“Contra doctrinaire libertarians, freedom is a high-dimensional design space.”
~ Vitalik Buterin, Ethereum Co-Founder
A distinctive feature of left-libertarianism is its commitment to liberty and egalitarianism – not as moderating influences on each other, but as complementary and mutually reinforcing components of their philosophy. In this sense, they continue a view on markets that goes back to Adam Smith, according to which a free market economy leads to not only radical freedom, but radical equality as well. “The rich,” he wrote in Theory of Moral Sentiments, “are led by an invisible hand to make nearly the same distribution of the necessities of life, which would have been made, had the earth been divided into equal portions among all its inhabitants.”
Today, however, the political spectrum has changed and most people would see these two ideals as in irreconcilable conflict. The capitalist economy of modern times – usually erroneously conflated with a free market – is taken as evidence that a society based purely on markets can only produce a growing division between rich and poor. Right-libertarians celebrate this inequality as the natural outcome of a free society; state socialists and progressives, on the other hand, consider this as a reason to place government restrictions on the market, sacrificing freedom to achieve a more just allocation of resources.
In both cases, the result is an increased centralization of power. On the one hand, our markets are clogged with monopolies, which prevent any meaningful competition and result in a few entities having control over large facets of our lives (the most striking example in recent memory being Facebook, and its ownership of very sensitive data about its customers). On the other hand, the state is itself an effective monopoly, and is able to stamp out any market forces that might force it to decentralize.
Enter Eric Posner and Glen Weyl, with their new book Radical Markets: Uprooting Capitalism and Democracy for a Just Society. This book has a simple thesis: using mechanism design and incentive engineering, we can redesign markets to enable maximum freedom and equality at the same time, by making markets more free, open, and competitive. Their solution is different from that of most egalitarian reformers: instead of restricting markets, the best way to promote equality is to expand them. Those who have recently been involved in P2P systems may recognize this idea, because mechanism design is also used in cryptocurrencies to increase robustness to attackers. Indeed, blockchain technology may even nicely complement the proposals in Radical Markets.
The book has five chapters, each one discussing a particular proposal for changing how markets work. Each chapter discusses how the proposal works, why the proposal would improve the functioning of markets, how the proposal might work in practice, and how the proposal could be implemented incrementally instead of all at once. The proposals are, in order:
- A common ownership self-assessed tax, or COST
- Quadratic voting
- Visas between individuals program, or VIP
- “Dismembering the octopus”
- Data marketplaces
Inspired by Georgist ideas, the COST attempts to strike a balance between common ownership and private ownership. While private ownership incentivizes owners to improve their property to make the most of it, property owners can hold out selling their property in search of a better deal. This makes it less likely that the property is allocated to the person who could make the best use of it. Common ownership could be used to improve allocation but provides little incentive for investment or improvement. To strike a balance between these, a kind of property tax is proposed. Each individual would pay a tax proportional to the total value of their property, but this value is self-assessed. While one could pay lower taxes by underreporting the value of their property, if anyone offers to buy a piece of the owner’s property at the reported value, the owner must agree to sell it. This balance between paying lower taxes and not wanting to sell property prematurely incentivizes property owners to accurately report their value of their property, and thus manages to achieve both allocation and investment incentives.
While private goods are usually provided through the market, most economists argue that public goods must be provided through the government. Democratic government, however, has many undesirable properties, such as the tyranny of the majority and the lack of market mechanisms to prevent power from being concentrated. Quadratic voting would allow democracy to function more like a market and alleviate both these concerns. Every year, all citizens would be allocated a certain number of “credits” which could be redeemed for votes in an election. A citizen could spend all their votes each year or save them for a later election. This allows for minority interests to cast more votes on issues that affect them strongly, preventing a majority decision from infringing on their rights. To incentivize people to cast votes in proportion to how much an issue affects them, the credits have diminishing returns: one credit might buy one vote, but four credits would only buy two votes and it would require 900 credits to buy 30 votes. This proposal would create a market in public goods, which is as effective at providing these goods as ordinary markets are at providing private goods. While other radical liberals have attempted to bridge the gap between democracy and markets in terms of concepts such as “openness,” Posner and Weyl attempt to provide a specific system in which democracy is effectively a different kind of market.
