ve drastically reduced the income of any wealthy person whose wealth comes from corporate profits. You can’t redistribute the same dollar twice.

    Thirdly, note that pension funds have a lot of money invested in corporates. So, someone has paid into a pension all their life, maybe taken a lower-paying job for the pension offered, and then you’re going to cut their retirement income down to $6000 a year.

  21. ckp says:

    I don’t know who first called you “bizarro-Moldbug” but it’s especially apt after all this talk of joint-stock corporations. This is basically his formalism essays but in a mirror, lightly.

    • Leonard says:


      the investors and the Board of Directors and so on have a mechanism by which they can agree upon whether the company is doing well or not, short-circuiting some of the politics that might cause them to split into factions for or against the current leadership

      (my bold)

      I am not sure Scott fully grasps the implications of what he just wrote. Namely, that we can create responsible governance by the use of sovereign joint stock corps. Pure Moldbug, that.

      • Eli says:

        The two institutions serve entirely different purposes: democratic states are accountable to the values and beliefs of the people, whereas joint-stock corporations are accountable only to the financial gain of investors. What you have written is similar to proposing that the big problems in human life neatly disappear when you reprogram the inconvenient bipeds to prefer accumulating paper-clips above all else.

        • Leonard says:

          No. Democratic states are not accountable in any real sense, to anything. That’s among their problems. (Also, they are ineffective and, when run using most earthly societies, insecure.) Not only does voting rarely call anyone to account, but the very nature of your moral responsibility assumes an electorate that is in agreement on values and beliefs. Well, that’s just not the case. We’re diverse. Furthermore, there are no such thing as utils that one can calculate with. So even if everyone in some hypothetical ultra-conformist democracy agrees exactly on morality, they would almost certainly still disagree on how to tally it up.

          For example, consider the Iraq War, version II. Was that a “failure”? A “success”? To ask the question you must first answer a far harder question: according to whose values? According to whose beliefs? Yours? I assume you were among the “no blood for oil” types. (Yeah man, I marched against the war too! Peace!) Well, do you feel an “accounting” was made? I don’t. How much is an Iraqi life worth? Shall we call it, say, 10000 utils? And how much do we think that throwing a random country up against a wall decreased terrorism? Perhaps 10 utils per American? How many utils did the example of killing a random dictator create in scaring the others? Maybe 1 or 2 per person living in a dictatorship? How could we possibly agree on such numbers?

          By contrast, accounting in a joint-stock firm, while still difficult, at least has several nice properties. One is that all owners agree on what they are trying to do. Another is that profit can actually be calculated in money. And market prices exist, so there exist numbers we can agree on to compute with.

          • Mugasofer says:

            So, to be clear; your argument is that humans disagree about what is “moral”, so they should all be replaced with paperclippers, who would agree perfectly about how to maximize paperclips.


            For the record, I disagree with literally every link in this chain of reasoning, which is kind of impressive.

            Incidentally, I think you’re both missing the point of democracy; it’s exceptionally good at making compromises, not discerning truth.

          • Leonard says:

            So, to be clear; your argument is that humans … should all be replaced with paperclippers

            No. And I bet, if you think about it, that you don’t believe I think that either. Argumentative charity is hard.

            To be clear: I don’t want to be turned into paperclips. Nor do I think a joint-stock sovereign would turn paperclipper.

            I am sure that when you wrote paperclip you meant profit. (To me, someone profiting off of me is not horrifying; I have paid taxes since I was 17 without enthusiasm but without horror. Whereas someone turning me into paperclips is horrifying. Different valence, eh?) With that reading in mind, let me clarify. It is not merely the democracy’s disagreement over ends that that I was criticizing. Rather it was the unaccountability. The incoherence, as you point out, is seen by many as a feature. I don’t think there is anyone who views unaccountability as a feature.

          • drethelin says:

            Fortunately, so far profit maximizers seem to have been aligned enough with human interests to VASTLY improve human welfare. They’re not remotely comparable to paperclippers.

          • Fnord says:

            Most currently existing systems for making paperclips have also acted to improve human welfare.

          • TallDave says:

            And don’t forget to ask how many Iraqis would have died if we hadn’t invaded. The average death toll of the Saddam era was actually higher than the average death toll of the occupation, even though the former was kept lower by 13 years of no-fly zones.

          • Andy says:

            Fortunately, so far profit maximizers seem to have been aligned enough with human interests to VASTLY improve human welfare. They’re not remotely comparable to paperclippers.

            Though I think making a government run for profit kind of misses the point – the government is what [i]decides how much money there is.[/i] If it’s a simple profit-maximizer, it can just pour out money and look like it’s maximizing profits while actually doing nothing.

          • Nornagest says:

            the government is what [i]decides how much money there is.[/i]

            Only if you’re running a fiat currency system with a federal bank or equivalent integrated with the government; and only if by “money” you mean “currency” and don’t mean “value”.

          • Mugasofer says:

            @Leonard: I was continuing Eli’s metaphor, where democracy=humans and paperclippers=corporations. If you look at it, I think you’ll find that your argument against democracy is also an argument against humans; it proves too much.

            To be precise, you responded to someone saying “corporations optimize for the wrong thing” by pointing out that democracy is bad at optimizing. That doesn’t actually address Eli’s complaint; it merely criticizes their solution.

            False dichotomy; one answer being flawed does not make any arbitrarily-chosen other possibility correct.


            >I have paid taxes since I was 17 without enthusiasm but without horror. Whereas someone turning me into paperclips is horrifying.

            Ah, the correct analogy there would be a corporation killing you to increase profits, not taxing you. The issue isn’t that their producing paperclips, but that they’re willing to trade essentially-worthless paperclips for your life every time.

        • ckp says:

          The amount of actual control that shareholders have over management is pretty small and haphazard. Managers have incentives to deceive shareholders, which is only mitigated by anti-fraud legislation. If the company IS the legislator (i.e. there is no higher power) you’re back at square one.

      • Scott Alexander says:

        Kind of agree with Eli. Joint-stock companies work because we know their only goal is to make money and how much money they make is easily measurable.

        Governments are hard because there’s no agreement on exactly what they should be producing, and it’s probably hard to measure accurately.

        There’s some superficial similarity between the two ideas, but only if you sweep all of the actual problem under the rug.

        • Leonard says:

          I feel that unaccountability is an actual problem, indeed among the biggest problems of government.

          • Scott Alexander says:

            Yes, but we’re talking about unaccountability *for* the things they’re supposed to be doing.

            If we measured success of a government in how many trees were in the country, this would be easy to measure, no doubt result in very many trees, and if there were fewer trees than expected people would be held accountable.

            But number of trees isn’t what we want from a government, and neither is GDP (exactly)

          • drs says:

            Most “democracies” aren’t very democratic; conservatives tend to call this a feature, not a bug. The accountability of hiring agents from a limited pool of candidates, every four years, with no ability to give them orders or fire them even if they don’t show up for work, is obviously not very high; imagine hiring a lawyer on that basis.

