This fallacy comes from when you inappropriately ignore how the actions of an individual can affect a group when the effect is subtle.
Imagine you have a class of students who are all of equal ability. Half of those students will be above average1. Given that you can take any one of these below average students and give them extra help or motivation and they can become above average, the fallacy is that if you give each of the children who are below average extra help, you will end up with the mathematically impossible situation of having all the children above average2.
This has an application in economics where people have the belief that the general public can increase their supply of spending money by simply saving more than they spend. That belief is based on ignoring the inevitable effects that saving has on the money available to earn. As such, people can no more create prosperity in the economy through saving than students can all become above average. It is easier conceptualized if you consider small isolated groups, but there is no limit to the size of an economy where the effect holds true.
1
Arithmetic median given a perfect test of their knowledge of ability.
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2
This is where the name comes from. Garrison Keillor often tells tales from his hometown of Lake Wobegon where "all the women are strong, all the men are good-looking, and all the children are above average."
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Tax Owners, not Workers (v2)
The world's economies have a problem: the rich are getting richer faster than our economies are growing. If left unchecked, this trend is set to accelerate, as technology’s ability to automate jobs out of existence expands and the rich who will own the resulting automation stand to reap even more returns leaving less for the rest of us. The tools that we use to keep our economies strong are failing, and it's hard to be hopeful for the prospects of future generations. This is all happening during a time when humanity is more productive and capable than it has ever been in the past. This is not a coincidence. Our economies have a flaw. They don't deal well with things that earn money for their owners, and the rate at which we are creating those things is accelerating.
If we want to bring prosperity back to our middle class, we need a new tool, and the tool I think does the job best is what I call the Economic Participation Property Tax. This would be a tax paid by any property that is allowed to interact with, and extract value from an economy. Taxed items would include any patents, copyrighted content, or automation equipment, regardless of the location of it or it's owner. The tax could be entirely optional, but if you don't pay, you can't sell in our economy.
This change would require assessing the value of everything to be taxed, and pro-rating that based on where it earns money from, which would be a lot of work, but less work than assessing and tax nearly every home in world, and we already do that. We can do this, and as we begin to enter the era of full automation where customers consume products without any human labor required, I feel like the question isn't if we will implement this, but how bad will we let things get before we do.
If we want to bring prosperity back to our middle class, we need a new tool, and the tool I think does the job best is what I call the Economic Participation Property Tax. This would be a tax paid by any property that is allowed to interact with, and extract value from an economy. Taxed items would include any patents, copyrighted content, or automation equipment, regardless of the location of it or it's owner. The tax could be entirely optional, but if you don't pay, you can't sell in our economy.
This tax would remove part of the profit that these types of things make for their owners. How much to recapture would be a balancing act. Remove too much profit, and businesses won't have any motivation expand or to serve your market. Remove too little, and your country suffers. Taxing foreign institutions would likely be controversial and may require altering trade deals, but this tax would require it and as each country has the power to remove an asset's ability to make money from it's economy, the tax is naturally enforceable.
By shifting taxes towards a geographically neutral tax, you remove the motivation for companies to move production to dodge taxes allowing them to instead focus on locating wherever the workforce is most appropriate. By shifting the tax burden away from income and workers, you remove a huge obstacle to specialization, and enrich your population driving up efficiency, purchasing power, and demand. Additionally, by not taxing assets used for creating exports, you encourage international manufacturing to locate in your country.
The dynamics of this type of a tax are clearly different from any of the mechanisms we currently use to rebalance our economies, and these tools would be invaluable in solving some of the world's most stubborn economic problems (Greece, India, China.) It should even allow third world countries to who adopt it to bring middle class wealth and persistent rapid economic growth spreading stability and prosperity to places where, even with all the advancement modern economies can bring, they have failed to thrive due to extractive foreign trade. It would dramatically change many markets, encouraging competition in places where it otherwise wouldn't exist by driving up costs for incumbent businesses. Eventually, as automation levels rise to allow it, it would also make for an appropriate mechanism for funding a basic income system. The more in-demand an automated system is, the more value it has, the more tax revenue it generates and the more money can flow back to the people. Everyone wins.
The cost of this change would be large, and mostly borne by investors. This is inevitable, as much of the value of investments exists because of their ability to extract money from the rest of us based on ownership. The alternative is continually languishing economies which aren't particularly friendly to investors either, so while losses will be initially large, and investors cut of prosperity will remain permanently smaller, they will be getting a smaller cut of a larger healthier, less risky pie.
