Allocation of Mass Duplication Benefits

It doesn’t seem to strike anyone as funny that copyright laws single out one component of a music production system for large wealth and control, while many other alternatives are possible.

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To illustrate just how society happened to get organized in such a way that unearned income is the standard rather than the rare exception, consider an example. There is a piano player, quite good, who performs for some people in a room, and gets paid for it. He did some work, received some earned income for it, and everything worked quite nicely. But in the audience, there was a person with a recording instrument, and he received permission to record the music. It was an excellent copy, allowing the music to be reproduced by anyone with a copy of the copy and the right equipment.

The copyist makes copies and sells them by the millions. Who gets the profits from this? In our society, it is the piano player, who owns the copyright to his music. What did he do to earn the profits created by mass duplication? Absolutely nothing. He played to a room and was paid for it, and that payment was a measure of his ability and a reimbursement for his time. If the room had a copyist in it, he did no extra work, but because of the copyright laws, he gets a huge amount of unearned income. This is the essence of unearned income.

Copyright laws have many purposes, but one is to funnel large amounts of money, unearned, into a very few pockets. Consider a different society, that had no copyright laws, but instead had copyist guild laws. In this society, all the profits of the mass duplication go to the copyist, by law. The piano player has nothing to say about it, just as the copyist in the first example has no claim on the mass duplication profits turned over to the pianist. Why do we have laws for copyright and not for copyist guilds? It could have happened a different way. The essence of the socioeconomic system being developed in this blog is that unearned income should not be generated or distributed, and instead, costs should come down or profits should be allocated to those who contributed to the increase in benefits that mass duplication entails.

It is possible to take this pair of examples and make them more complicated, and thus attempt to fog up the clarity that comes from a simple example. Those who live on unearned income would love to maintain a fog around the actual facts of mass distribution profits. The large amount of mass duplication profits allows the hiring of storytellers who can obscure the essence of the situation. However, sticking with the simplicity of this pair of examples can make it clear to anyone how arbitrary it is that huge unearned benefits go to one person and not another.

A cynical person might say that laws which support this type of unearned income and the other many kinds of unearned income are written by politicians who favor concentration of benefits in the hands of a few who can show their gratitude for these laws to the politicians. This preference is simply one aspect of the most fundamental feedback law in economics: the concentration of money provides the means for further concentration of money, and concentration of income works the same way.

This particular type of unearned income manifests itself in many forms in our society. The propriety of the allocation is never questioned, and various agents spring up to justify it or take advantage of it. Someone receiving large amounts of unearned income is often lionized or turned into a celebrity, as if that somehow changes the fiction that the huge amount of income is somehow earned into a fact, when it is not. The person who receives such largess from society knows, from observation, that it is necessary to spend some fraction of it on maintaining the myth that it is earned. It should not be surprising, with so much money flowing to people with a gift for words, that there is no end of obscuration of elementary facts, and no limit to the attempts to justify, without there ever being any criticism of the unearned income, the receipt of it. Society has grown up with this situation, and has never known anything differently and has never had a tradition of questioning the arrangements we are all presented with upon birth. Perhaps it is time to do that.

Two other examples might help demonstrate how pervasive unearned income allocations are in our society. The first one is the very old one, mentioned by Winston Churchill, in his famous speech on the taxation of real estate profits. When someone buys a property, it could very well be the law that they have the right to use the property, and sell it for what they paid for it, give or take some inflation, and also reflecting the improvements made in it if they were well documented. The buyer would pay an assessed value, and the difference would be made up by the local region. Instead of a person buying a piece of land and making a large profit when it becomes more accessible because of highway construction or nearby development, those who pay for the highway construction or nearby development would gain the profit, or make up the loss if one occurred. These are two ways of administering land ownership, and there are benefits to each. The one we use happens to be the one which tends to concentrate income and wealth in a few hands, as it would if the Fundamental Feedback Principle of our society was operating, and of course it is.

The second example covers executive pay. For some reason, we have a tradition, almost universal, that those higher up the management chain receive higher, often substantially higher, salaries. The work might be less demanding at higher levels, less detailed, less time-consuming, not requiring continual attention, more amenable to ready-made solutions or lacking in consequences of wrong choices, and so on. Nevertheless, the salary must go up with hierarchical levels. Why is that? Because at the top there can be a huge collection of wealth, which fits in perfectly with the Fundamental Feedback Principle, allowing the bestowing of favors on politicians who support the law, but even more in this example, allowing unearned income to be given to boards of directors who approve such salaries. Hierarchical pay structures are so common, there are never questioned. No one seems to ever evaluate if positions near the top require much less effort and talent than ones near the middle. It is a completely untested assumption, and may be totally wrong in many cases.

These three examples show that society arranges its laws to coincide with the Fundamental Feedback Principle, meaning laws are written in such a way as to allow concentration of wealth and income, and specifically to do so in ways where the income and wealth are unearned. Is this a desirable condition or result? Is it time to have a substantive discussion about the utility of it for society as a whole?

Of course there are some benefits to the concentration of income and wealth, one of which being this concentration allows major projects and start-ups and other novel ventures to be funded by the initiator requesting funds from one of the benefactors of society’s Fundamental Principle. However, the proper counter to this is that there may be other ways of providing start-up capital and other types of capital, and they might have advantages that balance any that wealth concentration does. The proper answer to claimed benefits of the existing system, or any particular components of the existing system, is that there may be many alternatives which have not been tried. It is a corollary to the Fundamental Feedback Principle that those who benefit from concentrated wealth can support economists, publicists, and other lackeys to write declarations that no other way can possibly work or not work as well as the existing system. It could be quite true that some alternative would have a flaw in it which would cause average productivity to decline or some other ill effect, but no demonstration of that has been made, merely pontification.

