Preface. The Auction Will Set You Free
1. Mason Gaffney, Warm Memories of Bill Vickrey (1996), http://www.wealthandwant.com/auth/Vickrey.html. Gaffney suggested that God replied, “Bill, that’s how we’ve always done it here; but thank you for urging folks to have my will done on earth as it is in Heaven.”
2. Juan Camilo Castillo, Daniel T. Knoepfle, & E. Glen Weyl, Surge Pricing Solves the Wild Goose Chase (2017), https://www.microsoft.com/en-us/research/wp-content/uploads/2017/06/ECabstract.pdf.
3. Janny Scott, After Three Days in the Spotlight, Nobel Prize Winner Is Dead, New York Times, October 12, 1996.
Introduction. The Crisis of the Liberal Order
1. Francis Fukuyama, The End of History and the Last Man (Free Press, 1992).
2. Marion Fourcade-Gourinchas & Sarah L. Babb, The Rebirth of the Liberal Creed: Paths to Neoliberalism in Four Countries, 108 American Journal of Sociology 533 (2002); Fourcade et al., The Superiority of Economists, 29 Journal of Economic Perspectives 89 (2015).
3. Marion Fourcade, Economists and Societies: Discipline and Profession in the United States, Britain, and France, 1890s to 1990s (Princeton University Press, 2010).
4. Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, Distributional National Accounts: Methods and Estimates for the United States, Quarterly Journal of Economics (Forthcoming).
5. Thomas Piketty & Gabriel Zucman, Capital Is Back: Wealth-Income Ratios in Rich Countries 1700–2010, 129 Quarterly Journal of Economics 1255 (2014).
6. Council of Economic Advisers, Benefits of Competition and Indicators of Market Power (April 2016), https://obamawhitehouse.archives.gov/sites/default/files/page/files/20160414_cea_competition_issue_brief.pdf; The Economist, In the Shadow of Giants (February 17, 2011), http://www.economist.com/node/18182262.
7. Simcha Barkai, Declining Labor and Capital Shares (2017), http://home.uchicago.edu/~barkai/doc/BarkaiDecliningLaborCapital.pdf.
8. Jan de Loecker & Jan Eeckhout, The Rise of Market Power and Macroeconomic Implications (2017), http://www.janeeckhout.com/wp-content/uploads/RMP.pdf.
9. Chad Syverson, Challenges to Mismeasurement Explanations for the US Productivity Slowdown, 34, Journal of Economic Perspectives 165 (2017).
10. OECD, The Future of Productivity (2015), https://www.oecd.org/eco/OECD-2015-The-future-of-productivity-book.pdf.
11. Christine Lagarde, Reinvigorating Productivity Growth (April 3, 2017), https://www.imf.org/en/News/Articles/2017/04/03/sp040317-reinvigorating-productivity-growth.
12. Stephen Nickell, Luca Nunziata, & Wolfgang Ochel, Unemployment in the OECD since the 1960s. What Do We Know?, 115 Economic Journal 1 (2005).
13. Chad Syverson, What Determines Productivity?, 49 Journal of Economic Literature 326 (2011).
14. Chang-Tai Hsieh & Peter J. Klenow, Misallocation and Manufacturing TFP in China and India, 124 Quarterly Journal of Economics 1403 (2009).
15. Raj Chetty et al., The Fading American Dream: Trends in Absolute Income Mobility Since 1940 (April 24, 2017), http://science.sciencemag.org/content/early/2017/04/21/science.aal4617/tab-pdf.
16. In the case of Greece, which is now only a marginally wealthy country, Syriza, a leftist populist movement, came to power in 2015 in the midst of the Greek financial crisis but then moderated its policies.
17. Zachary Crockett, Donald Trump Is the Only US President Ever with No Political or Military Experience (updated January 23, 2017), https://www.vox.com/policy-and-politics/2016/11/11/13587532/donald-trump-no-experience.
18. Matt Golder, Far Right Parties in Europe, 19 Annual Review of Political Science 477 (2016); Katherine Cramer Walsh, Putting Inequality in Its Place: Rural Consciousness and the Power of Perspective, 106 American Political Science Review 517 (2013); David Autor, David Dorn, Gordon Hanson, & Kaveh Majlesi, A Note on the Effect of Rising Trade Exposure on the 2016 Presidential Election (2017), https://gps.ucsd.edu/_files/faculty/hanson/hanson_research_TrumpVote-032017.pdf.