By shifting taxes towards a geographically neutral tax, you remove the motivation for companies to move production to dodge taxes allowing them to instead focus on locating wherever the workforce is most appropriate. By shifting the tax burden away from income and workers, you remove a huge obstacle to specialization, and enrich your population driving up efficiency, purchasing power, and demand. Additionally, by not taxing assets used for creating exports, you encourage international manufacturing to locate in your country.
The dynamics of this type of a tax are clearly different from any of the mechanisms we currently use to rebalance our economies, and these tools would be invaluable in solving some of the world's most stubborn economic problems (Greece, India, China.) It should even allow third world countries to who adopt it to bring middle class wealth and persistent rapid economic growth spreading stability and prosperity to places where, even with all the advancement modern economies can bring, they have failed to thrive due to extractive foreign trade. It would dramatically change many markets, encouraging competition in places where it otherwise wouldn't exist by driving up costs for incumbent businesses. Eventually, as automation levels rise to allow it, it would also make for an appropriate mechanism for funding a basic income system. The more in-demand an automated system is, the more value it has, the more tax revenue it generates and the more money can flow back to the people. Everyone wins.
The cost of this change would be large, and mostly borne by investors. This is inevitable, as much of the value of investments exists because of their ability to extract money from the rest of us based on ownership. The alternative is continually languishing economies which aren't particularly friendly to investors either, so while losses will be initially large, and investors cut of prosperity will remain permanently smaller, they will be getting a smaller cut of a larger healthier, less risky pie.
This change would require assessing the value of everything to be taxed, and pro-rating that based on where it earns money from, which would be a lot of work, but less work than assessing and tax nearly every home in world, and we already do that. We can do this, and as we begin to enter the era of full automation where customers consume products without any human labor required, I feel like the question isn't if we will implement this, but how bad will we let things get before we do.
Tax Owners, Not Workers
How to maintain prosperous populations in the age of full automation.
The world's economies have a problem: work is losing value, employment is precarious, and poverty and unemployment is on the rise. This trend is set to accelerate, as technology’s ability to automate jobs out of existence expands. The tools that we use to keep our economies strong are failing, and it's hard to be hopeful for the prospects of future generations. This is all happening during a time when humanity is more productive and capable than it has ever been in the past. This is not a coincidence. Our economies have a flaw. They don't deal well with things that earn money for their owners, and the rate at which we are creating those things is accelerating.
If we want to bring prosperity back to our economies, we need a new tool, and the tool I think does the job best is what I call the Economic Participation Property Tax. This would be a tax paid by any property that is allowed to interact with, and extract value from an economy. Taxed items would include any patents, copyrighted content, or automation equipment, regardless of the location of it or it's owner. The tax could be entirely optional, but if you don't pay, you lose the ability to make money from owning the property from the economy that issued the tax.
This change would require assessing the value of everything to be taxed, and pro-rating that based on where it earns money from, which would be a lot of work, but if we can assess and tax nearly every home in world, we can do this, and as we begin to enter the era of full automation where customers consume products without any human labor required, I feel like the question isn't if we will implement this, but how bad will we let things get before we do.
The world's economies have a problem: work is losing value, employment is precarious, and poverty and unemployment is on the rise. This trend is set to accelerate, as technology’s ability to automate jobs out of existence expands. The tools that we use to keep our economies strong are failing, and it's hard to be hopeful for the prospects of future generations. This is all happening during a time when humanity is more productive and capable than it has ever been in the past. This is not a coincidence. Our economies have a flaw. They don't deal well with things that earn money for their owners, and the rate at which we are creating those things is accelerating.
If we want to bring prosperity back to our economies, we need a new tool, and the tool I think does the job best is what I call the Economic Participation Property Tax. This would be a tax paid by any property that is allowed to interact with, and extract value from an economy. Taxed items would include any patents, copyrighted content, or automation equipment, regardless of the location of it or it's owner. The tax could be entirely optional, but if you don't pay, you lose the ability to make money from owning the property from the economy that issued the tax.
This tax would remove part of the profit that these types of things make for their owners. How much to recapture would be a balancing act. Remove too much profit, and businesses won't have any motivation to serve your market. Remove too little, and your country suffers. Taxing foreign institutions would likely be controversial and may require altering trade deals, but without this, property taxes would be a competitive disadvantage and global competition will continue to force us to choose between driving jobs and business away, or letting our economies be drained by the wealthy. The further we progress technologically, the worse our economies will perform and the harder life will become for those who work for a living.