            Recall elections give the ability to fire at (sort of) will. Referenda give the ability to veto specific decisions. Initiatives give the ability to give orders.

            That said, even a very crude one-bit “if things are getting worse overall, throw out this team and try the other one for a few years” can be a huge improvement in governance over authoritarianism.

        • Eli says:

          To steelman my enemy’s argument a bit: you can of course have chartered corporations that operate for some reason other than profit, such as cooperatives and benefit-corps. But as Scott said here: all chartered corporations have well-defined goals, and usually only one or two. Democracy, on the other hand, is a system designed to deal with disagreements on goals and beliefs (the two are innately intermixed when dealing with real people rather than imaginary market-Bayesians) from the ground up.

  22. Harald K says:

    I propose a general principle: We want as much as possible of the economy to be driven by people’s own, direct preferences, and as little as possible to be driven by beliefs about other’s preferences.

    It would be great if people could coordinate enough to come together and decide to build to make the stuff they need and want, right as they need and want it. Unfortunately, making all but the most trivial stuff, the communication and coordination overhead in doing this is prohibitive.

    Someone has to predict what people will want. Yes, it’s a bigger problem if it’s a central planner than if it’s a lender or investor, but I think people are missing the bigger picture: it will always be a prediction, and it can always be wrong. All of them will make mistakes in their predictions that they need to recover from, and recovering from them will be costly in economic terms. Who carries this cost varies, and is not unimportant (it remains very bad when it falls on people other than those who make the decisions) but in either case there will be stuff you made that people don’t want/need, or stuff that people want/need that you failed to make.

    • Tracy W says:

      Indeed. Both capitalism and communism have many failures. As do democracies and dictatorships. To paraphrase Churchill: “Capitalism is the worst form of economy, except all the others that have been tried from time to time.”

      • drs says:

        Pure laissez-faire capitalism, or the sort of mixed economies with lots of socialist elements that get called “capitalism” these days? People are often slippery in how they use the terms.

  23. Zubon says:

    Oddly, market economics work just fine even if you seize all wealth and redistribute it. Econ does not care about the initial distribution of wealth, just how things flow to their efficient uses (or not) from there. The market forces just need a starting point.

    In practice, you have two big problems. One, as noted in the original post, is that accumulation of wealth still happens inevitably over time due to varying interest, ability, luck, etc. Two, you cannot plausibly commit to only one “seize all wealth and redistribute it,” at which point you have destroyed your usual incentive mechanism and created a stronger incentive to seize control of the government before it comes for your stuff again. Commenters above note that there would need to be a recurring, incremental seizure of wealth for redistribution, which only limits the first problem if it is faster than the rate of accumulation, which quickly returns you to the second problem. It is very hard (on an ongoing basis) to get the benefits of markets while seizing the wealth generated in them.

    • Matthew O says:

      Exactly. Unequal success is going to produce unequal outcomes that will accumulate. You can periodically re-distribute, but that removes the point of allowing for unequal outcomes in the first place. The original reason for allowing unequal outcomes was to incentivize success, after all.

      Here’s my solution to this problem: when young adults turn 18 and become full citizens, every new citizen is given a one-time starting capital fund of…let’s say…$100,000. About 4 million Americans turn 18 each year, so this would cost $400 billion each year. This could be paid for by a wealth tax on huge fortunes, plus cutting the defense budget ($600 billion/year) in half.

      If you wanted, you could make the full amount contingent upon demonstration of acceptable citizenship before 18 (no juvenile delinquency, problems with the law, or else your starting fund gets garnished or taken away).

      $100,000 is enough to pursue a college degree or start a small business, or even just park it in index funds and make $5,000/year a 5% interest (enough to live on if you are extremely frugal and have few aspirations in life such as marriage or family).

      There are bound to be some dumb ones who spend all of the $100,000 right away on non-productive assets. If they come begging a few years later, we can then turn them down with a clear conscience because we know that we gave them a shot and they blew it.

      In my opinion, this might be the best way to set up a sort of “meritocracy” where inherited wealth and inherited poverty doesn’t automatically rig the scales like it still does to a large extent today.

      • MF says:

        There are bound to be some dumb ones who spend all of the $100,000 right away on non-productive assets. If they come begging a few years later, we can then turn them down with a clear conscience because we know that we gave them a shot and they blew it.

        “Some” dumb ones? Most people have a huge problem: if they have money, they spend it. Even if they don’t have it, they spend it anyways. Just under 50% of Americans have credit card debt, and of those who do they have an average of $15607. (source)

        People cannot be trusted to know to invest in index funds, nor can they be trusted to not take the money out during a market crash… and that’s if they don’t spend it on cars and the like.

        I think your solution would be an unmitigated disaster. I know that this would turn out poorly for the majority of Americans if implemented, simply due to how terrible they are with finances. My conscience would not be clear implementing this.

        A better solution, I think, would be automatically investing your $100,000 in index funds and using the proceeds as a basic income. At least then people can’t screw it up.

      • Army1987 says:

        The soft paternalist version of that would be just giving them $100,000’s worth of index funds, so that if they want to blow it on coke and hookers they’d have to go through the hurdle of selling it first.

      • Ken Arromdee says:

        If you gave every 18 year old $100000, the price of college would rise to capture the additional $100000 and you’d end up in practices giving the money to the colleges with no benefit whatsoever anywhere else.

        Even if you gave it to them upon graduating college, the colleges would just raise their rates to capture the additional ability of the college applicants to pay back college loans in the future when they graduate.

        • drs says:

          That doesn’t make any sense. Not everyone goes to college and while kind of broken, education markets aren’t totally divorced from supply and demand.

      • Mugasofer says:

        Would it be possible to completely “tax” a person’s assets on their death?

        • Army1987 says:

          Good luck with that. There are plenty of people according to whom the fact that children of rich people should be rich is a feature, not a bug.

      • Mugasofer says:

        >Unequal success is going to produce unequal outcomes that will accumulate. You can periodically re-distribute, but that removes the point of allowing for unequal outcomes in the first place. The original reason for allowing unequal outcomes was to incentivize success, after all.

        So … it’s a trade-off, then?

        Except no, hang on, one of the benefits of *not* having these feedback loops is supposed to be to better-incentivize everyone.

        So what we really need is to fine-tune things so that money doesn’t make moneymaking easier, without making it an actively suboptimal choice, then. I think?

  24. A.Person says:

    The point about the principle-agent problem is well made, though the scheme is flawed.

    Given the problems with this scheme, a basic income guarantee still seems like the better way (though it wouldn’t even be socialist if you squint at it; unless a very generous definition of socialism is used). Still, as Scott briefly mentioned, the problem of how to fund it remains. Another thing is that the basic income guarantee shouldn’t be thought of as being necessary to prevent poverty today, but as being necessary to support the future majority unemployed population created by automation. Our hearts all bleed for the homeless and starving today I’m sure, but the problem of modern inequality has not led to wide scale health and starvation risks yet, and for the minority that are at risk on that level, modest increases in welfare and programs should suffice. The “socialism” issue is not critical today, but it will be critical when human beings are unemployable, which is coming. A basic income guarantee would be needed to prevent the economy from collapsing due to the circle going from wages to consumption to revenue and so on, being broken at the point of wages.

