I find it annoying how people who point out that the economy is not a zero-sum-game insist that government activities, especially redistribution are a zero-sum-game. Government activities are not a zero-sum-game, and how positive they are depends on how smart they are designed and implemented. Finding out what smart government activities are should be the task of (economically informed) politics.
The argument about free exchanges being mutually beneficial and wealth-creating depends on the degree that those exchanges are actually free. The more coercion is involved in an exchange, the more value is destroyed prior to the exchange in the first place. Even the fact that the subsequent exchange increases value for all involved parties doesn’t necessarily compensate both parties for the loss of value caused by the initial coercion. A few examples to demonstrate this point:
- A situation that could happen in a stateless system, or in a sufficiently corrupt state: A thief steals your stuff and is daring enough to sell it to you again, because you happen to be in a position that doesn’t allow you to obtain your previous property in any other way, other by paying the thief. This is obviously a loss for you and a win for the thief, even though you could interpret the voluntary re-purchasing of your prior property as free exchange (after all you could forgo your claim to your prior property).
- Usury enabled by monopolies (usually enabled by government protection). Monopolies can charge exorbitant prices for rather essential goods and services. You are usually still better of paying those prices than not, but compared to the more “natural” solution that there is no monopoly, it’s an effective loss for you, even if you pay the price “voluntarily”.
My conclusion is that governments have the important task of minimizing all kinds of coercion that destroy value for market participants. Governments need to create freer markets before one can say that markets always create value for all involved participants.
I think the most reasonable explanation to that is that unemployment is a U-shaped curve in dependence on the height of the minimum wage: There is an optimum minimum wage that minimizes unemployment, whereas lower or higher minimum wages would cause higher rates of unemployment. Nevertheless, I think that minimum wages are a rather awkward way of increasing overall demand. Those who manage to get a job profit, while those who can’t get a job, no matter for what reason, are out of the loop. Getting a job is also harder when there’s a minimum wage in place. If payments for work could be arbitrarily small, then it would be much easier to sell your work to others, especially in areas in which you don’t have much qualification.
Having a universal basic income would make a minimum wage redundant. The UBI would both increase public demand, and improve the bargaining position of workers (because they wouldn’t actually require work for sustaining themselves).
Ok, I’ve read those posts. It’s interesting that Falkvinge comes to similar conclusions than those I harboured for quite a while: Introduce a universal basic income, pay for it via something like a land value tax (or land usage fees, whatever you want to call it). Use auctions for determining the height of the tax / fees. From an economic point of view that would be pretty close to an optimal solution.
Anyway, there is a lot of evidence that high inequality does have a lot of bad consequences, even in wealthy countries. At least for stability’s sake there should be sufficient mechanisms that prevent a arbitrarily high concentrations of wealth. I am not convinced that a land value tax / land usage fees would suffice for that purpose. How would you deal with organisations (corporations, DAOs) that require little to no land to do business, because they provide online services for example? What would stop such entities from accumulating so much wealth that the population at large becomes impoverished in comparison? I’m not sure how to fix that issue in the best way. Progressive taxation of profits, or taxation of large collections of capital would probably be sufficient solutions, but they come with their own costs and problems. My intuition tells me that there should be a more elegant solution. Perhaps those issues would resolve themselves naturally in a reputation economy, or maybe they wouldn’t.
A different perspective may point to an interesting approach however: It’s reasonable to demand from the government to address the issue of externalities. People should pay for the negative externalities they cause. And people should get rewarded for the positive externalities they create. With a sufficiently smart populace a reputation economy might be able to deal with the issue of externalities via self-regulation. Our current problem is that humans usually aren’t smart enough in many cases, so some form of government intervention is necessary to fix the biggest problems caused by stupidity, or self-regulation failure if you want to use a fancier term. Government intervention is a very error prone approach nevertheless, since governments consist of stupid humans, too.
Now, excessive inequality caused by overwhelming accumulation of capital by certain entities could be seen as negative externality, too. So, the government would be justified to charge those entities for causing that kind of excessive inequality. Of course, this would require sufficiently stringent definitions of “excessive inequality”. Excessive inequality could also be seen as another form a a priori value destruction, by the way (new market actors without pre-existing capital have a significant a priori disadvantage when they enter the market).
Perhaps the solution could be analogous to the land usage fees. As ownership of land is something that is managed and protected by the state, ownership of capital is something that’s effectively protected by the state, too. For having your capital ownership title protected from third parties, you would have to pay fees to the state (because only the state can effectively protect capital from appropriation by hostile third parties). How would the height of these fees be determined? The state could implement periodic (or on demand) auctions for ownership fees for certain collections of capital. If a bidder places a higher final bid than the current owner, ownership of that collection of capital would change. Such a system would end capitalism as we know it, since capital isn’t owned privately any longer, but merely “rented” for certain amounts of time. One could suspect that such a system might actually be superior to capitalism, since capital would be generally owned/rented by those who think they are able to make best use of it, rather than being stuck with people who aren’t necessarily qualified for using capital optimally. Let’s call this new system “auctionism”, until someone comes up with a better term for it. It’s certainly sufficiently different from capitalism and socialism to deserve its own name.
An obvious problem of auctionism would be hostile capital takeovers. However, such takeovers would always coincide with an increase in capital ownership fees, which would benefit the populace at large, all other things being equal. Such hostile takeovers could be used to eliminate competition, on the other hand, which would impact markets negatively. Probably the state would have to set up rules for such takeovers, so that they will be rather unlikely to cause massive harm. In particular, capital used for predominantly and essentially private purposes like real estate used for primary personal housing would need to be protected with especially stringent rules. Or maybe immobile capital, except for land itself, would be exempt from auctioning. It might also be a good idea to exclude non-profits and benefit corporations from auctions. Also, insignificant collections of capital should be excluded, too, but then that would require keeping track of what collections are significant.
Finding a universally satisfying system is really hard. Until humans become really smart, we will probably always have to deal with kinda awkward solutions and compromises.
What financial instruments and products are problematic and why?