19. Matthew Gentzkow, Jesse M. Shapiro, & Matt Taddy, Measuring Polarization in High-Dimensional Data: Method and Application to Congressional Speech (National Bureau of Economic Research, Working Paper No. 22423, 2016); David Autor, David Dorn, Gordon Hanson, & Kaveh Majlesi, Importing Political Polarization? The Electoral Consequences of Rising Trade Exposure (National Bureau of Economic Research, Working Paper No. 22637, 2016).
20. For example, in a poll conducted by PRRI and The Atlantic after the election, two-thirds of Trump voters described his election as “the last chance to stop American decline,” https://www.prri.org/research/prri-atlantic-poll-post-election-white-working-class/, and a poll by Lord Ashcroft found that by 16 percentage points, those favoring Brexit believed life was worse in Britain than it was 30 years ago, while those favoring “Remain” had the opposite view by 46 percentage points, http://lordashcroftpolls.com/2016/06/how-the-united-kingdom-voted-and-why/.
21. Arlie Hochshild, Strangers in Their Own Land: Anger and Mourning on the American Right (New Press, 2016).
22. Adam Smith, The Wealth of Nations, Part I, 56 (Collier, 1902).
23. The distinction we are drawing is famously associated with the 1893 work of the great sociologist Émile Durkheim, The Division of Labour in Society (Simon & Schuster, 1997).
24. See Michael J. Sandel, What Money Can’t Buy: The Moral Limits of Markets (Farrar, Straus and Giroux, 2012); Samuel Bowles, The Moral Economy: Why Good Incentives Are No Substitute for Good Citizens (Yale University Press, 2016) for a contemporary defense of moral economies.
25. As highlighted in Gareth Stedman Jones, Karl Marx: Greatness and Illusion (Harvard University Press, 2016), Marx actually abandoned these ideals toward the end of his life, and thus we describe them as “Marxism” rather than as the views of Marx himself.
26. John Stuart Mill, On Liberty (John W. Parker and Sons, 1859).
27. Adam Smith, Theory of Moral Sentiments, 296 (Wells and Lilly, 1817) (emphasis added).
28. Smith, Wealth of Nations, 137.
29. While accepted by most applied economists who interacted with policymakers, economic theorists who were often far removed from practical policy discussions continued to question this view. For a discussion, see Anthony B. Atkinson, The Mirrlees Review and the State of Public Economics, 50 Journal of Economic Literature 770 (2012).
30. Joan Robinson, The Economics of Imperfect Competition (Palgrave Macmillan, 1932).
31. William Cronon, Nature’s Metropolis: Chicago and the Great West (W. W. Norton, 1992).
Chapter 1. Property Is Monopoly
1. Hyperloop Tests Magnetic Levitation At 192 mph, NPR Morning Edition, August 4, 2017, available at http://www.npr.org/2017/08/04/541538743/hyperloop-tests-magnetic-levitation-at-192-mph.
2. William J. Bernstein, A Splendid Exchange (Grove Press, 2008).
3. Robert C. Allen, Engels’ Pause: Technical Change, Capital Accumulation, and Inequality in the British Industrial Revolution, 46 Explorations in Economic History 418 (2009).
4. Henry George, Progress and Poverty 1–5 (Robert Schalkenbach Foundation, 1997).
5. Alexander Gray, The Socialist Tradition: Moses to Lenin (Longmans, Green, 1947).
6. Philip T. Hoffman, Institutions and Agriculture in Old Regime France, 16 Policy & Society 241 (1988).
7. The number comes from the economist Chad Syverson, who found that as a result of dramatic misallocation of resources to low-productivity firms, output is reduced by as much as 25% annually. Chad Syverson, Market Structure and Productivity: A Concrete Example, 112 Journal of Political Economy 1181 (2004); Syverson, Product Substitutability and Productivity Dispersion, 86 Review of Economics and Statistics 534 (2004); Syverson, What Determines Productivity, 49 Journal of Economic Literature 326 (2011). Not all of this misallocation is due to the monopoly problem in its simplest form. However, as we discuss below, many other problems that cause misallocation (adverse selection, endowment effects, and credit constraints) are also addressed by partial common property. We thus believe much of this misallocation can be addressed by a COST and related reforms.
8. Gareth Stedman Jones, Karl Marx—Greatness and Illusion (Belknap Press, 2016).
9. Michael Kremer, The O-Ring Theory of Economic Development, 108 Quarterly Journal of Economics 551 (1993), provides a definitive account of how large-scale enterprises typically must overcome monopoly problems.