Instead, we should stop basing taxes on where things are and instead, base them on where they earn their money from. This would remove the motivation for companies to geographically move production to dodge taxes allowing them to instead focus on locating wherever the workforce is most appropriate. Additionally, by shifting the tax burden away from income and workers, you remove a huge obstacle to specialization, and enrich your population driving up efficiency, purchasing power, and demand.
The dynamics of this type of a tax are clearly different from any of the mechanisms we currently use to rebalance our economies, and these tools would be invaluable in solving some of the worlds most stubborn economic problems (Greece, India, China.) It should even allow third world countries to who adopt it to bring modern efficiency and persistent rapid economic growth spreading stability and prosperity to places where, even with all the advancement modern economies can bring, they have failed to thrive due to extractive foreign trade. It would dramatically change many markets, encouraging competition in places where it otherwise wouldn't exist by driving up costs for incumbent businesses. Eventually, as automation levels rise to allow it, it would also make for an appropriate mechanism for funding a basic income system.
The cost of this change would be large, and mostly borne by investors. This is inevitable, as much of the value of investments exists because of their ability to extract money from the rest of us based on ownership. The alternative is continually languishing economies which aren't particularly friendly to investors either, so while losses will be initially large, and investors cut of prosperity will remain permanently smaller, they will be getting a smaller cut of a larger healthier, less risky pie.
Instead, we should stop basing taxes on where things are and instead, base them on where they earn their money from. This would remove the motivation for companies to geographically move production to dodge taxes allowing them to instead focus on locating wherever the workforce is most appropriate. Additionally, by shifting the tax burden away from income and workers, you remove a huge obstacle to specialization, and enrich your population driving up efficiency, purchasing power, and demand.
The dynamics of this type of a tax are clearly different from any of the mechanisms we currently use to rebalance our economies, and these tools would be invaluable in solving some of the worlds most stubborn economic problems (Greece, India, China.) It should even allow third world countries to who adopt it to bring modern efficiency and persistent rapid economic growth spreading stability and prosperity to places where, even with all the advancement modern economies can bring, they have failed to thrive due to extractive foreign trade. It would dramatically change many markets, encouraging competition in places where it otherwise wouldn't exist by driving up costs for incumbent businesses. Eventually, as automation levels rise to allow it, it would also make for an appropriate mechanism for funding a basic income system.
The cost of this change would be large, and mostly borne by investors. This is inevitable, as much of the value of investments exists because of their ability to extract money from the rest of us based on ownership. The alternative is continually languishing economies which aren't particularly friendly to investors either, so while losses will be initially large, and investors cut of prosperity will remain permanently smaller, they will be getting a smaller cut of a larger healthier, less risky pie.
This change would require assessing the value of everything to be taxed, and pro-rating that based on where it earns money from, which would be a lot of work, but if we can assess and tax nearly every home in world, we can do this, and as we begin to enter the era of full automation where customers consume products without any human labor required, I feel like the question isn't if we will implement this, but how bad will we let things get before we do.
The Alien Android, an economic thought experiment (short version)
The premise:
An alien shows up on earth, bringing with him an android. The android is, capable of creating reproductions of itself from cheap, widely available raw materials. It requires no external power for it's entire long lifespan and is loyal only to the alien. The androids can disguise themselves as human, and are universally capable of doing our jobs as good or better than we are. The technology, being completely foreign to us is not within our power to take control of. The alien is not hostile, but has the goal of accumulating as much wealth as he can.
A start:
The alien sets up manufacturing somewhere, (it could be anywhere, a city, an island, even in space), and starts creating androids. Since each android can produce others, the manufacturing speed can ramp up exponentially making the speed essentially unlimited and the external cost zero. He sets up a corporation and starts leasing the androids worldwide. He will not sell them under any circumstances, but only lease. Prices for an android are periodically set to roughly 75% of the cost of hiring a human for the equivalent job. You need truck drivers? Hire the androids and save a bundle. You want a manager android to manage truck drivers, save even more. Every job, every employee that is not legally required to be human is capable of being replaced at a significant discount.
The impact:
As the androids enter the workforce, they will drive down the price of labor. People will be forced to work for less or lose their jobs. Since there is no lower bound to how much the androids can work for, eventually it will completely destroy the job market and reduce the value of labor to nothing. Without the ability to earn money, customers will run out of money. Ultimately without customers that can afford to purchase products all companies would become valueless and all the worlds economies would collapse.
The challenge:
What rules would need to change to allow the androids to participate in our economies without destroying them?