    However, would anything more have to be done? Inequality would be fairly permanent at that point, since everyone would essentially get rations from a basic income guarantee, and only the owners of the means of production would be able to have drastically higher rates of earnings. Whether that is an issue or not depends on whether you consider inequality a problem in of itself – my actual problem is people dying in the streets not inequality per say – but could the economy even continue functioning in a capitalist manner if the vast majority of people are on welfare; that’s another issue, and the more major one.

    • Morgenstern says:

      If the automated economy risks collapse because of the “no wages / no consumption” problem wouldn’t that mean it already solves itself? Once no one has quarters to put into the machines anymore people would revert to a manual economy and either build back up to the crash again or settle at some intermediate level of development.

      It’s not a pretty concept but hardly as apocalyptic as the median singularity prediction.

      • Lambert says:

        When people run out of quarters, the owners of the machines will not have any income and lower the prices to a fraction of a cent, which they will earn doing the few jobs that have not yet been automated (or more likely new jobs created by technology). Consider the drop in the price of food that came with improvements in farming, and how people today tend to own bore clothes than before the mechanisation of the textiles industry by Arkwright etc.

        • Mugasofer says:

          This assumes that machines can’t do every job; in fact, it assumes that there will be enough jobs left over that everyone ill get one each. This is somewhat incompatible with the idea of human-level AI.

          Declaring that we will be saved by unspecified “new jobs created by technology” is not merely fighting the hypothetical, it’s actively rejecting it without giving a reason.

  25. Quite Likely says:

    Interesting, but I’m not sure if the best way to find a good book advocating socialism is by taking the advice of someone who describes agreeing with that book as ‘falling for it’.

  26. Quite Likely says:

    I think a lot of people are over-impressed by the efficiency of joint-stock companies, certainly in reactionary circles. We’re currently dealing with two major problems in this area: ridiculous over-payment of CEOs who get to appoint the board of directors that decides their pay, and under-investment because managers are terrified of seeing their stock prices go down for even a quarter, and thus focus on cutting costs and hoarding money for a rainy day rather than laying the ground work for long term growth.

    These are not unsolvable problems of course, but acting like we have such a handle on corporate governance that we want to use that style of decision making more often is a bit premature.

    • Leonard says:

      You realize that reactionaries are comparing the problems you mention to the glaring failure modes in democracy, right? Joint stock corporate governance doesn’t need to be perfect; it needs merely need to be more responsible and effective than other governmental forms. You can call USG a lot of things (I have), but responsible and effective are not high on the list.

      • Luke Somers says:

        The US Government is far from the best possible democratic system. VERY far indeed.

        • JB says:

          Yes! Somehow, the US government is often treated as being synonymous with ‘democracy’, when there are such diverse democracies today.

          The ‘tale of two political systems’ TED talk that was going around by a Chinese professor, explaining why democracy is not suitable for China, basically amounted to “the US system is badly flawed so China should stick with its authoritarian model”, and a lot of people seemed to respect that as a valid argument.

        • cassander says:

          The US system is about as good as democracy gets. The US is not switzerland or the nordics, but aside from them, but take almost any good government measure you want and the US won’t be far behind them, an especially impressive achievement given the sheer size of the US.

          • Paul Torek says:

            Agreeing with this. The US isn’t the best, but it’s pretty representative. The largest democracy is India. I’ll take US democracy over Indian.

          • Anonymous says:

            If you think size is very important, then there is a straight-forward way to improve the US: devolve power to the states.

  27. Symmetry says:

    Another important difference between capitalist and socialist “firms” is that capitalist ones can go out of business and frequently do. Firms that become big are ones with a culture that makes them successful and able to expand. New hires also contribute because humans tend to do what their neighbors are doing. Often decay sets in and all the principle agent problems start rearing their heads, but that’s ok because when the firm goes out of business there’ll be another to take it’s place. And sometimes you get a firm like IBM that can avoid this for a long period of time.

    • Eli says:

      Another important difference between capitalist and socialist “firms” is that capitalist ones can go out of business and frequently do.

      Not an important difference, the important difference.

      The point is this: If a deterministic story about free markets generating optimal prices, leading to maximum output was no longer viable, then the failure of planned economies could hardly be attributed to the absence of those features. As Communist systems were collapsing in Eastern Europe, economists who had lost faith in the neoclassical narrative began to argue that an alternative explanation was needed. The most prominent theorist in this group was Joseph Stiglitz, who had become famous for his work on the economics of information. His arguments dovetailed with those of other dissenters from the neoclassical approach, like the eminent Hungarian scholar of planned economies, János Kornai, and evolutionary economists like Peter Murrell.

      They all pointed to a number of characteristics, largely ignored by the neoclassical school, that better accounted for the ability of market economies to avoid the problems plaguing centrally planned systems. The aspects they emphasized were disparate, but they all tended to arise from a single, rather simple fact:in market systems firms are autonomous.

      That means that within the limits of the law, a firm may enter a market; choose its products and production methods; interact with other firms and individuals; and must close down if it cannot get by on its own resources. As a textbook on central planning put it, in market systems the presumption is “that an activity may be undertaken unless it is expressly prohibited,” whereas in planned systems “the prevailing presumption in most areas of economic life is that an activity may not be undertaken unless permission has been obtained from the appropriate authority.” The neoclassical fixation with ensuring that firms exercised this autonomy in a laissez-faire environment – that restrictions on voluntary exchange be minimized or eliminated — was essentially beside the point.

  28. Sarah says:

    So, this is slightly off-topic, but has anybody run the math on how much it costs to feed and shelter and provide basic medical care for a human being, at a basic subsistence level, for a lifetime?

    Back-of-the-envelope numbers for basic income for the US generally find that we can’t afford to give everyone enough to be “US poor.” To give every man, woman, and child in the US $15,000 would cost 4.5 trillion dollars, which is larger than the current federal budget. If we just give the money to people making less than $15,000, who are 32% of Americans (!) that’s affordable in principle but it has to replace, like, the entire Social Security budget. And $15,000 a year is not a comfortable place to be; in fact, I suspect many basic income guarantee proponents are imagining that people currently at $15,000 (which is about minimum wage) should be getting a basic income boost.

    On the other hand, things are cheap. 50 tons of rice is $450 on Alibaba. 20 tons of beans are $1500. This site ( says that thirty pounds of rice and thirty pounds of beans will sustain a human for fifty days. This guy ( computes about $600 to sustain a person on a (very basic and probably unhealthy) 2000-calorie diet for a year. Shelter and water and sanitation and electricity, I’m less sure how to calculate.