Wealth concentration does more than just allow publicists to dump mountains of material into the information commons supporting wealth concentration, it also allows the control of media so that some form of censorship of ideas disputing the benefits of wealth concentration, if they ever were to become popular, even slightly. It allows control of education, via donations and sponsorships, via research support, via simply flattery by someone of high status, as well as other means. What happens is that the choice of economic system which happened to be victimized by the Fundamental Principle is locked in place, as that very same Fundamental Principle marshals forces against change and even against the questioning of the system. Instead of healthy discourse and questioning of everything related to economic assumptions, the Fundamental Principle has the auxiliary effect of squashing such discourse, not be violent means or threats, but by supporting the opposing side, which favors wealth concentration, by orders of magnitude more funding. Thus, there is a very difficult path to be followed by anyone who wishes to question our economic system and present alternatives.

Transition and Flight Capital

One of the multitude of means by which novel economic systems are throttled to death before they can be wholly tested is the flight of capital from the region where the new system is being tried.

Any novel socio-economic that proposes to redistribute the rewards of production, either or both present and past rewards, is going to cause a reaction by those from whom something will be taken. Supposing that the novel system has a new definition of what is fair and just is allocating benefits, and purports to do this once it is inaugurated, the first reaction is going to be by those who will lose something, and if they have amassed political power, this will be used to block the novel system from ever being tried. Political power often encompasses blackmail, espionage, assassination, media control, information control, legal delays, moles inside opposition organization, distraction of the public, bribery, public relations efforts, and multiple other mechanisms by which those who have accumulated power act to keep it and enlarge it. It makes little or no difference what the previous socio-economic system was, it will have, after some settling in period, resulted in political power being accumulated in a few hands, and these mechanisms will be available, regardless of the name applied to the political system.

This conflict is one of the most elementary and ubiquitous ones. Wealth and power gets concentrated in a few hands and is used to preserve this arrangement. The only possible opposition is a large movement of those not having wealth or power, and since it takes some very unusual circumstances to motivate a large mass of people to make grand changes to an economic system, such changes are very infrequent. Often in the history of the world, they have been violent.

One conceivable alternative is a soft revolution, where changes in taxes or anti-corruption activity are put in place by some other means, such as direct voting or mass replacement of corrupt politicians followed by a choice of new laws by the new team. This might happen gradually or suddenly, but even if happens suddenly, there will be warning signs that some of those with wealth and power can recognize. The traditional means by which the wealthy and powerful stop such things can be tried, and perhaps they succeed and perhaps they don’t. However, some of the wealthy and powerful may estimate that the blocking measures will not succeed, and proceed to take alternative measures to maintain some portion of their wealth and power. One example of this is emigration from the region where they were formerly in control but in the future may not be to a different location where they can still have some or all of their wealth and use it to re-establish political control in the new region, or even remotely in the old one. This is loosely referred to as the flight of capital.

Given the despairingly low probability that any novel system of economics will be put in place, it might seem frivolous to think about this manner of avoidance of it by those with wealth and power. More important is thinking through how a transition might be effected, or how political power might be devolved to the powerless sufficiently that they can break the feedback loop that keeps them powerless and a small minority wholly in control of the economy. While that certainly is more important, there might be some details about the new socio-economic system that can reduce any bad effects of flight capital or similar means of evading the new system.

Once again, there is a bottom-up approach and a top-down approach. The bottom-up approach involves figuring out in advance what financial mechanisms could be used to move vast amounts of capital out of a region that was beginning to warm up to some novel socio-economic system that involved some redistribution of wealth and income. Once the list of mechanisms is decided upon, there can be some plan for an instantaneous application of counter-mechanisms which will stop the flight of capital. This is a fool’s errand. First, there are more methods on the hidden list of mechanisms than on the list of mechanisms compiled by the officials of the new system. The ones not found will be the ones used. Most likely, the number of unknown ones exceeds the number of ones that are known. Wealth and power can spin off a tiny percentage of itself to ensure that many mechanisms exist that are not known, perhaps never having been used before. If it costs 1% of some huge amount of wealth to ensure it travels to a new region, this is simply a cost to be born by the wealthy and powerful. So, the idea of figuring out methods that will be used and blocking them is simply too difficult.

The top-down method focuses on the people who have all this wealth, and involves requesting them to turn over their holdings, hidden and visible, to whatever agency of the new economic regime is supposed to get it. There are difficulties here as well. Mobility is so easy in our era, that finding these people and making them available to some new agency would be virtually impossible. Long before the new system was in place, the people with wealth and power would have disappeared.

This is not to say that there would be zero results from either the top-down or the bottom-up approach, but instead, they would only have some percentage effect. More than enough wealth would have been transferred beyond the jurisdiction of the new regime so that those who possess it would hardly notice the difference in their capabilities. Thus, some means of mitigating the effects of capital flight upon a new socio-economic system need to be developed, rather than putting any hopes in the concept of preventing it.

The point to concentrate on is the prevention of the destruction of the new economy, the one where a novel socio-economic system is going to be tried out. It is through the mechanism of foreign ownership that the new system would be most damaged, so that is the feature which must be examined. If those with wealth and power in the region simply move outside it, and continue to possess the same wealth while abroad, they can continue to dabble in corrupting the new regime, possibly with a mind toward returning after it fails with the new economic system. This means that some methods of insulating a new economic system from external influence must be installed as part of the new system.

If ownership by non-employees was allowed, or some equivalent in debt burden, then this external control might be possible. Thus, it is clearly an important component of the new system that ownership of companies, corporations, and any other form of business be connected with those who work there. There are obvious means of corrupting the importance of this regulation, such as by having only one employee listed on the books, the former owner possibly, while everyone else working there is an independent contractor. This needs to be corrected, by making the ownership of the corporation fall into the hands of anyone who works for it, in the guise of an independent worker or otherwise. Are there other scams possible which concentrate ownership but maintain the label of employee-owned enterprise? Certainly, if the distribution of ownership was disproportionate to the justly-measured contribution of the employee to the corporation or company.

