Markets and Rights

After describing a framework for understanding rights, it's natural to ask how those rights interact with existing ideas about markets. The framework interacts very cleanly with markets, and in fact solves many of the possible problems economists have identified in markets. It isn't however immediately obvious why, and that's what this chapter will focus on.

First, let's get a clearer understanding of what a market really is.

What are markets?

Markets are neither natural nor artificial. In any system where individual actors attempt to maximize their own Welfare, they will sometimes coordinate with each other to gain mutually beneficial outcomes. That's all a market is! A market is merely the aggregated coordinations and exchanges of self-interested actors.

It's common for free market absolutists to claim markets are structurally defined by freedom, competition, and voluntary exchange. But those properties aren't in any way guaranteed by markets, they're only guaranteed by rights. Groups of actors who specifically coordinate to define boundaries of ownership and disallow certain actions are what bring about those properties. Markets aren't what prevents others from enslaving or stealing from you, but a governance system with a framework of rights. Competition isn't guaranteed by markets, but by governance systems preventing actors from forcibly controlling important resources without some kind of accountability to the public.

The value gained in markets doesn't come from the market exactly, it comes from coordination with other Beings. Even for purely self-interested actors, coordination with other actors is very often the most rational choice. Our framework of rights rests upon the Original Position property, and so is intentionally constructed to be the most rational choice for any arbitrary actor when joining any arbitrary group. For this reason we could say it defines the structure of the most efficient market possible. Even all the systems of Persistent Democracy are intended to create more perfect democratic markets, ones in which all participants have an equal level of wealth. This layer of the Coordination Plan is necessary to properly defend rights and ensure true Welfare efficiency.

How do rights make markets more efficient?

The fundamental theorems of welfare economics prove that a market will always converge toward an efficient outcome, one in which no more Strict Improvements exist and only Mixed Changes could possibly improve anyone's Welfare, when three conditions are met:

  • There are no externalities, or costs effecting parties who did not agree to them. We've obviously handled this case by classifying such costs as Mixed Changes and somehow requiring actors to gain consent from all effected owners. However we only specified two ways to do so, with a vote or requiring a substitution, and soon we'll see there are others.
  • No actor has market power, or the ability to artificially raise prices by somehow controlling some resource important to the market. This is handled by universal common ownership and the proper non-excludability of Property rights, but we'll discuss that more in future chapters.
  • All actors have perfect information, or correct knowledge of all costs and prices in the market, including their own. Although this property isn't possible to completely achieve in an uncertain universe, it does imply actors have access to all material information enough to make reasonable predictions, which we've handled by disallowing fraud to require informed consent.

With our system of rights we have hopefully achieved a society where markets will be as efficient as is possible in an uncertain universe. All Ownerships of Universe are essentially property rights, especially the Property row of ownerships. This means all interactions requiring consent only related to these private Property ownerships are simply private market transactions of the type economists have studied for years.

However we can still make some important clarifications, especially when understanding how public and private ownerships interact. Externalities are frustratingly common, and we would like more precise systems to handle them than simply always requiring a vote or disallowing them entirely.

Why are some externalities tricky to handle?

Some externalities are easy to understand. If I'm demolishing a building and carelessly allow rubble or explosions to damage surrounding property whose owners didn't agree to have their property damaged, I've obviously produced an externality according to the traditional definition. However this isn't a very interesting case to consider, since the infringement is very obvious and immediate. We can fairly easily determine who was harmed and by how much.

I instead want to narrow our definition to trickier cases, ones I'll call wicked externalities. If it's intractable to determine who exactly committed an infringement, exactly by how much, or upon exactly who, then that infringement is a wicked externality.

These pop up most obviously in situations where private action gradually effects public ownerships. Public ownerships are necessarily owned by everyone, so everyone is infringed upon the same amount, but that infringement might imply different costs for different people. And since the infringement is gradual, it's possible for a large amount of harm to be caused without anyone ever being able to notice exactly who is causing it. It might even be true that many different people only cause a tiny amount of harm, but the aggregate harm is immense.