As our technology advances, things that behave increasingly like the alien's android will be participating in our economies. How do we keep them healthy in the face of this?
The Alien Android, an economic thought experiment
The Premise:
An advanced alien shows up on earth, bringing with him an android. The android is a marvel of technology, capable of creating reproductions of itself from cheap, widely available raw materials. It requires no external power for it's entire long lifespan and is loyal only to the alien. The androids have the capability of reproducing human behavior so accurately as to be hard to for people to notice they aren't human, and are universally capable of doing our jobs as good or better than we are. The technology, being completely foreign to us is not within our power to take control of. The alien is not hostile, but has the goal of accumulating as much wealth as he can.
A start:
The alien sets up manufacturing somewhere, (it could be anywhere, a city, an island, even in space), and starts creating androids. Since each android can produce others, the manufacturing speed can ramp up exponentially making the speed essentially unlimited.
He sets up a corporation and starts leasing the androids worldwide. He will not sell them under any circumstances, but only lease. He sets his prices for an android at roughly 75% of the cost of hiring a human for the equivalent job. You need truck drivers? Hire the androids and save a bundle. You want a manager android to manage truck drivers, save even more. Every job, every employee that is not legally required to be human is capable of being replaced at a significant discount.
The expansion:
The androids are touted as the end to toil and the dawning of a new age of prosperity and comfort with the potential to make everyone's lives easier and better. At first, they are employed doing work that is hazardous to humans, or require their exceptional abilities, but they slowly expand into other rolls.
The cost of the lease is adjusted periodically to remain at 75% of the cost of human labor.
The dynamics of the system aren't immediately apparent to economists because they don't know that the cost of manufacture has no lower bound, and thus the corporation is capable of perpetually undercutting the cost of human labor. Because of this, few people see the potential economic harm, and corporations and economists alike embrace the androids as wildly beneficial.
Large employers start universally jumping at the chance to hire a cheaper workforce. Demand is enormous, and the supply is expanded to meet it.
If the economy could continue to remain healthy and strong under these conditions, the alien's corporation would be able to pocket essentially an infinite amount of money, perpetually taking all the jobs from everyone. But there isn't an infinite amount of money. Income tax revenues plummet as employees are replaced. By having to compete with the androids for work, downward wage pressure is unlimited. The economy starts rapidly heading towards universal unemployment and the worst recession ever seen begins.
The end:
Incomes shrink. Employment shrinks. With impoverished customers, profits shrink, except the aliens. The alien's corporation simply keeps on pocketing every bit of money it makes, storing it in all the worlds banks, and buying up treasury bonds in all the worlds governments. Soon, most of the world's money is the alien's money, and most of the worlds debt is his debt.
The pattern can't continue indefinitely. With no expenses, there is no way to get the money the alien's corporation has earned back out of it. Even if you did, the androids in the job market would simply suck the economy dry of that money and feed it into his pockets again.
The population is outraged and change is obviously necessary.
The alien sets his conditions:
He must retain ownership of the androids, and he will keep trying to earn as much as he can from them. Also, no special laws that apply only to him or his androids. If we are unwilling to agree to that, he will leave and take all the androids with him.
The alien brings humanity the ultimate gift: the potential to end all work, capable of bettering lives in innumerable ways. Must we forgo their benefits to save our economies? How do we structure things so that's not necessary?
The lesson:
As I see it, this is an extreme example of what is happening in our economy now. Ownership of economically valuable things is extracting too much money from our economy, and this extraction is reducing the rewards of working, and slowing the economy in general. Wall St thrives while everyone else goes bankrupt.
I feel that the solution to the problem is to tax everything that can earn money for it's owner. Trademarks, Software, Movies, Music, Taxi medallions, Seats on the stock exchange, manufacturing equipment, corporate entities, pretty much anything that is capable of extracting rent from an economy should be subject to a tax allowing ownership to remain profitable, but much less so.
In this way, we could extract money from the alien for each android introduced into the economy at a rate slightly less than how much money it pulls out. Give him an extremely small profit margin, so that he earns money slower than inflation reduces his holdings. He remains perpetually wealthy, but the wealth balances and the rest of us keep a functioning economy. Tax revenues on the androids could fund a basic income, that people could use to do whatever they wanted. They could hire androids to build rockets, or casinos, or doing whatever a human could dream of doing.
I feel the issues this thought experiment raise are issues that humanity is inevitably heading towards, and while I believe we need to respect ownership rights, they are not absolute. By tying the negative extractive effects of participation in our economy with taxes that combat that extraction, we can fix a lot of what is currently wrong.