Debt is a lukewarm version of ownership, so it too must be separated and put into the hands of those who contribute to the society, rather than those who do not. Some public agency would need to hold debt. There are a great many problems involved with conceiving such an agency, but assume for this discussion that it has been done successfully. Thus the transition problem boils down to figuring out how to transfer ownership of both enterprises, and debt associated with them, when a new economic system is put in place. Wealth in the previous economic system would have been manifested in ownership being concentrated, by the wealth feedback process, in the hands of a few. How could a transition be done legitimately?

The third member of the triad of means for distributing benefits in a society is taxes. It is what is left. Thus, there would need to be wealth taxes that would accomplish the redeployment of ownership of enterprises and of debt. Another aspect of unjust income and accumulation of wealth is the concentration of ownership of real estate. A third prong of the taxation for transition would be a tax on real estate, but a progressive one, designed to revert ownership of much of the real estate to those who contribute to producing the benefits of the society.

Evasion of income taxes is a game that is played world-wide, and so any transition taxation rules would have to be thought out carefully to have the desired effect. One tool is the unique-to-America plan of making any citizen liable for taxes, despite his location or employment situation. If this was a common, world-wide situation, then anyone possessing citizenship in a country and simultaneously possessing unearned wealth would find themselves liable for a wealth tax. There would need to be a corresponding tax levied on the relinquishment of citizenship in the nation or group of nations that was introducing the new economic system.

Having taxes in the laws of a nation does not mean collecting them. Someone who owns property within the nation can find liens placed upon it, whether it is a corporate asset or a piece of real estate. Thus, for someone to successfully evade taxes of the transition variety, they would have to sell or otherwise transfer ownership of property out of their name. This means that the transition taxation legislation would have to be able to look through the possible maze of ownership arrangements down to individuals who actually own the property. One means of evasion would be to have sham owners with citizenship outside the nation with the new system. They would be beyond the reach of any laws, so therefore the transition taxation would also have to affect foreign ownership. This would only be necessary if other nations around the world did not have similar economic systems and were not cooperating on taxation.

Exactly how this is done might make a substantial difference in whether there are large negative effects of the transition. There are some alternatives, and they deserve a separate treatment.

Market Share Taxation

Controlling monopolies via market share taxation might be barely possible, but if it were used, the economy would benefit.

Taxation can be a versatile tool for accomplishing a goal within a nation. Usually only a government has a taxing power, but fee is simply another name for a tax, and it can be applied by any organization at all. In any monopoly situation, such as a government holds, or an organization holds by dint of some legislation, taxes or fees can be levied by whatever rate the government chooses, or an organization’s directing personnel decide. They can be objected to and those taxed can revolt in different ways, but taxes are nonetheless a versatile means of moving the distribution of benefits around in a society.

There is absolutely no reason to believe that benefits will go to those who do things most useful to society as a whole, however that is defined. If one wishes to design a taxing system to attempt to reallocate benefits according to a measure of social benefits, the measure must be determined first, and then the taxation rules can be searched for that maximize it. Even though the measure is not fully determined, there are some situations where it is obvious that no reasonable measure is being maximized, and the economic rules in play are producing something undesirable.

One such undesirable outcome is the generation of monopolies or oligopolies in various sectors of the economy. Yet monopolies are the inevitable outcome of simple economic systems. In other words, simple economic systems must fail in a predictable and understandable way. It is because more balanced economic situations are unstable and do not last over long periods. These balanced economic situations might take one or two centuries to revert to the monopolistic end result, and anyone examining them in the interim might find them to be working well. They do work well, but only temporarily, and with a gradient leading to disaster. It is the long time necessary for the collapse to occur that makes the intermediate situation look like an excellent choice of economic system. The problem with this economic view is that it is too short-term. Economics should be examined both with a short-term viewpoint, but also with a long-term viewpoint. The long-term viewpoint will reveal flaws that are hidden to the short-term observer.

What is needed is a taxation system that takes a economic set of rules which are slowly unstable and lead to monopolies and oligopolies and change them so that the system becomes stable with the stability region in a desirable situation. This necessitates examining the cause of the instability. What happens is that economic advantages accrue to size, specifically market share. Efficiencies occur, which make it possible for the larger firm to overcome the smaller, and absorb it. These efficiencies can occur in the marketplace for the particular goods involved, or they can occur in the political arena where corruption occurs. As everywhere, those with more wealth can more easily induce corruption leading to a greater collection of wealth. Thus, market share or size is the dominant variable which must be addressed to produce a stable economic system.

The obvious solution is to have a profits tax that is progressive, based on market share. If we set five percent as a threshold, any firm in a particular market which has five percent or less market share pays one rate, but one which has more, pays more. For the sake of making a specific example, suppose the tax rate is 20% for under five percent market share, 30% for five to seven, 40% for seven to nine, 50% for nine to eleven, 60% for eleven to thirteen, 70% for thirteen to fifteen, 80% for fifteen to seventeen, 90% for seventeen to nineteen, and 100% for above nineteen. This example is not something realistic, but just something to serve as an illustration. There can be no monopolies with twenty percent of a market, as all profits would go to the government and none to shareholders.

There are obviously many ways that a corporation could evade this taxation scheme, especially with the possibility of corruption of those who define market share. Any scheme for taxing progressively on market share would have to be carefully thought out to eliminate in advance those tricks that might be used to avoid or evade the taxation. It should be obvious to anyone with awareness of how modern economic systems work that the transition to a new tax system is very difficult, and will be objected to by the strong forces in the economic system which have managed to corrupt the previous system to their own advantage. The transition question is something that needs to be addressed separately.

There will be a price to be paid in the economic system for eliminating monopolies and oligopolies, during some of the time. When a monopoly is in the process of growing and eliminating or absorbing its competition or opponents, it often does this by using the natural economic advantages that size offers. One of these is the ability to be more efficient in whatever it does, such as manufacturing, mining, textile production, service provision, product distribution, sales retail and wholesale, and so on. During this phase of the existence of a monopoly, the benefits of efficiency will partially flow to consumers, while the rest flow to those directly benefiting from the corporation or company becoming a monopoly. If market share taxation occurs, it will eliminate these additional benefits, both to consumers and to the shareholders of the potential monopoly organization.