    But my intuition is, if you get the absolute bare-bones necessities of life in bulk third-world prices, you can give people a *baseline* affordably, and fixed costs could buy rural land in the US for about $5000 an acre. It shouldn’t be expensive to provide a bare-bones “basic income” in the US. (Medical costs are the killer here — it’s not really “survival” if you can’t get your diseases treated, and those are not cheap in the current medical system.) But: a small furnished apartment, internet and electricity access, and food staples, you might be able to get for under $10,000 a person per year, or maybe even $5000, at least in marginal costs.

    Basically, though, my impression is that a basic income is either going to have to be *very* fucking basic, or is going to have to wait for further economic growth. People are just not that cheap to support.

    • michael vassar says:

      $10K/year is an INSANELY HIGH estimate. Intrinsic costs for material goods aren’t higher in the US than elsewhere. How would they be? And people in the top half of the world in terms of development all consume roughly the same basket of goods.

      ‘US Poor’ is poor because that $15K is tied to jobs and to expenses and time demands that make their lives MUCH harder than they would be if the people had the money without strings attached. College students live very comfortably if they have $15K and they are still tethered to college towns. Turning 2/3 of corporate profits ($4K/person) and 80% of federal spending ($8K/person) nets $1K/month, which is still more than most college kids spend.

      I can easily design a healthier and cheaper diet. That guy’s paying insane mark-ups.

      A solar system for off-grid living and a plug-in hybrid with grid feedback cover your electricity and modest transportation needs indefinitely for under $50K. Make it diesel and add some Malaysian Palm Oil palms, and you have a reasonable amount of fuel. Live in a hot climate and use solar to power AC and heat pumps, and you don’t need very much fuel, or live in a cooler climate and dress warm. A Hexayurt tri-dome costs under $1000 to build. Adobe is cheaper.

      Pharma costs are unnatural due to gatekeepers. Deregulate and it’s cheap. Complaining about medical costs being high is like complaining about paying off robbers being expensive. It’s going to suck you dry at ANY price unless you round up a militia.

      • Sarah says:

        I was wondering if my arithmetic was wrong.
        Rice and beans bought in bulk off Alibaba are two orders of magnitude cheaper than rice and beans bought in the US? Can that possibly be true?

        • Douglas Knight says:

          You mistook a price per ton as the price of a minimal order of many tons.

          Rice is a commodity. Here’s a site says $500/ton. Actually, I think rough rice is more standard, at half that price.

          • Sarah says:

            That’s coming out at, like, $150 for a year’s worth of rice-and-beans at 2000 cal/day. Which is still lower than the survivalist’s estimate for a year’s worth of food, but still in a believable range.

            Michael claims food, shelter, transport, and electricity can be set up for $60k in fixed costs or so — but what we care about is marginal costs. Can we get down to $1000/year total marginal costs?

            By the time you’re looking at $1000/year, it becomes a question whether or not you actually need this to be a “basic income”, because most of the working poor can afford that (it’s just that living ultra-cheap isn’t something they know how to do and/or would take them away from their communities and habits.) It’s more like a program to educate and set up the fixed-cost expenses.

            Giving a hundred million people a thousand dollars each is a hundred-billion-dollar program, which is quite affordable by government standards. Poor people receive quite a bit more than that in transfers already.

            But this becomes an incredibly *bossy* social program. It may be true that living out in the middle of nowhere, on food staples and solar electricity, is more satisfying than stacking boxes in a warehouse. You have all the leisure you want and no need to fear for your livelihood. Some people would take that trade. But a lot of people wouldn’t. And now you’re in a situation where the “basic income” only helps those who are willing to accept a rather spartan form of help, and the rest of the baristas/maids/laborers are just as screwed as before. That may be an OK tradeoff, but it doesn’t satisfy what I think of as typical progressive sensibilities.

            The progressive/welfare-state attitude seems to be “go to work and do business as usual, except that you also get free stuff from the government.” The bare-bones basic-income approach is “go to work and do business as usual, OR get free stuff from the government.”

          • anonymous says:

            One big reason most people aren’t willing to live off cheap starch staples is that they don’t know how to cook them in such a way that they are both satisfying and easy to eat in huge amounts. Poor societies have these skills but we largely lost this knowledge, even among people with a hobby of cooking – our present day culinary wisdom is all about how to minimize calories in meals and making you feel like you have enough after a small portion, the exact opposite of what is needed.

            Here in Italy one traditional staple is the “polenta” essentially boiled corn flour. You can buy polenta flour and it’s ridiculously cheap. You can buy it pre-cooked (meaning you only need to add warm water to the flour and you get polenta) at about the same price – it appears that the industrial cooking process doesn’t cost much – people however prefer to buy it raw because the kind of people who buy polenta are traditionalists.

            I think that the state could make a more nutritious whole-grain pre-cooked polenta flour and it would cost the same. Note that the pre-cooking is essential. You could do the same with all the other grains and legumes – make a wide variety of pre-cooked flours you only need to add water to and you get a nice flour cake. The cost of this would be low. You could add some flavors, salt, fortify it with vitamins, whatever – still cheap. You can do similar stuff with other cheap but healthy and non-perishable foods.

            Send monthly shipments of this stuff to people instead of food stamps. Then, because it is pre-cooked, people would all become able to perfectly make the kind of traditional food that is easy to eat in bulk. My estimates is that such an operation would be cheap. You can choose, either you get one month worth of food, or the equivalent amount of money which however doesn’t cover what people normally spend in food. Is this “bossy”?

            It wouldn’t have to be all-or-nothing. People would be able to take advantage of the state supplies – maybe on alternate months – and buy other foods as well. This would help people survive on a small budget.

            A similar program with housing might be the conversion of city blocks into large amounts of tiny, and I mean truly tiny apartments for anybody willing to live there. People don’t want to go live in the woods because it would mean severing their social ties, but why not live in a small space.


            and if you want to be extreme about it…


    • Nornagest says:

      So, this is slightly off-topic, but has anybody run the math on how much it costs to feed and shelter and provide basic medical care for a human being, at a basic subsistence level, for a lifetime?

      No, but: prisons in cheaper states in the US run somewhere around $25,000 annually per prisoner. (In expensive states it can get as high as $50,000.) That gives you an upper limit. A lot of prison expenses go into keeping prisoners from running away or receiving contraband, though, and I wouldn’t be surprised to find that there are hidden factors driving up the price (insurance, say), so the actual value is going to be substantially less than these figures.

    • MugaSofer says:

      I’ve heard definitely references to calcs that came out as about college-student poor/wealthy. College students being fairly happy, it’s assumed that this is enough money.

      Here’s something vaguely similar from Scott:

      … I’m more interested in the financial side of it. At $11,000 average per pupil spending per year times thirteen years plus various preschool and college subsidies, the government spends $155,000 on the kindergarten-through-college education of the average American.

      Inspired by a tweet: what if the government had taken this figure (adjusted for inflation) and invested it in the stock market at the moment of your birth? Today when you graduate college, they remove it from the stock market, put it in a low-risk bond, put a certain percent of the interest from that bond into keeping up with inflation, and hand you the rest each year as a basic income guarantee. How much would you have?