The Premise:
An advanced alien shows up on earth, bringing with him an android. The android is a marvel of technology, capable of creating reproductions of itself from cheap, widely available raw materials. It requires no external power for it's entire long lifespan and is loyal only to the alien. The androids have the capability of reproducing human behavior so accurately as to be hard to for people to notice they aren't human, and are universally capable of doing our jobs as good or better than we are. The technology, being completely foreign to us is not within our power to take control of. The alien is not hostile, but has the goal of accumulating as much wealth as he can.
A start:
The alien sets up manufacturing somewhere, (it could be anywhere, a city, an island, even in space), and starts creating androids. Since each android can produce others, the manufacturing speed can ramp up exponentially making the speed essentially unlimited.
He sets up a corporation and starts leasing the androids worldwide. He will not sell them under any circumstances, but only lease. He sets his prices for an android at roughly 75% of the cost of hiring a human for the equivalent job. You need truck drivers? Hire the androids and save a bundle. You want a manager android to manage truck drivers, save even more. Every job, every employee that is not legally required to be human is capable of being replaced at a significant discount.
The expansion:
The androids are touted as the end to toil and the dawning of a new age of prosperity and comfort with the potential to make everyone's lives easier and better. At first, they are employed doing work that is hazardous to humans, or require their exceptional abilities, but they slowly expand into other rolls.
The cost of the lease is adjusted periodically to remain at 75% of the cost of human labor.
The dynamics of the system aren't immediately apparent to economists because they don't know that the cost of manufacture has no lower bound, and thus the corporation is capable of perpetually undercutting the cost of human labor. Because of this, few people see the potential economic harm, and corporations and economists alike embrace the androids as wildly beneficial.
Large employers start universally jumping at the chance to hire a cheaper workforce. Demand is enormous, and the supply is expanded to meet it.
If the economy could continue to remain healthy and strong under these conditions, the alien's corporation would be able to pocket essentially an infinite amount of money, perpetually taking all the jobs from everyone. But there isn't an infinite amount of money. Income tax revenues plummet as employees are replaced. By having to compete with the androids for work, downward wage pressure is unlimited. The economy starts rapidly heading towards universal unemployment and the worst recession ever seen begins.
The end:
Incomes shrink. Employment shrinks. With impoverished customers, profits shrink, except the aliens. The alien's corporation simply keeps on pocketing every bit of money it makes, storing it in all the worlds banks, and buying up treasury bonds in all the worlds governments. Soon, most of the world's money is the alien's money, and most of the worlds debt is his debt.
The pattern can't continue indefinitely. With no expenses, there is no way to get the money the alien's corporation has earned back out of it. Even if you did, the androids in the job market would simply suck the economy dry of that money and feed it into his pockets again.
The population is outraged and change is obviously necessary.
The alien sets his conditions:
He must retain ownership of the androids, and he will keep trying to earn as much as he can from them. Also, no special laws that apply only to him or his androids. If we are unwilling to agree to that, he will leave and take all the androids with him.
What do we do?
The alien brings humanity the ultimate gift: the potential to end all work, capable of bettering lives in innumerable ways. Must we forgo their benefits to save our economies? How do we structure things so that's not necessary?
The lesson:
As I see it, this is an extreme example of what is happening in our economy now. Ownership of economically valuable things is extracting too much money from our economy, and this extraction is reducing the rewards of working, and slowing the economy in general. Wall St thrives while everyone else goes bankrupt.
I feel that the solution to the problem is to tax everything that can earn money for it's owner. Trademarks, Software, Movies, Music, Taxi medallions, Seats on the stock exchange, manufacturing equipment, corporate entities, pretty much anything that is capable of extracting rent from an economy should be subject to a tax allowing ownership to remain profitable, but much less so.
In this way, we could extract money from the alien for each android introduced into the economy at a rate slightly less than how much money it pulls out. Give him an extremely small profit margin, so that he earns money slower than inflation reduces his holdings. He remains perpetually wealthy, but the wealth balances and the rest of us keep a functioning economy. Tax revenues on the androids could fund a basic income, that people could use to do whatever they wanted. They could hire androids to build rockets, or casinos, or doing whatever a human could dream of doing.
I feel the issues this thought experiment raise are issues that humanity is inevitably heading towards, and while I believe we need to respect ownership rights, they are not absolute. By tying the negative extractive effects of participation in our economy with taxes that combat that extraction, we can fix a lot of what is currently wrong.
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