10. R. H. Coase, The Nature of the Firm, 4 Economica 386 (1937).
11. W. Stanley Jevons, The Theory of Political Economy xlvi (Macmillan and Company, 5th ed., 1957).
12. Léon Walras, Studies in Social Economics 224–225 (Jan van Daal & Donald A. Walker, trans., Routledge, 2010).
13. The term “social dividend” seems to have been coined by Oskar Lange, The Economic Theory of Socialism, 4 Review of Economic Studies 1 (1936), but he attributed the concept to Walras. We will see more about Lange’s ideas below.
14. Walras, Studies in Social Economics, 234.
15. George, Progress and Poverty, 223.
16. George, Progress and Poverty, 244.
17. http://landlordsgame.info/.
18. George R. Geiger, The Philosophy of Henry George. Introduction by John Dewey xxii (MacMillan Co., 1933).
19. Garrett Hardin, The Tragedy of the Commons, 162 Science 1243 (1968).
20. Harold Schiffrin, Sun Yat-sen’s Early Land Policy: The Origin and Meaning of “Equalization of Land Rights,” 16 Journal of Asian Studies 549, 555 (1957).
21. Joseph A. Schumpeter, Capitalism, Socialism and Democracy (Harper & Brothers, 1942).
22. Oskar Lange & Fred M. Taylor, On the Economic Theory of Socialism (Benjamin E. Lippincott, ed., 1938); Abba P. Lerner, The Economics of Control: Principles of Welfare Economics (Macmillan, 1944).
23. Ludwig von Mises, Economic Calculation in the Socialist Commonwealth (S. Alder trans., Ludwig von Mises Institute, 2012); Frederich A. Hayek, The Use of Knowledge in Society, 35 American Economic Review 519 (1945). See also Samuel Bowles, Microeconomics: Behavior, Institutions and Evolution 475–476 (Princeton University Press, 2006) for a discussion of the midcentury debates. We return to these debates in our epilogue.
24. These critiques would eventually lead modern socialist thinkers to advocate various hybrid economic relationships like workers’ cooperatives, which would have placed production under greater democratic control, and stronger economic rights, which would make workers less dependent on their employers. See Samuel Bowles & Herbert Gintis, Democracy and Capitalism: Property, Community, and the Contradictions of Modern Social Thought (Basic Books, 1986); Alec Nove, The Economics of Feasible Socialism Revisited (Routledge, 2d ed., 1991).
25. Friedrich Hayek, The Road to Serfdom (Routledge, 1944).
26. Some limited empirical work confirms the lawyer’s intuition that bargaining can be extremely difficult, especially in the sorts of examples that Coase preferred. See Hoyt Bleakley & Joseph Ferrie, Land Openings on the Georgia Frontier and the Coase Theorem in the Short and Long-Run (2014) at http://wwwpersonal.umich.edu/~hoytb/Bleakley_Ferrie_Farmsize.pdf and Ward Farnsworth, Do Parties to Nuisance Cases Bargain after Judgment? A Glimpse Inside the Cathedral, 66 University of Chicago Law Review 373 (1999). Even in highly competitive environments, economic evidence corroborates these findings. See Bradley Larsen, The Efficiency of Real-World Bargaining: Evidence from Wholesale Used-Auto Auctions, NBER Working Paper 20431 (2014).
27. Coase originally wanted to show that it’s not always best to regulate the person who seems to cause a problem (here, the music teacher); it might make more sense to let the parties reach an agreement.
28. This can be seen in the three major textbooks on law and economics. All three books give great weight to the investment problem as a justification for private property: if private property did not exist, then people would not invest in improving property since they could not be sure that they would profit from the returns on the investment. See Steven Shavell, Foundations of Economic Analysis of Law 11–19 (Harvard University Press, 2004); Robert Cooter & Thomas Ulen, Law & Economics 76–80 (Pearson, 6th ed., 2012); Richard A. Posner, Economic Analysis of Law 40–42 (Aspen Publishers, 9th ed., 2014). The textbooks give only passing attention to the monopoly problem. While they acknowledge that holdout problems, and related problems of strategic behavior, can interfere with the transfer of property, they largely consider these problems as confined to cases where the use of property affects many people, as in the case of factory pollution.
29. See Benjamin Edelman, Michael Ostrovsky, & Michael Schwarz, Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars’ Worth of Keywords, 97 American Economic Review 242 (2007); Hal R. Varian, Position Auctions, 25 International Journal of Industrial Organization 1163 (2007).
30. R. H. Coase, The Federal Communications Commission, 2 Journal of Law and Economics 1 (1959); Thomas W. Hazlett, Assigning Property Rights to Radio Spectrum Users: Why Did FCC License Auctions Take 67 Years?, 41 Journal of Law and Economics 1 (1959).