The clearest example is with pollution. During the mid 20th century, air lead concentrations were much higher than after lead was removed from gasoline. It is hypothesized that polluted air caused lead poisoning in many children, resulting in significantly increased crime in the decades before the 1990s. This is an obvious situation where the Ownerships of Body of many innocent people were dramatically infringed, but only indirectly by first infringing on the public ownership of our shared air.

When Actions only relate to private ownerships, we only need one simple rule: the owner of the private ownership must give informed consent. The creation of private ownerships was an efficient way to delegate democratic control to an individual.

However we're still stuck requiring votes for any Action relating to a public ownership. Obviously this has poor coordination efficiency, and we'd like to similarly create some way to delegate democratic control for public ownerships.

  • The creation of public agencies or institutions and selection of public officials to control them is an obvious way to delegate ownership within that agency's jurisdiction.
  • Regulations that classify Actions within public ownerships can also be efficient. The case of air lead poisoning was solved this way, by disallowing leaded gasoline through a long indirect path of voting. The only problem was the voting path wasn't as fair and efficient as we would prefer.
  • Taxes allow actors to still perform an Action, but simply require them to compensate society for the infringement the Action causes. This is effectively a voluntary exchange between some individuals and the public.

But how do we know what ownerships are public ones?

Public Goods and Excludability.

An excludable good is one that can be controlled by an owner, such that they can restrict access to it. A fully excludable good is one that can be completely controlled, and a non-excludable good is one that can't possibly be controlled. This idea is often paired with rivalrousness to classify different kinds of goods. I'm not as interested in rivalrousness here, and will just focus on excludability.

Excludability usually draws the line between private goods (food, clothing, cars, club memberships) and public goods (rivers, forests, air, rights protection). Usually it is assumed that private goods are fully excludable since access to them can be controlled, and public goods are fully non-excludable since it is impossible to control them. Because these goods aren't excludable, is has been assumed they will be consumed by "free-riders" who harm or reduce the capacity of the good without compensating others for their consumption, all eventually leading to a tragedy of the commons.

But I don't think the concept of excludability really gets to the heart of the matter. It seems to me a more useful spectrum would be cost to exclude. It isn't impossible to exclude access to a river or a forest or the air, it's merely very expensive and difficult. Controlling a river or the air would necessarily require controlling all the land and space related to them, enough to deny entry to anyone you didn't approve. It just so happens we've already created a structure to control land and space in order to use them to support ownerships of Body and Universe: a government empowered by our framework of rights!

This is why public goods are called public, they can only tractably be controlled and provided by a governance institution empowered to use force to exclude access to land and space. The very type of structure we created to support our rights is therefore necessarily uniquely empowered to provide these kinds of goods. Since control of land and space is necessary to support all rights, then protection of land and space by placing them under public ownership is also necessary. This allows us to exclude free-riders and protect these essential resources. It won't always be easy or cheap to do so, but it will be justified by our rights framework. Of course we must ensure these ownerships are managed in a way that is fair, efficient, and democratic, which is the intention of Persistent Democracy.

Even private ownership of land or space is merely a delegation of control from the public to private actors, under the assumption the private actor will create more Welfare through their ownership of that land or space than the public could. How to do this delegation in a fair and democratic way will be discussed in a future chapter, but it should be obvious that all the remaining "connective tissue" between private ownerships must necessarily be public ownerships. Roads, the air, shared utilities, even the intellectual commons, all form a valuable "network" that connects all private ownerships. This network massively increases the value of all those private ownerships in a way only a governance structure uniquely can.

Rights-Based Taxation

This finally brings us to taxation. Taxation has a long and complicated history, and originated as essentially a form of slavery imposed by monarchs.

Our modern tax systems are certainly better than that, but they leave much to be desired.

  • They're extremely complex and onerous, both to comply with and to administer.
  • They're frustratingly arbitrary, and clearly not principally rooted in a unified framework. They incorrectly incentivize many different activities, and often give social authoritarians a cultural cudgel to unfairly punish other groups.
  • They're extremely easy to circumvent. Large corporations and the wealthy are particularly able to find loopholes and dodge their tax burdens, causing that weight to fall unduly on working people.