      And I calculate that the answer would be $15,000 a year, adjusted for interest. We can add the $5,800 basic income guarantee we could already afford onto that for about $20,000 a year, for everyone. Black, white, man, woman, employed, unemployed, abled, disabled, rich, poor. Welcome to the real world, it’s dangerous to go alone, take this. What, you thought we were going to throw you out to sink or swim in a world where if you die you die in real life? Come on, we’re not that cruel.

      So when we ask whether your education is worth it, we have to compare what you got – an education that puts you one grade level above the uneducated and which has informed 3.3% of you who Euclid is – to what you could have gotten. 20,000 hours of your youth to play, study, learn to play the violin, whatever. And $20,000 a year, sweat-free.

      $20,000 a year isn’t much. The average mid-career salary of an average college graduate is nearly triple that – $55,000. By the numbers your education looks pretty good. But numbers can be deceiving.

      [goes on to argue this is plenty of money]

      • Sarah says:

        Ok, if you take the stock market into account, and assume it grows at the rate it’s been growing (a fact I find mysterious, but never mind) then ok, I guess basic income is affordable if it replaces a major social program like education.

        • Mugasofer says:

          Well … yeah. Basic Income is supposed to *replace* all the different subsidies we currently give to the poor.

          If you keep them running alongside it, sure, a Basic Income Guarantee is really expensive. But then you’re giving everyone twice as much money, aren’t you?

          IOW, I *think* you missed out some revenue sources in your back-of-the-envelope calculation? It would fit with Scott’s calcs.

        • michael vassar says:

          It’s really not sound to take magical permanent stock growth into account.

  29. Wesley says:

    First of all, the CEO can’t remain too deluded about her decisions … but stock prices are hard to fudge.

    You should look up Jack Welch and GE, and in particular what happened to their quarterly earning reports when he retired. Stock prices aren’t that hard to fudge, apparently, and he did it for a *long* time.

  30. Leonard says:

    people who wrote politics before we fully understood how genetics worked were so cute!

    Before modern social "science" obfuscated things, people believed class worked in much the same way as we once again do. (Not "we" meaning society, of course. Society is still in the dark ages. But "we" meaning us HBD-credulists in the Sailersphere and perhaps a few scientists, huddled behind their obfuscatory prose in their obscure journals, living constantly in fear of defenestration.) This understanding was that the lower classes were lower because of their lower conscientiousness, lower tested IQ, higher time preferences, lower impulse control, and their higher aggressiveness. Or put in standard English: the poor are poor because they are lazy, stupid, imprudent, impulsive, and violent.

    If people had a clearer understanding of human nature in the past, we might imagine that they could do things politically that we cannot now. And if we look, we find such things. For example, crime in England was almost abolished, being perhaps 1/100 of what it is today. Egypt was run profitably for decades. The Congo was rapidly industrializing back in 1955. Then… something happened.

      • anonymous says:

        The Anti-reactionary FAQ is full of flaws.

        Scott himself changed his mind about crime, admitting that it is higher today than in the Victorian era.

      • Scott Alexander says:

        Warning for both Eli and Leonard that you’re close to being banned

        • anonymous says:

          I’m the anonymous who posted the last two post in this sub-thread under the name “anonymous” (I’m not Leonard); I don’t understand; is it forbidden to discuss this topic?

          • SSC’s policy is that comments should be true, necessary, and kind.

            More specifically, if I’m understanding right: Factually tenuous comments need to put a special effort into embodying civility and compassion, as well as being directly relevant to the conversation at hand. Unusually uncivil or cruel comments need to put a special effort into being well-sourced, well-argued, and completely essential to the current discussion. And inconsequential or tangential comments need to be extra-careful to exhibit abundant epistemic rigor and kindness. You don’t have to perfectly embody all of the virtues all of the time, but if you’re weak in one area you need to put extra care into the other two.

            E.g.: a link to the anti-neo-reactionary FAQ may be ‘true’, but if it’s dismissive and insulting it fails to be ‘kind’, and if it’s an FAQ most people around here have already seen it’s not particularly ‘necessary’.

          • Matthew says:

            I would speculate that Leonard was failing all of “true, kind, or necessary” and Eli was failing “kind or necessary”.

            The comments policy is here.

            edit: Somehow ninja’d by Rob

        • Scott Alexander says:

          I’m mostly annoyed that random neoreactionary talking points are being brought up on a thread that they’re only tangentially related to.

          I want to sequester the most controversial topics (social justice, neoreaction) to their own threads so that people who don’t want to talk about them don’t get driven away, and their admittedly high Tribal Conflict Interestingness Value doesn’t crowd out more responsible, drier topics.

          • memeticengineer says:

            Slate Star Codex: where feasibility of implementing socialism is one of the drier, less controversial topics. (I mostly mean this as praise – I love that this place enables high quality discussion of controversial topics.)

          • Eli says:

            I’m mostly annoyed that random neoreactionary talking points are being brought up on a thread that they’re only tangentially related to.

            Which is actually precisely why I did not bother to be kind: talking-point spam is rude.

      • anonymous says:

        Some of the other flaws in the anti-neoreaction FAQ:

        – if you go back in time everything will be worse; it’s simplistic to blame that on older social structures because improvements depend on material and technological progress. Neoreactionaries do not claim that everything used to be better.
        – Scott’s repeated attacks on “monarchy” miss the point because there have always been (non-egalitarian) republics; monarchy is not a core tenet of neoreaction
        – much less absolute monarchy!!!
        – which anyways doesn’t work like Scott believes it does, a king can’t do anything he wants and expect to remain in power
        – Scott argues that traditional states were bloodier and less stable than modern democracies but he makes a huge mistake in counting wars instead of counting human casualties. The American civil war can’t be compared to 1848 in Austria-Hungary.
        Our era has been one of total war; democracies sent hordes to die, committed carpet bombings and nuclear bombings, and courted nuclear apocalypse. In some past eras war was nearly bloodless. Not arguing that things got worse but they didn’t get better either.
        – Regarding Japan the question should have been, would a democratic WW2 era Japan have behaved any differently?
        – North Korea simply is not the society you would get if you asked a neoreactionary to organize one.

        • RCF says:

          “North Korea simply is not the society you would get if you asked a neoreactionary to organize one.”

          How do you know? Maybe NK wouldn’t be the model for a neoreactionary, but it’s a completely different claim to say that the choices the a neoreactionary would make would not end up resulting in a NK-like country. I’m sure that most communists didn’t intend on creating Stalinist Russia.

          • Anonymous says:

            If you think that neoreaction leads to North Korea, that’s something you can try and argue, but the anti-reactionary faq uses North Korea itself as an argument against neoreaction, which makes little sense, since it isn’t clear that the principles north korea is based upon would be approved by neoreactionaries.

          • RCF says:

            Certainly, some of the principles espoused by neoreactionaries are implemented by NK.

        • Mugasofer says:

          I’m pretty sure he addresses all of these points in the FAQ.