This benefit is temporary but real. If monopoly is not stopped, it will eventually reduce the benefits to consumers and turn them more to shareholders, including owners, lenders, executive and higher managers, supplier executives and others. Thus, market share taxation comes with a temporary price to be paid. On the other hand, non-monopolist companies and corporations will benefit from the control on monopolies. The benefits of size will be diminished or eliminated, allowing competition to occur in other factors only. This will eventually benefit the entire economy, as monopoly advantages often are frozen in, and the situation of a monopoly serves to preserve and protect itself as a primary goal, as opposed to the normal goals of providing goods and services in a better way to the population.

A monopoly can be a detriment to its own workers. It is conceivable that a monopoly could be employee-owned and therefore immune to a desire by shareholders to minimize benefits allocated to employees, but the alternative situation seems more likely. In order to achieve monopoly status, efficiency is one tool that can be used, and efficiency can be simulated by a reduction in pay for all but shareholders. Thus own-company workers might suffer as the monopoly continues its drive for a capture of 100% of market share. Similarly, workers in competitive companies which are driven from business, bankrupted or otherwise eliminated, suffer from the loss of work, and might be forced into a lower economic situation. Workers in competitive companies which are absorbing by a burgeoning partial monopolist may have their positions eliminated or their wages or salaries reduced to those paid by the monopolist company. So it could be said that, while there is a temporary detriment to some consumers during the period that a monopoly is becoming entrenched, there is a permanent benefit to workers who are excluded from the shareholder group involved with the monopoly. Which is a better economic situation, one which has some benefits for consumers or one which has some benefits for productive employees? There is also a benefit to almost all members of the population, in that the amount of corruption will be a bit less.

How would it be conceivably possible that a system which reduces the power and wealth of some group of important people in a country could be adopted? In a new country, these rules for progressive taxation of market share could be put in place, which might slow the rise of those who could block such a set of taxation rules in an older country. However, there is not much space left on Earth for new countries. The alternative is that taxation power would have to be taken from a corrupt government, and the only location for that taxation power is in the hands of the electorate. This is not a good location in some social situations, and might be in others. In order to have power devolve to the hands of the electorate, it has to be realized that this is a huge increase in time consumption for such decisions, and therefore the number of questions put before the electorate must be severely minimized and then reduced again, down to only a handful. The second requirement for putting taxation power in the hands of the electorate is to provide them with complete information, which means that the media monopolies must be controlled first. But which comes first, control of monopolies in media or the granting of power to the electorate to install taxation rules to control the existence and formation of monopolies? We have a Catch-22 situation here, and resolving it will take some intense imagination.

Nineteenth Century Ownership, Twentieth Century Taxes, Twenty-first Century Products

Ownership rules date back centuries but there is no reason these cannot be changed to match the changes we have seen by the twenty-first century. Similarly, taxation can be adapted and actually utilized to improve some aspects of society

Laws and traditions change slowly, over the course of centuries. But technology determines many aspects of our social life and economic activities, so we may well have very outmoded laws and traditions, as compared to our economic activities. Perhaps this disconnection has grave impacts on any new socio-economic system we might try to invent.

Back in the nineteenth century, ownership was usually simple. One object or piece of real estate, one person. This pattern dates back for more centuries than records exist. There were often exceptions to this, such that a higher status person might simply demand the property, and it became that person’s. Furthermore, the king or a noble could have an objection to the property, for example if it was not being used, and take it away and give it to someone else. A disfavored person might have some or all of his property taken away. But in general, ownership was fully powered, in that you could do with it what you wanted. Real estate might have more conditions on ownership than personal property.

In the days when nobility owned much of the land, they all knew that a hungry population is a rebellious population, and in order to keep the social system intact, they needed to use land, especially farmland, productively. If someone did not do that, others could step in and take it over. Abandoned property could be taken over by someone who would use it, in line with the general principal that efficient use of resources promoted social stability.

The rise of trading companies changed the scope of ownership, but the same general principle remained. Efficient use of property promoted social stability. Trading companies could bring back resources from foreign nations or regions, and that would improve the standard of living in the home country. When manufacturing began to become large-scale, the same principle remained. A large company could produce more efficiently, and therefore promoted the general good. There was little social complaint back then about the accompanying fact that a few individuals could, through this mechanism, accumulate vast wealth. The complaints started when monopolies came into existence and companies, instead of being used to promote the general welfare, were used to depress the general welfare while enriching the few individuals on the top of the economic pyramid.

Even back in the days of nobility owning most of the property, it was clear that economic power equaled political power. The nobles with the greatest landholdings typically had the most influence over the king’s decisions, or even who became king. Sometimes this was done via military means, and other times simply political means. As economic power shifted from nobles to owners of companies and corporations, nothing changed except the use of military means declined.

The basic idea that economic ownership entails the responsibility to promote the general welfare still exists, but often it is only a slogan and an excuse, rather than a guiding principle. Technology has armed society with an array of ways to create new ways to have ownership, more in touch with this principle, but there is little activity in the direction of developing a new system based on them. Neither is there much activity in the direction of coupling human activity with appropriate compensation. Ownership of tools promotes efficiency of work, but ownership of great corporations has no justification based on the idea that each person should receive rewards in society as a measure of their own contributions. Instead, the value of high level people’s contributions is exaggerated out of all bounds, by factors of hundreds and thousands, and no equity in compensation exists.