To alleviate restrictions on immigration, the VIP would allow anyone to sponsor an immigrant, rather than just certain employers under certain conditions. The visas themselves would be auctioned, and sponsors are held liable for anything done by the migrants they’re sponsoring. This is done to incentivize sponsors to “screen out” migrants they do not trust. In chapter 4, the book goes on to suggest an antitrust policy that would forbid institutional investors from investing in multiple companies within the same industry, thus decreasing monopoly power and increasing competition.
Finally, Radical Markets takes on the problem of Facebook and Google. Although such companies provide valuable services by training their AI programs on user data, this comes at the cost of handing over ownership of sensitive information about us to these companies. Most people are thus stuck having to trust these companies with their data, and – as recent scandals have illustrated – the consequences haven’t been pretty. While some have suggested nationalizing Google, Facebook, or Amazon to make them more accountable, the NSA doesn’t seem any more qualified to handle our data than these monopolies. To solve this problem, Radical Markets suggests that users of these services demand to be paid for their data, so that the consumers are ultimately still in control.
Ultimately, I think the single biggest contribution of this book is not any particular proposal, but the attitude of redesigning our markets to be more free, open, and egalitarian. I love markets, economics, and mechanism design, and the book provides a fresh new synthesis of these topics. I also believe these proposals only scratch the surface of what can be done, especially when combined with modern P2P technology. The authors themselves write, “Even if some of these proposals ultimately prove unworkable in testing, we hope that the Radical spirit behind our ideas will take broader root.”
This new sort of radical spirit is made possible by an underutilized tool called mechanism design. Mechanism design – in essence, designing economic games to incentivize a particular outcome – is a well-studied topic among game theorists. Scholars in this field have come up with many reforms, touching on many areas of policy and economics, that could vastly improve society. Yet, even radical social reformers and revolutionaries seem relatively uninterested in these ideas. As such, ideas from the field of mechanism design get ignored. I believe, much like any doctor who ignored the germ theory of disease, they ignore this field to their peril.
Aside from this theme, the COST and quadratic voting are the main proposals of this book, and in my opinion they are also the strongest. In brief, they would change property rights to allow markets to more effectively provide private goods, and create an effective market for public goods. These goals accord with the views of some left-libertarians. For example, mutualists and Georgists have long argued that free markets would involve a change in property rights involving a partial form of common ownership; likewise, many have speculated on the possibilities of providing government services through markets. Radical Markets’ proposals could illustrate how these ideas might work in practice.
Data marketplaces is also an interesting concept. Although the book advocates that consumers unionize to demand that Facebook and Google give us our data back, there is a different approach that gives it back by technological force instead. In 1997, cypherpunk Nick Szabo wrote of a hypothetical “God protocol,” a P2P network with some interesting capabilities. These capabilities allow such a P2P network to be used in place of any centralized server. In particular, the God protocol can perform computations on data just like a centralized server farm can, but it does not expose the data even to Facebook.
Thus, a data marketplace can be implemented as follows: upload your personal data to the network, and allow any aspiring AI trainer to request that their machine learning algorithm be run on that data. The network will run the algorithm, and both you and the trainer have guarantees: the trainer is guaranteed that the result of the training will be correct, and you are guaranteed that the trainer never sees your data. It would also be possible to require the trainer to pay you in cryptocurrency for each computational step, or to block certain accounts from using your data at all. Indeed, a project called Enigma is implementing a God protocol, and they plan to use it to create a data marketplace.
Whether or not this is a practical solution to technological unemployment, as the book argues, is less clear. As other reviewers have already noted, platforms such as Google and Facebook currently make roughly $20-$80 per year by selling each user’s ads. Although data will become more valuable as a) users upload more of it and b) machine learning advances to be able to extract more information from data, it seems unlikely that this will ever grow into a livable income. I hope I’m wrong, though, because it would be great to be able to incentivize people to put data about themselves to good use while simultaneously protecting their privacy.