          For example, the NK example starts with a description of the Ideal State and then points out that NK fits that description without being particularly ideal. If you want to argue that the ideal nRx state wouldn’t produce another North Korea, go ahead, but Scott *did* provide (IMO strong) arguments that it would.

          The monarchy thing, while not a “core tenet”, is pretty important and probably the most interesting thing to come out of neoreaction. Other sections address other proposed nRx overnments. Are you saying it shouldn’t have been addressed at all?

          • nydwracu says:

            For example, the NK example starts with a description of the Ideal State and then points out that NK fits that description without being particularly ideal. If you want to argue that the ideal nRx state wouldn’t produce another North Korea, go ahead, but Scott *did* provide (IMO strong) arguments that it would.

            Moldbug’s ideal is legitimism — that is, zero competition over the line of succession. (Hence the Fnargl thought-experiment.) A state that’s as worried about getting overthrown/invaded as North Korea doesn’t fit that standard at all — Moldbug even says as much somewhere.

          • anonymous says:

            North Korea is neoreactionary like a chicken is a featherless biped human. North Korea has important features other than superficially fitting NR descriptions. Come on. If you want to know what neoreactionaries have in mind, ask them – they will not cite North Korea as an example, but rather European states of the past.

            As far as I can tell not being part of the neoreactionary community, the core of neoreaction is a belief in hierarchy instead of equality. This allows for a huge variety of governments. It can be monarchy, it can be different types of oligarchy, “tighter” or “wider” (how about the republic of Venice?), or a combination of monarchy and oligarchy, and so on. It is rather the current egalitarianism that only permits one type of government, universal suffrage democracy. While today we think that anything other than it is illegittimate, monarchic France had no problem coexisting with republican Venice. Therefore I’m not satisfied that so much of the FAQ consists of criticizing (not even very effectively in my opinion, but this may not the place to vent all my objections) very particular types of neoreactionary governments (absolute monarchy and joint stock corporations) which could be easily steelmanned since a real reactionary worldview doesn’t prescribe any particular one.

          • Mugasofer says:

            Neoreactionaries have object-level policies which resulted in NK.

            Short of Singularity, I don’t see how “this would work if there was no way for another polity to challenge North Korean leadership”, “this would work several hundred years ago”, or “this would work if everyone on Earth had their minds rearranged to agree with the North Korean populace” are actually *defending* those object-level policies.

            If anything, it’s damning them with faint praise.

            There’s only so far you can get by making your predictions unverifiable. Eventually you’re going to have to suggest an actual course of action, and then we can actually see whether it works or not.

            [Incidentally, this sounds like I’m completely unsympathetic to the nRx position; I’m not.]

    • RCF says:

      “For example, crime in England was almost abolished, being perhaps 1/100 of what it is today.”


  31. Edivad says:

    This made me think of the Alaska Dividend – basically, Alakan citizens are paid money each year based on the state’s oil profits.

    I suppose that’s much more similar to Basic Income than what is being proposed here, since people get money directly.

    There might be similar things in other states (and indipendent nations) that are rich in natural resources – some Middle Eastern ones, perhaps? – but I can’t think of specific examples.

    • Scott Alexander says:

      Will take a look. After I’m done, I look forward to hearing from some other people why those articles are terrible and what I really need to read is something else.

      • social justice warlock says:

        I aim to please!

      • Vaniver says:

        Didn’t EY have a policy at some point of “if you want to raise objection X, Y, or Z, I will happily address it after you donate $X to (then) SIAI?” A similar policy might serve you well.

    • Paul Torek says:

      Is the breezy optimism Capitalism 3.0 basically the same idea as [high taxation/public ownership] of the unimproved value of land? Cause that’s what the home page sounds like.

  32. AlphaCeph says:

    Paying people who need more money via a basic income guarantee is probably better than most other forms of socialism. Just be careful about the incentives created and make sure it tapers off. As we get more productivity from robots we’ll be able to afford such an income.

    Dealing with negative externalities is an inherently political process and needs to be dealt with by a better political system.

  33. Hanfeizi says:

    Funny you should post this today. I was just glancing over Ha-Joon Chang’s book, “23 Things They Don’t Tell You About Capitalism”, probably the most anti-capitalist book that I’ve ever actually enjoyed and have recommended to my friends. Whenever a friend accuses me of being an archlibertarian, I point out how I agree with some of the arguments in the book, and how they’re basically correct.

    But then, to my horror, I realized something: the majority of what he says in “23 Things”- and his previous book, “Bad Samaritans”- is identical to the work of an anti-capitalist I despise: Naomi Klein.

    Now, why do I like Chang but hate Klein? Or, more accurately- why do I like Chang and his like, but hate Klein and her ilk?

    You explained it last week- it comes down to tribes, and how their arguments are framed.

    When I see/hear Klein, I hear… “Fair Trade… something something feminist villagers in Latin America… evil white european and american capitalist men… environment… green babble… evil evil bankers… all sit in a circle and sing kumbaya…”

    In other words, bleh. Nothing that’s going to appeal to mildly sociopathic grey tribe member who works in finance, anyway.

    But, when I see and hear Chang, I hear… “Samsung! NASA! DARPA! Asian Megacities full of skyscrapers and bullet trains! Sneering neoconfucian tea-drinkers vs. evil New York bankers! Technocracy and hyperconsumerism FTW!”

    They’ve said the same darn thing, but now it’s suddenly phrased in a way that an arrogant young financier/technocrat who lives half his life in Shanghai can suddenly get behind.

    Now, my friends who are true-blue (or maybe true-grey) libertarian and Austrian economics enthusiasts will have none of it, and will still argue vehemently against it. But they’re dorks- seriously, they work in call centers and deliver pizza while I’m slinging offshore accounts to millionaires. They don’t get that it’s not about truth- it’s about signaling.

    In any case, I recommend “23 Things”. It’s fun, it’s geeky, it’s contrarian, and you’d like it. At least until you remember that it’s just Naomi Klein reframed for a different audience. Then you might hate it…

    …or will you?

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  36. RCF says:

    “First of all, the CEO can’t remain too deluded about her decisions … Second of all, the investors and the Board of Directors and so on have a mechanism by which they can agree upon whether the company is doing well or not”

    Am I missing something, or is SA repeating himself?

  37. Ross says:

    While I really like the idea of joint-stock corps/cooperatives too, I tend to agree that there’s big holes in the socialist approach of “everyone owns everything”. It means either you have to hand the reigns to a central authority to manage things, or you have another situation where no-one is really responsible for anything.

    My own inclination is to have networks of member-owned corps/cooperatives operating in the market, but have them comprehensively rate and tax their own “bads” or externalities, penalise member economic activities proportionally, and then funnel the funds into a self-managed cooperative fund for member public/non-excludable/charitable goods. In order to join up with other cooperatives in a network, coops are required to unify the rating process so that an incentive to turn a blind-eye to one’s own activities is negated. Trade goods from non-cooperatives are rated too, and funds proportional to the externality funneled in the same way. Internal business activities and individual economic activity operate in small markets internal to the coop in order to provide an interface between rated and unrated trade/activity. To encourage responsible ratings I advocate a degree of time to be spent on educational/scientific exploration of externalities, but it doesn’t require anything like the indocrination that seems to be required in the socialist “to each from his means” way of thinking.