The exaggeration of compensation, based on ownership rights, has been with us since the time of the nobility. Then as now, it fed the psychological state of the large owners. Ideas for distributed ownership would not have worked well then, as technology had not yet arranged for universal education, detailed record-keeping, excellent communication, and more, all of which make other alternatives possible.
One alternative is ownership of companies and corporations by employees. There is an obvious connection between ownership and motivation for working diligently and creatively. The same motivations that exist in modern corporations, if they live up to high standards, where employees who do well and improve efficiency or solve problems or otherwise contribute more than others are rewarded more, can be augmented by an ownership stake in the company or corporation.

Another means of distributed ownership is via large, possibly independent, agencies, responsible for absorbing part of the production of sectors of the economy, and investing in old or new companies in order to obtain returns on the money. Pension funds are examples of this process.

What is the possible rationale for maintaining the nineteenth century legacy of ownership rules that are not necessary in the twenty-first century, and which do not necessarily promote efficient use of production nor a just return for the effort expended by individuals. Tradition is nice, and has a role, but this is not one of them. Basically there is no justification whatsoever for our current rules for ownership.

Taxation has been around for thousands of years. The nobility, of whatever sort existed, taxed the wealth of others. The amount of tax was often chosen on the basis of how much an individual had, and of course there was always corruption, inequity, nepotism, and other social ills involved with it. The twentieth century saw the innovation of the income tax, which was supposed to be a more scientific way of taxing. Other taxes also were instituted in the twentieth century, notably the employment tax, where each employee and employer pay a tax which is supposedly used for an insurance or retirement fund. The previous type of tax, based on property, has remained around. Its main form has been on real estate, but taxes on other kinds of property are very common as well. Another category of tax is a transaction tax, in that tax is paid to some agency or organization whenever some trading, sale or possibly also exchanges, occurs. These three taxes are built around the idea of collecting money with the least objection by those taxed.

More recently taxes have been imposed, similar to transaction taxes or property taxes, on something the government wishes to discourage but not prohibit. The most famous of these is on tobacco. Very similar are criminal fines, which are imposed on individuals who do not follow the set of laws promulgated by a government agency. They have the same purpose as taxes to discourage certain activities, although there are other purposes as well, such as compensation for injuries.

Thus we have a large panoply of taxes, and fines, doing two things: raising money for the government to spend, and punishing activities that are illegal or discouraged. Taxes can also be used to correct flaws in our socioeconomic system. We do not have to restrict taxes to those legacy uses that the twentieth century bestowed upon us. Unearned income can be taxed and the money used, via a separate channel, for common uses not related to consumption. Wealth accruing from unearned income can be retroactively taxed in the same way.

One key to unearned income is the mass effect. Someone may do some work, create something, and have it reproduced at low cost thousands or millions of times, and the compensation the individual receives is based not on the amount of effort that was devoted to it, nor the level of talent or creativity involved, but instead on the multiplier that is used to produce the mass copies of it. There is no justification for this, other than some twentieth century legacy methods of compensation.

For example, someone can sing a song in a coffeeshop, and exert a certain amount of effort on it, and have a certain amount of talent. There would be some compensation for this. Another person can exert the same effort, have the same talent, but sing their song on mass media, and receive ten or a hundred or a thousand times as much compensation. Why? We do not need to preserve these rules for compensation when the mass effect kicks in. Effort and talent based compensation is enough to continue to motivate individuals to produce excellent work.

The same holds for all other kinds of effort that is swallowed up by the mass effect. This mass effect does not multiply the effort needed nor does it expand the talent involved. There is no connection between the effort and talent involved and the compensation involved when this mass effect takes over. In the twenty-first century this mass effect is becoming more and more common, and rewards are going out of balance more and more. The mass effect occurs in a large number of places, and is a complex phenomenon, but the basic point of it is that there are other ways, more efficient in the use of resources and just as motivating for those who care about their work, to compensate, without such gross disruptions of society that are caused by these huge disparities in rewards. Taxation, if taken out of the twentieth century framework, can be used delicately and precisely to correct the disruptions caused by the mass effect and bring society back to a more just and reasonable foundation. Similarly, ownership is tainted by the mass effect, and needs to be adjusted in a way that will promote long term benefits for our society.

What Should Be Measured in an Economy?

It is hard to define an economic system if no one can agree on what the proper measures of its goodness are. And there is even a deeper issue – culture and its transmission.

If two economies are to be compared, there has to be some measuring. But what is to be measured? As technology progresses, more and more data is collected about the economic affairs of individuals, companies, corporations and government organizations. But how should this be distilled down to a few simple, easy-to-explain numbers that tell us which economic system is better?

The word better, when defined in some very specific and quantitative terms, can have literally hundreds of precise, actionable meanings. There is little need to cite examples, but for the record, one can compute the total economic transactions made, the amount of energy consumed, the amount of food produced, the number of vehicles on the roads, the average square footage of the dwellings of the individuals, the ratio of the top quintile’s average earnings to the lowest quintile’s, the amount of taxes collected by the highest echelon of government, and on and on and on. One could also write justifications for many of these measures, going around and around without settling on anything. Perhaps this could become a parlor game, in which everyone has a chance to define their preferred economic measure and then there is a secret vote on the best.

Why not have ten different measures? Then different systems could be compared, and one might be better at measure one and another at measures two and six, while yet another is great at measure nine. If we want to make a recommendation of a system, or define some details of a chosen system, there has to be a decision as to which measure, or weighted sum of measures, is to be used to make the call. Having ten measures get us no nearer to recommending an economic system than having none.

If we ask for preferences for different measures of an economy, every intelligent person might come up with a different one. A person who grew up hungry might have strong feelings that food production per capita or food consumption per capita might be the best measure, although that is a measure, which if used for an economy, would push the population towards obesity. Mean square footage of dwellings is a measure for someone who grew up in a cramped and crowded dwelling, but not for someone who grew up in a large and lonely mansion. Someone with military experience and an appreciation for its need might think that the level of spending on armies and navies that can be afforded is the best and safest measure, while someone who grew up with a parent who was excessively sympathetic to the poor would thing some income parity measure is the best. One can go on and on about this as well, as there are so many possible experiences that can be the subconscious or conscious background for a preference for a measure. Maybe the idea of having some vote on what is best would be good, except that would not please those who believe in monarchy or oligarchy, unless the vote were restricted to the royal family or those who were in the top 0.1% of the economic food chain.