31. Paul Milgrom, Putting Auction Theory to Work, 108 Journal of Political Economy 245 (2000).
32. Roger B. Myerson & Mark Sattherwaite, Efficient Mechanisms for Bilateral Trading, 29 Journal of Economic Theory 265 (1983).
33. Peter Crampton, Robert Gibbons, & Paul Klemperer, Dissolving a Partnership Efficiently, 55 Econometrica 61 (1987); Ilya Segal & Michael D. Whinston, A Simple Status Quo that Ensures Participation (with Application to Efficient Bargaining), 6 Theoretical Economics 109 (2011).
34. One might think this case is natural, if the two partners have shares in proportion to the work they have put into the project, as the best partner to take over is likely the one who has put most effort into the company. However, if the partners’ shares reflect not only their effort (“sweat equity”) but also financial investment (“cash equity”), or if the commitment to the company has shifted over time, this may not be the case.
35. E. Glen Weyl & Anthony Lee Zhang, Depreciating Licenses (2017), https://ssrn.com/abstract=2744810.
36. Demosthenes, Against Phaenippus (c. BCE 359), discussed in George C. Bitros & Anastasios D. Karayiannis, Creative Crisis in Democracy and Economy 20 (Springer, 2013).
37. Christopher D. Hall, Market Enforced Information Asymmetry: A Study of Claiming Races, 44 Economic Inquiry 271 (1986).
38. Antonio Cabrales, Antoni Calvó-Armengol, & Matthew O. Jackson, La Crema: A Case Study of Mutual Fire Insurance, 111 Journal of Political Economics 425 (2003).
39. Emerson Niou & Guofu Tan, An Analysis of Dr. Sun Yat-sen’s Self-Assessment Scheme for Land Taxation, 78 Public Choice 103 (1994).
40. Yun-Chien Chang, Self-Assessment of Takings Compensation: An Empirical Study, 28 Journal of Law, Economics, and Organizations 265 (2012).
41. Arnold C. Harberger, Issues of Tax Reform for Latin America, in Fiscal Policy for Economic Growth in Latin America (Johns Hopkins University Press, 1965).
42. Maurice Allais, L’Impôt sur le Capital et la Réforme Monétaire (Hermann, 1988). Saul Levmore, a law professor, helped revive interest in it among academics. Saul Levmore, Self-Assessed Valuation Systems for Tort and Other Law, 68 Virginia Law Review 771 (1982).
43. This fact helps allay two potential objections to a COST: that possessors may wish to “sabotage” the appeal of their goods to others to avoid their interest in taking the good, and that predatory outsiders may maliciously take goods just to harm a possessor. Notice that neither of these are possible if possessors always set prices above the minimum they would be willing to accept, because in this case the possessor is happy when her possessions are taken: she still profits, just not as much as if she set a monopoly price. Thus “predation” will be nearly as welcome as would be the “predation” of someone offering you out of the blue an extravagant sum for your home and you would never wish to sabotage your possessions as this would reduce the chance of such an exceptional opportunity. Only individuals who fraudulently report extremely low values and try to dramatically sabotage their goods would be open to predation, but so they should, and such individuals are likely to be caught by others before too much sabotage is possible.
44. Weyl & Zhang, Depreciating Licenses.
45. Thomas W. Merrill, Property and the Right to Exclude, 77 Nebraska Law Review 730 (1998).
46. Of course, this is also true of an ordinary property tax, and many other legal restrictions on the use of private property.
47. To make our account vivid we discuss some examples of personal possessions of individuals, like homes and cars, but the reader should keep in mind that most assets are owned by businesses and thus much of the participation in and benefits from a COST would be through business assets.
48. For further details, see Eric A. Posner & E. Glen Weyl, Property Is Another Name for Monopoly, 9 Journal of Legal Analysis 51 (2017).
49. Note that this would create a highly liquid market in home refinancings.
50. A team of researchers led by Nikhil Naik is already using image analysis to conduct automated property assessments for real estate, so this idea is not as farfetched as it may at first sound.
51. George A. Akerlof, The Market for “Lemons”: Quality, Uncertainty and the Market Mechanism, 84 Quarterly Journal of Economics 488 (1970); Michael Spence, Job Market Signaling, 87 Quarterly Journal of Economics 355 (1973).
52. Richard Thaler, Toward a Positive Theory of Consumer Choice, 1 Journal of Economics, Behavior, and Organizations 39 (1980).
53. John A. List, Neoclassical Theory versus Prospect Theory: Evidence from the Marketplace, 72 Econometrica 615 (2004); Coren L. Apicella, Eduardo M. Azevedo, Nicholas A. Christakis, & James H. Fowler, Evolutionary Origins of the Endowment Effect: Evidence from Hunter-Gatherers, 104 American Economic Review 1793 (2014).