    So you solve tragedy of the commons, reign in excesses, while still maintaining market forces/pricing signals and both personal and business autonomy.

    Still a early WIP, but I do have a more detailed justification:

    Wouldn’t mind your thoughts if you had time.

  38. Pingback: The Future of Socialism is Privatizing the Atmosphere | Effective Reaction

  39. Kai Teorn says:

    > Man, people who wrote politics before we fully understood how genetics worked were so cute!

    Man, people who are writing politics (especially future-looking politics) before we fully understand how genetics can be made to work are so cute 🙂

  40. Dale says:

    Hey Scott,

    I wrote a blog post discussing this post. I’m sorry if this comes across as blatant self-promotion, but I figured it was rude to talk about you behind your back. In it I discuss a few more problems with Roemer’s proposal that might not be obvious to people without a corporate finance background, and then suggest an alternative way of using corporate governance to solve environmental problems – privatizing and giving everyone shares in the atmosphere.

    • Scott Alexander says:

      I like your blog and would like to link it, but I am wondering whether you might consider changing names. As you probably know, “reaction” has a very specific meaning around here, you don’t seem to fall into that category, and I am trying to limit the degree to which I am associated with it. I think other people probably have this same problem.

      • Dale says:

        I’m glad you like it!

        As you can probably tell I am new to blogging and not very good at naming things.

        Is it the url that you have trouble with or the text at the top of the blog? (or both?) I think I can change the latter, though it would probably be to a boring name like “Dale’s Blog” until I can think of something better. I’m not sure wordpress will allow me to change the url.

    • That probably works out to be pretty similar to cap-and-trade; the latter system is probably better at guarding the interest of future people. We have a lot of cap-and-trade in the real world, so it would be interesting to at least mention it.

  41. Steve says:

    The funny thing is, stock prices are actually a great example of Goodhart’s law. They used to be a way to measure the value of the company, but ‘raising the value of the stock’ has since become an end in and of itself, with less and less connection to the firm’s actual financial health.

    • RCF says:

      A stock price is how much people think the company is worth. Raising the value of the stock means increasing what people think it’s worth. I don’t think that’s a good example of Goodhart’s Law; executives aren’t trying to change the stock price to change what people think the company is worth, they’re trying to change how much people think the company is worth to increase the stock price.

      • Steve says:

        I’m saying that for CEOs, the stock price was once primarily a measure, and now it’s primarily a target. They’re not trying to raise the stock price to make people think the company’s worth more. They’re probably trying to raise it because the amount they’re compensated is directly tied to how much the stock is worth.

      • DrBeat says:

        executives aren’t trying to change the stock price to change what people think the company is worth, they’re trying to change how much people think the company is worth to increase the stock price.

        They are trying to change how the specific types/groups of people who have an effect on stock price think the company is worth, by specifically playing into their beliefs and bias. There are many things that can increase what a company is worth, that are avoided because they are not the things that those specific people believe increase what a company is worth, there is also “conventional wisdom” among said people that certain things increase the worth of the company when in actuality they just cause damage.

  42. Fnord says:

    Taking a recommendation of the form “the least unimpressive” is pretty much a guarantee that you’re not getting a recommendation from someone sympathetic to the argument. So, what form of socialism would be most sympathetic to someone who hates socialism? We get this. Which is, as you note, actually not very socialist (among other things).

  43. TallDave says:

    The Nordic countries typically get held up as socialist poster boys, and they certainly do it better than, say, Venezuela or Greece. And that seems to be primarily a result of their radical decentralization, which has been the subject of some papers. It’s almost like someone took to heart Hayek’s Fatal Conceit and said “OK, how can we build a socialist economy without central planning?”

    The downside is that this model also requires societies with a high level of civic investment as expressed by their voter preferences — e.g. tolerance for corruption tends to result in local kleptocracies — so you couldn’t just march into, say, Nigeria or Kiev or Chicago, and expect good results from this model.

    “Since we already said the costs are greater than the benefits, every individual wants to fight global warming. ”

    Sure, but you’ve assumed your conclusion there. If everyone agreed the costs of human-induced climate change were that high, then everyone would already want to fight it (though some might prefer mitigation while others would prefer emissions controls). As it stands now, there is enormous disagreement, with many people arguing the cost is actually negative, and most of the claims made are highly speculative.

    What I always find fascinating about the policy discussion is that even though everyone agrees G7 emissions controls will have virtually no effect on temperatures, emissions controls are always the favored approach rather than something like a massive space mirror array that might be used to alleviate temperature swings in either direction — even though the next Ice Age is an extinction-level event that can’t be predicted with much accuracy.

    That might be explained by the fact no major issue tracks “partyism” more closely than this one — it’s practically a partisan Rorschach test. So the people who believe this is a serious problem tend to be Democrats who would like carbon taxes anyway (they even have a cute little cartoon summing up how awesome AGW policies would be even without AGW). Maybe we need some system that would provide more incentive for both sides to strongly consider policy options the other side would like anyway.

    • Anonymous says:

      Why is tolerance for corruption a bigger problem under decentralization?

      • TallDave says:

        Well, you lose a check on that kind of thing if the Feds can’t swoop in and arrest all the corrupt locals because there are no Feds (or less poetically, if they don’t have the power) — and I’ve lived in Illinois long enough to be horrified at the possibilities — but I’m not really saying corruption would be a worse problem with decentralization, just that you probably can’t get Nordic results from decentralized socialism without Nordic levels of civic investment on the part of the voters.

    • Nornagest says:

      Democrats who would like carbon taxes anyway (they even have a cute little cartoon summing up how awesome AGW policies would be even without AGW)

      That sounds an awful lot like sour grapes/motivated reasoning to me.

      • TallDave says:

        Well, I think they honestly believe in these benefits, I just think they would also see the benefits in something like a space mirror array, but since they don’t involve Team Red (who might find that the least objectionable policy) in their policy discussions, they tend to arrive at policies that seem optimal to them but terrible to others, rather than policies that would be optimal on average if Team Red opinions were counted.

      • nydwracu says:

        Aren’t there some potential AGW policies that would have benefits even without AGW?

        If you think it’s possible to edit the incentive structure to strongly incentivize the improvement of solar power, there’s a potential AGW policy that gives you better solar power, which is a Good Thing unless you’re a power company or a Middle Eastern monarch. If you think it’s possible to edit the incentive structure to strongly incentivize the improvement of alternative forms of car power — weren’t they talking about hydrogen fuel cells a few years back? — and zero-emission vehicles would mean an end to the constant miasma of car-fume stench, which would mean I’d be able to walk anywhere within a mile of a running car without feeling like someone poured a bottle of hot sauce up my nose.