While the VIP system for immigration would at least be an improvement over the present system, where immigrants can only be sponsored under specific conditions, it would still be much worse than an open borders system. Open borders is simple to implement, more compatible with freedom of migration, and could alleviate global poverty by a staggering amount without making native citizens poorer. VIP also ignores the fact that immigrants can migrate for reasons other than work, such as fleeing an oppressive government. It also seems unnecessary from the perspective that people are allowed to migrate between regions of the same country with no problem; if foreigners are morally equal to native citizens, there seems to be no reason to make the distinction. Dismembering the octopus is an interesting applications of antitrust laws, but it seems less likely that institutional investors would exist in a freed market economy – particularly one that implemented the COST.
Radical Markets and Cryptocurrency
Radical Markets is written under the assumption that these proposals would be implemented as political reforms by a state. In essence, this is the political and economic equivalent of the trusted third party model, and comes with all the downsides – including a susceptibility to corruption. Even though they decrease centralization overall, they still require a centralized state to get off the ground.
There is, however, one area where the ideas in the book intersect with radical decentralization: the blockchain space. Cryptocurrencies actually achieve their security properties by paying miners for doing their job; they thus use economic incentives to create a game-theoretic solution to the traditional problem of achieving consensus in a P2P network. In the context of P2P systems, this concept is called cryptoeconomics rather than mechanism design, but the idea is the same: start with an outcome you want, and you can design a set of incentives to ensure that outcome.
Therefore, there is a great deal of overlap between the two sets of ideas. Not only have members of the cryptocurrency space penned reviews of Radical Markets, but Ethereum creator Vitalik Buterin has actually issued a joint statement with Weyl on how the ideas complement each other. Cryptocurrency shows how to use mechanism design in a decentralized rather than a centralized context, while Weyl and Posner show how to use mechanism design to radically transform how markets work. Some possible areas for collaboration include running radical markets on top of smart contracts, fixing the governance problem for cryptocurrencies, or allowing access to financial planning.
Two Final Words
I conclude with two thoughts. First, it’s important to notice that, despite our attempts to redesign how markets work, market mechanisms in an anarchist society wouldn’t be imposed from the top down in practice. Instead, they would emerge from social interactions. Thus, some care must be taken in talking about mechanism design in such a context, and some thought must be given to actually convincing people to adopt the new system. Still, if these systems truly work as intended, there may be a significant incentive to switch to the new system. Radicals could attempt to implement these alternatives, and show the improvements to their communities.
The second thought involves a common criticism of Posner and Weyl: the cognitive load radical markets would impose on each individual. For example, the COST would require that individuals declare their personal value of everything they own, and QV would require individuals to think about their marginal utility of each public good. Posner and Weyl have two responses to this criticism. In the book itself, they suggest using personal AIs to make these decisions. While data marketplaces could make this idea more practical by making data more abundant for AIs to train on, it’s unclear exactly how workable this is. Posner also responded to this criticism by noting that, far from increasing cognitive load, markets actually reduce the amount of cognitive load per person. For example, the COST would not significantly increase cognitive load for the property owner, because they already have to evaluate their value of the property when they buy and sell it. It does, however, significantly decrease cognitive load for buyers by eliminating the need for bargaining. Likewise, QV allows individuals to only focus on matters that affect them the most. This response follows the arguments of Mises and Hayek that markets are an effective tool for aggregating distributed information; as such, it makes sense that expanding the scope of markets would reduce cognitive load.
Overall, this book has renewed my confidence that mechanism design is a powerful tool for social change. Combined with the decentralizing potential of cryptocurrencies, market radicalism could forever change the landscape of political economy. No longer is it necessary to strike a balance between freedom and equality; by fully unleashing the potential of markets, both can be maximized simultaneously. I would highly recommend reading this book; even if you don’t like the proposals, it will give you a taste of the potential of mechanism design for radical social change.