It would be nice if we could sustain our societies without needing taxes, but we absolutely must have some principled way to avoid the free-rider problem if we intend to actually defend our rights. Some societies paid their taxes in labor rather than currency, but that seems unlikely to scale to a large specialized modern society, and doesn't seem justified from a rights perspective.

We've already suggested a very clean solution to this problem. To effectively defend rights, we must control negative externalities. Taxation can be used to allow actions relating to public ownerships while still requiring compensation for any infringement. Since our rights frameworks prevents us from controlling any action that doesn't interfere with others, it makes sense to only allow taxation on actions infringing on public ownerships, and require them in situations where interference is intrinsic to the action.

Exactly how large taxes are can remain a purely democratic question. An electorate can assess how serious the "surface area" of the infringement is, or how prevalent and negative it is, and set exact rates that way. I'll leave this as an open question for now.

Also as a side consideration, it is in our best interest to favor taxes which are difficult to circumvent or falsify.

So with this new framework, we can make a few realizations:

  • Income taxes are very difficult to justify. Income isn't inherently socially negative, since it doesn't necessarily interfere with anyone in any way. Income taxes are also very easy to circumvent, since what fairly defines "income" is endlessly manipulable.
  • However, wealth taxes are much more justifiable. I make the claim that a large amount of wealth concentrated in a few hands gives those hands dangerous undue market power to bribe officials, flood society with propaganda, exert overwhelming influence over individuals, commit and conceal crimes, etc. Concentrated wealth is a constant risk to the integrity of all markets, both democratic and private. The power gained by extreme wealth creates social risk, and is intrinsically a negative externality. Wealth taxes are also less circumventable than income taxes, since in order to gain the benefit of public protection of property one must legally declare ownership of that property. I don't doubt many a conniving billionaire will find tricky ways to conceal their wealth, but it seems more difficult than concealing or manipulating income.
  • Various kinds of sales/transaction/value-added taxes are justifiable. Since we rely on our justice system and civil regulations to make commerce of all kinds fair and safe, all additional commerce creates increased administrative cost for society. It makes sense to tax general commerce to fund that public action.
  • Various payroll taxes are difficult to justify, since they're merely a subset of general commerce that doesn't present a distinct kind of public obligation.
  • Trade tariffs are difficult to justify, since again trade is merely a subset of general commerce. However it might make sense to allow tariffs on goods coming from countries with poor human rights protections, since goods produced by people without full human rights are necessarily incorrectly priced. This would incentivize ethical production and consumption.
  • Taxes on dangerous or toxic materials or activities are easy to justify. Smoking, carbon emission, general pollution, etc all easily qualify.
  • Taxes on ownership of finite common goods such as land or radio spectrum necessarily qualify, since holding these kinds of goods intrinsically disallows potential ownership by all other members of society.

I propose a unified taxation system with only these varieties:

  • A very low tax on general commerce, such as a transaction tax or some value-added tax.
  • A progressive wealth tax defined by a continuous monotonic function, meant to prevent dangerous accumulation of power. I intend to explore further details and arguments for such a tax at some point in the future.
  • Taxes on ownership of finite common goods, implemented with a Common Resource tax I'll describe in a future chapter.
  • Taxes on negative externality producing activities such as smoking, carbon emission, pollution, etc.

This framework allows us to unify and simplify our tax systems.

  • The tax code can tractably be controlled democratically.
  • A smaller list of taxes can more easily be administered, defined, evolved, and enforced.
  • By constraining taxes to negative externality activities, we rest all taxation on an ethically sound foundation, and prevent abuse or cultural manipulation.

Table of Contents

In Defense of Pure Logic
Persistent Voting
Quadratic Range Voting
Persistent Documents
Persistent Prioritization
Persistent Endorsement
Persistent Commitments
Persistent Funding
A Theory of Minimum Necessary Rights
Markets and Rights
Common Resource Taxes
The Crowdsell Mechanism and Intellectual Property
Democratic Districts
Free Borders
Persistent Logistics
Democratic Adjudication
Misinformation Trials
Member Cooperatives and Economic Activism
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