Is there any measure possible that does not depend on the feelings and even the whims of the particular economist who is being consulted on the issue? Many could certainly proclaim that some simple or complex measure had this measure, but when dredging up the basis for it, it comes down to emotion or self-interest, or perhaps the self-interest of some group. What therefore is the point of trying to figure out an improved economic system, if there cannot be any agreement on what constitutes ‘best’ or ‘better’ or even ‘good enough’?

What alternative exists for defining an economic system and recommending it for adoption? One could simply ask an individual to design it, without bothering about any qualitative measures to validate that it is somehow, in some way, the best one. Who could be asked? Those who already control the economy? The current system, with some modifications to solidify this control and sweep even more wealth, income and power into their hands, and make their acquisitions permanent and irrevocable, and also inheritable, might be the obvious answer. Another possibility is to discover the god of economics, and find a bit later on those who can get messages from this god inside their minds. They could write down the messages and the information could be fitted together to make up an economic system. Or some other group might be asked, like the top generals. What might their response be?

Defining ‘bad’ isn’t nearly so difficult. If people are dying from starvation, something is wrong, and the system failed. If population is being drained by migration to other lands, again, something is wrong, if the motivations for the population decline are based in economics. Then things get fuzzy. If people are chafing about having to spend time in commuter congestion everyday because of the price of housing near work, perhaps the economic system is bad in how it zones land. If there are long lines for obtaining the necessities of life, even though they are available, possibly the part of the economic system relating to distribution is faulty. Universal complaints are an indication of an error in economic system design, unless the constraints are so tight that one complaint cannot be satisfied without creating another, potentially worse, one.

There could be very many economic arrangements that do not give rise to universal complaints, meaning that the set of ‘good enough’ economic system might be quite large. This means that if we use popular outcry as a measure of the goodness of an economic system, the bin of acceptable systems could be quite full. And the willingness of a population to object to some aspect of their economic system might vary quite a lot, with some more stoical populations willing to put up with situations that a more clamorous one would take to the streets with. Here, media has its effects as well. Where media plays a large role in people’s lives, in other words, occupies a great deal of their time, the advice of those who control the media, filtered through the various message-giving instruments a media system has, might make a difference in what is acceptable and what is not. Again, somewhat murky.

This brings us back to the same point made elsewhere. Culture plays a large role in defining what is desirable and what is acceptable in economic systems. Take corruption as an example. There are many different kinds of corruption, and it can be overt and obvious to everyone or concealed behind all manner of legal constructions and privacy rules. One population, of a homogeneous culture, might regard petty corruption as just a part of life, something everyone knows about and everyone participates in, while a second population, also homogeneous, might find it horrendous and seek to expunge every single instance of it. The second population might regard legal corruption, where laws are written to allow many kinds of payoffs to politicians without any law being violated, as ignorable, while a third population might see legal corruption as no different than illegal corruption as it was based on the same thing: politicians selling their vote for some sort of benefit to them or their relatives or some affinity group or former colleagues, or whatever. Thus, culture plays a large role in public outcry and in defining the bin of acceptable economic systems.

Popular culture does not simply appear in a puff of smoke and be learned and wholly accepted by a population. It is something accumulated over time, but more importantly, passed on from generation to generation through the means of training and education of the younger generation by the older. This means there might be populations without any culture at all, where they might be homogeneous or heterogeneous, but they simply do not pass on values, opinions, motivations, heritage, and other bases to the next generation, but allow the young to pick up what they can from wherever they can. If this is the state of a population, almost anything can fit into the bin of acceptable economic systems. It also means that any individuals who want to be able to structure the economic system to fit their definition of good, better, best, can do so most easily if they can convince a population to stop transmitting their culture from generation to generation, and leave it in the hands of some specialists. And as a last step, the specialists have to be willing to climb aboard the support train for the economic system preferred by those who have the means to disrupt intergenerational transmission of culture.

It is certainly possible to devise an economic system that has some laudable attributes, and perhaps one which can be shown to meet a variety of measures of goodness, but as long as the culture is determined by those who prefer another system, good to them and perhaps not so good for the large majority of the population, there is little need to work too hard to define its details. Unless, of course, there is some means by which such a better economic system can gain the attention of the population – an unlikely event.

Choosing Goals for an Economic System

Having very few goals for a new economic system makes it more likely there will be no conflicts. Here we discuss the most fundamental goal: survival.

If an economic system is being designed in a top-down manner, coming up with one or more top-level goals is the place to start. Current economic systems have many goals, and the problem with that is that they sometimes compete, not in the sense of being opposite, but in the sense of giving contradictory guidance in certain situations. It is better to have fewer goals than many. Often goals for an economic system which are set up early in the history of the system are added to or modified in later eras. So, in designing an economic system, it is important to choose few goals, but also to choose them in a way which makes they less liable to change as time goes on. Societies change as technology changes, so this factor is one which should assist in the choice of goals.

In early eras, there was a clear goal. It was to benefit the upper echelon of society. Ever since there was a top leader, it has been the leader and his court or companions which have been the recipients of most of the benefits of the society. This group may represent one percent of the total population, or twice that or half that, but in any economy, the beneficiaries of the economy are a small fraction, and they are those who command the economy. In different places it has been military leaders, and in others the descendants of military leaders. In later eras, the benefits flowed to a top layer of individuals who had ownership rights on much of the land in their vicinity. Even later, it was a group of owners of businesses who prospered far more than anyone else. Later than that, it was the owners of financial establishments who received the lion’s share of the benefits of the society. In other societies, it was the higher castes which benefited the most, in the sense of having a higher living standard, or more freedom from want.

