So I ordered this without paying enough attention to notice that, for all his references to Gary Becker in the introduction, co-author Eric Posner is… my age!
Turns out he’s the son of judge Richard Posner, from whose text, along with Polinsky’s, my teacher Keith Hylton introduced me to the subject of Law and Economics some thirty (gulp!) years ago and whose blog with Gary Becker was such a joy to read until Becker’s recent passing.
Eric Posner and his co-author Glen Weyl start by surveying the state of the post-2008 world and stating that our economics and our politics have reached the end of the line. Now, they argue, is the time for some radical ideas.
There are, indeed, lots of non-standard ideas here. Hacks, more like. Some are, frankly, duds. One, just one, is solid gold!
Hack number one aims to unlock the economy’s potential for growth by setting underutilized assets free. It is dubbed COST for “common-ownership self-assessed tax” and the idea is that nobody really ought to own anything in permanence. The scheme works as follows: if you’re sitting on an asset you need to let the world know what it’s worth and you must pay tax on that assessment of its value. Crucially, everybody else is allowed to buy it from you at the price at which you’ve assessed it! As a result, the asset is always being used by whoever (thinks he) can put it to its best use and society is always earning a cut.
The thing is, before John Lennon sang “Imagine no possessions” the Beatles first sang “I, me, mine.” Even leaving to one side the fact that this idea is rather “coercive” (as the authors most certainly do!) it’s also rather impractical, because it turns every citizen into a trader. Some of us are good traders, but is that a good use of everybody’s time? And there’s the issue of deciding upfront what the typical lifetime of an asset can be. Plus the fact that many assets require upkeep of the kind you’d try to avoid if your tenure as the custodian was uncertain.
There are myriads of other impracticalities; indeed the authors dedicate pages 64 to 66 addressing a number of them, but just as they are discussing how to solve one problem a keen reader can think of another. Example: to circumvent the fact that many assets are owned on a leveraged basis, the authors suggest that loans must automatically move with property. Erm, right there, that’s the end of banking, the activity of lending chiefly against character, rather than collateral. I could go on…
Hack number two is “quadratic voting.” The idea is to allocate to every citizen a bunch of votes and then allow you to save your vote on one or more issues and allow you to use multiple votes on another, with the caveat that you can only influence the outcome by the square root of your voting power. So the square root of one is one, but if you are allocating sixteen votes to something you really care about, then it only counts as four votes. It’s a neat trick, because that way majorities who don’t really care about a subject can get outvoted on this subject by minorities who actually do. The minority who does so, however, has to give up on the other things on which it can’t vote.
Again, the idea sounds fantastic (and the associated math, whereby the cost of an externality grows with the square of the externality itself, is rather convincing), but the practicalities are daunting. How many issues do we really vote on to begin with, how does one go about allocating votes to people and over what period? How many votes do people get for President and how many for local school council? How should we deal with surprise elections?
Suppose we’ve solved all those problems, bigger ones arise: once we’ve broken one-man-one-vote, have we not opened pandora’s box? This could be the thin edge of the wedge in terms of introducing all sorts of ways to disenfranchise the underprivileged or the poor. Even more importantly, those of us who can do the math know that on the margin our vote will rarely swing any results. We chiefly vote out of civic duty. In my view, schemes that assign weights to votes undermine this principle.
The third hack, Visas Between Individuals Program (VIP) would allow each citizen to bring to the country an immigrant for a fixed period of time on a pre-agreed stipend and to earn for himself any money the immigrant would make in the host country in excess of the pre-agreed stipend. The idea is that everybody comes out of this better and that the people of the host country benefit directly from immigration, rather than read in textbooks that it’s a good thing…..
Erm, where do I start with this brilliant idea?
I almost stopped reading right there, but thank goodness I didn’t, because hack number four (no more implementable than hacks one, two or three) aims to solve an important problem of twenty-first century capitalism that has a much deeper and much more concentrated cause than I ever realized.
Long story short, if you ever come across “Radical Markets,” go straight to page 168 where the authors give the answer to one of the big unsolved mysteries of modern finance. To wit, anybody you ask what’s wrong about twenty-first century capitalism in America will list at least one of the following:
1. Market Power, the result of continuing mergers eliminating competition among companies in every sector both for our custom and to employ us.
2. Lack of investment, as companies increasingly prefer to buy back their own shares, rather than invest in capital and human capital.
3. Inequality, as CEOs benefit from said buybacks via their share option schemes, while everybody else is left with fewer options in terms of picking employers.
The authors explain that a major contributor to this malaise is the fact that at least thirty percent of all stocks are owned by indexers and quasi-indexers such as Fidelity, Vanguard, Blackrock etc. The main thing these companies need is the stock index to go up and they don’t even need to exercise their substantial voting power to force it up. CEOs know that to keep their jobs they need to get the share price to go up now, and who cares about later. As part of the bargain, their own share options make them millionaires, while the ones who get forced out have the consolation of a golden parachute.
The hack the authors propose is simple: no investor with more than 1% of the market should have more than one holding per sector! “Good luck with that one,” I hear you say, but God knows it would do the trick: these players would suddenly need to win in the marketplace!
Hack number five isn’t much of a hack: the authors observe that while we have a way to unionize as workers, we have not found a way to do so as providers of our own data to Google and Facebook. “Datapoints of the world, unite” they scream, but I read the chapter and I could not find any concrete proposals, not even of the unworkable variety…
Finally come the chapters that attempt to tie it all together.
Whether you agree or disagree with the authors, there is no denying that the two of them are still looking for a unifying theory. You read this book and you hope they can somehow pull these seeds of ideas together, but they decidedly don’t! Five or six “hacks,” even if they are good hacks, do not amount to redefining the field of Economics.
So this was a fun read that kept me on my toes, taught me stuff and even came with a major “aha” moment, but it wasn’t worth the praise lavished on it by the luminaries on the back cover. It would be an amazingly dangerous first book in Economics for a layman, let’s put it that way.
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Jack A.
Interesting ideas, but be prepared to put some work into reading it
Recensito nel Regno Unito 🇬🇧 il 20 febbraio 2021
Kindle Customer
Great read, let's hope the ideas are adopted one day
Recensito nel Regno Unito 🇬🇧 il 30 ottobre 2018Amazon Customer
In great shape and on time
Recensito nel Regno Unito 🇬🇧 il 2 gennaio 2019
Rogger-kappeler
Die Autoren sind für radikalen Markt, kehren damit aber das Eigentum wie das Kind mit dem Bade weg
Recensito in Germania 🇩🇪 il 23 agosto 2021