        For that matter, if you jack the price of gas way up, maybe people will stop using cars to go everywhere that it takes more than a minute to walk to.

        • Nornagest says:

          Some? Sure. I’m generally long renewable energy and I think we should be building Gen IV nuclear reactors as fast as we can slap down concrete, for example, and those are both entirely compatible with the AGW package. And for that matter I’m pretty much behind AGW as a factual issue, lest anyone think I’m trying to justify my own skepticism or something here.

          I’m just skeptical that the rest of that policy package would end up being positive — economically or otherwise — without a factual issue to respond to. Environmental/geoengineering interventions conventionally come about because cheap and effective solutions to problems have nasty externalities, and their alternatives are less cheap or less effective. Otherwise we wouldn’t need complicated policy plans: one company would just switch to the alternative, put “DOES NOT CAUSE BABY WHALES TO SPONTANEOUSLY EXPLODE” in its packaging, the others would follow suit, and we’d all get on with our lives.

    • Tracy W says:

      I think you just described the Nordics. Although the Nordic countries. Although they don’t actually compete with each other (countries don’t have to, trade and other forms of cooperation can make everyone better off) and are quite happy when their citizens cooperate on businesses of their own.

    • Tracy W says:

      Incidentally, the Heritage Index of Economic Freedom ranks Sweden, Finland, Norway and Denmark as higher on many measures of capitalism than the United States, eg Property Rights, Business Freedom, Trade Freedom, Financial Freedom. The US rates higher on Labour Freedom and measures of government spending (Fiscal Freedom).

      Note, while there are in general problems with relying on advocacy websites as a source, in this case I regard the Index as an exception, firstly because the advocates of an idea are the ones best placed to define what it actually is, and secondly, because giving numerical scores to nearly every country in the world means this definition avoid the “True Scotmans fallacy” which many advocacy-given definitions fall for.

      • Hanfeizi says:

        The Nordic Model is welfare capitalism:

        1. Run an aggressive, export-oriented economy.
        2. Tax the daylights out of it.
        3. Spend the money on services for the people and infrastructure to improve productivity.

        It makes a great deal of sense to me; again, philosophical libertarians don’t like it, but I’m a pragmatist.

  44. noahluck says:

    there has been many a politician who sends a country to its grave all the while hearing from a bunch of toadies that she’s making things better, but stock prices are hard to fudge

    These days there’s an analogue of the stock price for countries: the credit rating. There’s a huge amount of factors it neglects, but it does seem to be brought up in political discussions in the U.S. whenever our dear leaders are considering controversial economic policies.

  45. DrBeat says:

    I’m not sure what the wider implications of this are, but the idea of futarchy is looking better and better.

    I got really, really excited about this before I realized what you actually meant.

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  47. Anonymous says:

    Two details that came up repeatedly in the discussion are answered in Shalizi’s review. Stock reverts to the state at death. Start-ups are supposed to go public at a certain size. (Whatever “go public” means if they aren’t allowed to sell capital.) But such details are unimportant without understanding what Roemer’s purpose is.

  48. drs says:

    “I’m surprised I hadn’t heard of the Great Smog of ’52 before. Why haven’t people mentioned it whenever possibly relevant until people get tired of listening?”

    Probably because it’s not relevant anymore in developed countries. 1952, after all. We installed lots of pollution filters on our coal plants, and now such smogs and acid rain aren’t such problems anymore. We solved that problem without having to give up coal; the modern case against coal needs better arguments, like global warming.

  49. drs says:

    My primary ‘radical’ idea is simply full employment policies. Loose money, fiscal stimulus (including *partial* basic income), generally trying to keep aggregate demand maxed out in a way hardly anyone even tries outside of major wars. I think “no humans work” automation is a long way off, and paying people to work (with government jobs, the fallback plan) should be more politically feasible than paying people to not work. I’d like more progressive income taxes and higher land taxes and looser building policies, too.

    My more radical idea, not fully committed to, is simply a wealth cap. Somewhere between $20 million and $400 million (200 times the lifetime earnings of the average American), I figure you don’t need to own any more, and the societal cost of such concentration of wealth outweighs the incentive benefits from being able to accumulate it. Get more wealth? Give it away or consume it fast.

    Yeah, I don’t have a fully detailed plan of how to implement it with evaluation of varying-price assets and such. Wealth tax or very high income tax bracket might be simpler. I still feel we don’t need or want people worth more than 100,000 other people, i.e. deka-billionaires.

  50. Karl Lembke says:

    An interesting variation on the “socialism” mentioned here…

    In the book, The Unincorporated Man, we are shown a future where every person is incorporated. At birth, each person issues some number of shares of stock which can be owned by others. By law, the government owns 5% of every corporation and cannot sell those shares or buy additional shares. The parents own 25% of a newborn’s stock, and the remainder belongs to the individual. (I haven’t asked the author, but I assume all corporations would be required to give 5% of their shares to the government.)

    People can then sell stock to pay for stuff. An education or other vocational training is a typical investment, although medical care would be a possibility. An irresponsible person might trade shares for a sports car. A person who loses majority loses a lot of control over his or her life, as the owners of his stock can then compel him to take various actions.

    As owners (always presuming the owners are rational), they have an incentive to increase the value of the stock they hold, so they might compel their person to sell that sports car and buy training in some vocation.

    Stocks frequently issue dividends, and someone who owns stock in a CEO would derive a nice income from those dividends. (And the government would receive 5% of the dividends every corporation issues, in lieu of taxes.)

    At the time the story is set, the system is starting to show strain because people have been gaming the system and lobbying for changes that put people in serious risk. (Lowering the minimum percentage of his own shares an individual is required to hold on to, for example, makes it more likely people will literally sell themselves into slavery.)

  51. The Kochs aren’t ideological conservatives, they are ideological libertarians, as I think is obvious from their history and current positions.

    You don’t mention the history of China since Mao’s death, which may be the most striking example of capitalism under the banner of socialism so far. I recommend the book How China Became Capitalist by Ronald Coase and Ning Wang. I may be biased, since I have some claim to having predicted the process in a book published while Mao was still alive.

  52. Andrew says:

    I didn’t read all the comments here, but I noticed via search that nobody has mentioned Mancur Olson.

    (He wrote a number of worthy papers as well as this book, for which he is most famous.)

    As far as the market socialist scheme you describe, it sounds to me inferior to most market socialist schemes, for the reasons brought up here. But I hope people are capable of seeing how these problems could in fact be remedied by changing the specifics, rather than just look for “fatal flaws.”

  53. Neanderthal From Mordor says:

    “Corporate revolts are really really hard even nowadays when most stocks are held by a few attention-paying competent rich people. Give them to millions of not-attention-paying mostly-incompetent hoi polloi, and you think they’re going to be able to coordinate something?”

    Some post-communist countries did the kind of share distribution proposed in this book (maybe because of this book) and the result was that the managers and/or the unions looted the corporation because the divided shareholders lacked both information about what was going on and means to do anything about it.
    The end result was bankruptcy.