Only in very recent times has there been much discussion of a wider distribution of benefits. There was never any discussion about whether it makes much sense to have such a wide distribution of benefits. In one aspect, it is a question of the division between the use of the products of society for infrastructure and common defense and other society-wide tasks and for direct consumption. The direction of a large share of the benefits of society to a small top-level percentage of the population means that this group’s consumption uses will not use up the whole amount of benefits allocated to them, and therefore there will be an amount available, usable for any benefit to the whole of society. Traditionally, the control of the allocation process has been in the hands of a such a small percentage of population, and this has resulted in the provision of things that the society needs to gradually improve. Over periods of time, this allocation pattern has resulted in the economic growth of societies.

There are some quantitative measures that might be discussed. Society needs a balance between these different allocation factors, and the fractions allocated to lower class consumption, to upper class luxury consumption, to various societal needs, to supporting economic growth, to supporting technology development and deployment, and other ones that might be critical to the improvement of a society. The wrong set of values for these fractions might lead to social collapse, or revolution, or loss of defense capability, or simply stagnation or negative growth.

If there is one goal for society that seems to transcend others, it is self-preservation. If there is something in a socio-economic system which causes the society to split in two, or to descend into turmoil, or to lead to invasion, or to give rise to waves of criminality, or some other ill, then this is perhaps the strongest indication that this particular socio-economic system is flawed and not to be recommended. It is not that there is some unique lack in a bad socio-economic system, but instead a departure from a range of values which worked. If too much allocation goes to upper class luxury or to the process of altering the allocation fractions via financial manipulations or corruption of the political tax-levying process,then the socio-economic system may get into trouble.

There are feedback loops which definitely change the allocation of benefits, and if these are allowed to control it, instead of themselves being monitored and controlled, the system may depart from the range where the society is successful and may move into a danger zone, where one or more of the pitfalls of a system can arise. Some strong controls would be necessary in order to thwart these feedback loops.

Perhaps the strongest feedback loop is the one where wealth is used to concentrate wealth further. Because of the diversity of mechanisms by which this can happen, only direct controls on the accumulation of wealth can control it. Controls on income alone might be bypassed, if there are ways that, covertly or overtly, can add to the wealth of particular individuals. Wealth controls can be done by different formulas, and can be thought of as some type of property taxes. There are few historical instances of progressive property taxes, where it is not the value of property itself which is used but the concentration of property ownership which is the important variable. However, this seems to be the only taxation method which will control corruption and excess allocation to the leadership cohort.

Why not give gigantic amounts of benefits to the leadership cohort? There needs to be capital amassed for many purposes in a society, and the old method of having the leadership cohort take it and use it for socially beneficial purposes did bring society this far. There are three reasons for looking for a better way of allocating benefits. One is that the allocation of great wealth to a small minority works for some range of allocation, but because of the feedback effects of wealth concentration, it always increases until there is a breakdown in society. The second is that the provision of social benefits is voluntary on the part of the extremely wealthy, and may be very distorted in the choices of what is to be supported, with vital needs being shortchanged while frivolous expenses increase. The third is that as society becomes more aware of economics, unearned income, solely for the purposes of capital accumulation for valuable purposes of the society will appear and be appreciated as a wrong solution.

All three of these reasons can be collected under the goal of having a society which continues, instead of breaking down in one of the many ways that societies can suffer or even collapse. It is curious that this goal, the preservation or survival of the society is analogous to the first goal of any living organism. Survival is built in to the genetic programming of all organic creatures, and it makes sense to also attribute it to social arrangements. Once primates, and subsequently humanoids, divided themselves into clans or small groups who cooperated rather than competed, the concept of clan or group preservation made sense. So not only does this primary goal of living organisms match that of the proposed goal of the socio-economic system which we are trying to design, the same goal is present in the organization of humans and earlier, humanoids, into cooperating groups. It is almost a tautology that a group which does not concentrate on self-survival will disappear and be replaced by a group which does concentrate on self-survival. Thus, there should be little reason to dispute this goal as being the most elemental one for a socio-economic system.

What about other goals? There are an uncountable number of possibilities, all of which arise from some emotional connection between a person and a concept. Take justice. Each person can define what justice is, and there will be some discrepancies between one person’s take on this and another’s. The same goes for all of these emotionally derived goals for a socio-economic system. There may be some core to some or all of these concepts, but which of them might be taken as preeminent enough to be used to define the structures, organization and procedures of a society attempting to live under a new socio-economic system. Self-preservation does not have much of the heightened enthusiasm associated with it as a fair society, a just society, or other similar concepts, but as discussed above, it is much more fundamental.

Are any further goals other than self-preservation needed to define how a socio-economic system should be structured? Do the mechanisms of a society help to define how it might be defined? In order to fully utilize the goal of self-preservation can be used to define the whole structure of society, there has to be a model of how human beings behave. Only by understanding, well and in detail, how humans would act within a society can this goal be fully utilized.

Unemployability

Socio-economic systems have to have some features that cause individuals to want to be productive and contribute to the society in which they live. What works?

Employability is used here to mean that a person has the ability to work in the current location and time. It is a slippery concept, and deserves to have some details added to it so that it can be sensibly used. Let’s start with very simple examples to clarify the concept. Suppose there is a country, Simpleland, with only ten kinds of jobs. An individual in the population is employable if he can perform one of these ten jobs to the minimum standards. This individual may be employed if he has a slot to work in, and unemployed if he does not. So there are really three levels here, employed, unemployed but employable, and unemployable.

The economy of Simpleland produces benefits which are distributed to the population. The distribution of the population into these three levels makes a great difference in the standard of living. If 90% of the individuals are workers, they produce some total quantity of benefits, T, which are allocated to the population. On the average, everyone gets T/N, where N is the total population. If only 45% of the individuals work, only T/2 is produced, and everyone gets T/2N, half the amount of the previous example. Between these two examples, there are two possibilities. One is that in the second, 55% of the population in unemployable. Then T/2N is all that the average will ever rise to. If in the second, 45% is unemployed but employable, the average could rise to T/N if additional production facilities were saved for and built.

Productivity is not a savior in this case. If productivity, p, rises, we can consider what happens. Then in the first case, the average benefit is pT/N, and in the second pT/2N. No relative change between the two cases happens. There is no way in which Simpleland 2 can ever catch up with Simpleland 1 as long as there remains a large fraction of unemployables.

The socio-economic system is likewise unable to change the average received. All it can do is change the allocation of the total amounts of benefits. If the employed receive R times as much as the unemployed, then the employed in either country would receive RpT/N(R – u(R-1)), and the unemployed, pT/N(R – u(R-1)), where u represents the fraction of unemployed.

Allocation systems can compensate for a lack of human capital in the sense that they can raise the living standards of one group at the expense of another. For example, if Simpleland 1 has a socio-economic system strongly supporting consumerism, and it had R = 1, but Simpleland 2 has a socioeconomic system strongly supporting production, and it had R = 11, the employed in Simpleland 2 would have just as high a level of benefits as the employed in Simpleland 1. Of course, the unemployed in Simpleland 1 live at the same standard as the employed, but in Simpleland 2, they are in relative penury.

For amusement, one might make other comparisons between Simpleland 1 and Simpleland 2 when they have different productivities and allocation fractions, but that solely would serve to obscure the point. Nothing replaces human capital. Any nation with significantly less human capital is going to have an average level of benefits significantly less.

Investment might change productivity, p, or reduce the number of employable but unemployed. A different socio-economic system might change the allocation fraction, R. But if the number of unemployables is large, these changes do not overcome this difficulty at all. There is no way that a country like Simpleland 2 can ever match the average standard of living of Simpleland 1, provided that information and investment flows allow both of them to reach their maximum values. The implications of this are that human capital is the dominant variable, more important than productivity or allocation fraction, in determining how well the population lives. Socio-economic systems, such as Just Deserts, just move around benefits, affecting principally allocation.

This is a static picture. Any change in the percentage that is unemployable will be reflected in the average benefits received, and if it goes up, then things will get worse, on the average. If the percentage goes down, things will get better, assuming everything else stays the same. Birth and death statistics change that number. If there is an age difference between the employable and unemployable fractions, time alone will change it, assuming the categorization of an individual is immutable. If, for example, the employables are older, their retirement and death will increase unemployability. If birthrates are higher among unemployables, and there is a good correlation between employability of parents and children, unemployability will likewise increase. If employables migrate out, this will also increase unemployability, as will the immigration of unemployables.

Another dynamic is the movement of individuals between the two sides of the employability category. If employables become unemployables, obviously the fraction of the population that is unemployable will go up. This particular change can come from disability, or some emotional change which takes away an employable’s will to work. Perhaps periods of unemployment can do that. The reverse motion, from unemployables to employables, might come from training, rehabilitation, or having enough time to overcome emotional changes that negatively impact will to work. This dynamic fuzzes the distinction between the unemployed but employable and the unemployable. Perhaps the unemployable category might be further divided into temporarily unemployable and permanently unemployable. The worst situation a country can find itself in is if the permanently unemployable fraction is large and rising. Living standards must go down from this effect.

Having non-productive work for the unemployed does not change the average living standard at all, and reduces it to the extent that non-productive work has costs involved, which must be subtracted from the total production of the economy. Let us leave the binary world behind, and suppose that work can range from maximally productive to totally non-productive. If the benefits for the productive end of the scale do not motivate individuals to try to move to those jobs, then the same phenomena happens. This finally is a point at which socio-economic systems have an effect. What is necessary in a benefit ratio for an individual worker to strive to become very productive? What else is necessary in order for workers to want to do this?

It would appear that a socio-economic system could encourage or discourage individuals to become highly productive, but there may be other factors, psychological and cultural factors, which predominate. Just Deserts is being designed with the idea that huge differences in rewards are not necessary, and a more balanced reward system will work as well or almost as well. But without understanding the psychology of the worker, we might not understand if rewards can be diminished, or if rewards are not the most important variable in setting worker determination and motivation.

For most of history, the majority of workers were in the agricultural sector. There also was little by way of stored inventory of foodstuffs, so motivation was by fear of starvation. Much of the world was also in the grip of a landed oligarchy, so fear of bosses was present. In more recent times, employment has shifted into industry, and mankind’s instincts for altruism and sympathy have become more expressed, so the fear of starvation and of bosses has declined relative to earlier eras. Desire for consumer goods has replaced fear as a principal motivator. This may not be a permanent feature of a modern economy. Recall that consumer goods have only exploded in volume and complexity over the last century, and the interest in them may well die back to a lower level. Altruism can cause individuals to seek more productive employment, if the rewards are sufficient. The Soviet Union and other communist countries, when there were few consumer good rewards for highly productive workers, used media propaganda to encourage altruism. This worked to some extent, but like consumerism, it seemed to have lost much of its strength as a motivating factor. What is left for a Just Deserts economic system to use to cause motivation among workers?

Another related issue is that if the economy has many non-productive jobs, for whatever reason, and there is a spectrum of benefits available from them, for someone who is motivated to seek personal benefits or benefits which are altruistically distributed to closely related individuals, seeking a highly remunerated but non-productive employment position may be just as attractive or more attractive than a potentially highly remunerated productive employment position. Any economy needs such positions in some numbers, but a Just Deserts system must be designed to reduce the attractiveness of such positions in accordance with improving production. Yet such jobs may actually fulfil extremely important functions within the economy. Perhaps a maximum term for someone in this type of position would serve to reduce the attraction away from productive employment. In some military forces, there is a mandatory employment rotation system which limits how long an individual can stay in one type of position before moving on to something else. This may provide some insight into how to maintain a highly motivated and employable population, concentrating on productive work.