54. For a review of the many ill effects of an economy based on debt, especially from a macroeconomic viewpoint, see Atif Mian & Amir Sufi, House of Debt: How They (and You) Caused the Great Recession and How We Can Stop It from Happening Again (University of Chicago Press, 2014).
55. J. R. Hicks, Annual Survey of Economic Theory: The Theory of Monopoly, 3 Econometrica 1, 8 (1935).
56. Weyl & Zhang, Depreciating Licenses.
57. Chad Syverson, What Determines Productivity?, 49 Journal of Economic Literature 326 (2011).
58. Milgrom, Putting Auction Theory to Work.
59. Paul Milgrom, E. Glen Weyl, & Anthony Lee Zhang, Redesigning Spectrum Licenses, 40 Regulation (2017).
60. Jacqueline D. Lipton, Beyond Cybersquatting: Taking Domain Name Disputes Past Trademark Policy, 40 Wake Forest Law Review 1361 (2005).
61. Hope King, Owner of ClintonKaine.com wants $90,000, CNN Money (July 27, 2016), http://money.cnn.com/2016/07/27/technology/clinton-kaine-website/index.html.
62. Lauren Cohen, Umit G. Gurun, & Scott Duke Kominers, The Growing Problem of Patent Trolling, 352 Science 521 (2016).
63. It is increasingly popular to refer to such a universal refundable tax credit as a “universal basic income” (UBI). We resist this description because a UBI is typically described as being indexed to some notion of an income required to live a decent life, a notion that we consider ill-defined and which, in any case, is not the aim of our proposal. Our social dividend would be proportioned to the total self-assessed wealth of a country and not to some notion of basic needs.
64. David P. Hariton, Sorting Out the Tangle of Economic Substance, 52 Tax Lawyer 235 (1999); David A. Weisbach, Ten Truths about Tax Shelters (John M. Olin Program in Law and Economics Working Paper No. 122, 2001).
65. Note that the nominal principal does not fall; it is the value of the claim against this principal that falls.
66. Piketty et al., Distributional National Accounts.
67. Tyler Cowen, The Complacent Class: The Self-Defeating Quest for the American Dream (St. Martin’s Press, 2017).
68. Leaf Van Boven and Thomas Gilovich, To Do or to Have? That Is the Question, 85 Journal of Personality and Social Psychology 1193 (2003).
69. More recent exponents of this view are, for example, Robert H. Frank, Choosing the Right Pond: Human Behavior and the Quest for Status (Oxford University Press, 1987), and Juliet B. Schor, The Overspent America: Why We Want What We Don’t Need (Harper Perennial, 1999).
70. Saumitra Jha, Financial Asset Holdings and Political Attitudes: Evidence from Revolutionary England, 130 Quarterly Journal of Economics 1485 (2015); Markku Kaustia, Samuli Knüpfer, & Sami Torstila, Stock Ownership and Political Behavior: Evidence from Demutualizations, 62 Management Science 945 (2015).
71. Francis Fukuyama, Trust (Free Press, 1995); Paola Sapienza, Anna Toldra-Simats, & Luigi Zingales, Understanding Trust, 123 Economic Journal 1313 (2013).
Chapter 2. Radical Democracy
1. Mogens Herman Hansen, The Athenian Democracy in the Age of Demosthenes: Structure, Principles, and Ideology 6 (J. A. Crook, trans., Basil Blackwell, 1999).
2. Xenophon, Hellenica bk. 1, ch. 7, §§ 1–35 (Carlton Brownson trans., 1921) and Hansen, Athenian Democracy.
3. Andrew Lintott, The Constitution of the Roman Republic (Oxford University Press, 1999).
4. See Goronwy Edwards, Presidential Address, The Emergence of Majority Rule in the Procedure of the House of Commons, 15 Transactions of the Royal Historical Society 165 (1965).
5. John Gilbert Heinberg, Theories of Majority Rule, 26 American Political Science Review 452, 456 (1932).
6. Melissa Schwartzberg, Counting the Many: The Origins and Limits of Supermajority Rule 52–58 (Cambridge University Press, 2013); Heinberg, Theories of Majority Rule, at 456.
7. Thomas Hobbes, Leviathan (Penguin Classics, 1986) (originally published in 1651).
8. US Declaration of Independence, para. 3 (1776).
9. The Federalist No. 51, at 323 (James Madison) (Clinton Rossiter, ed., 1961).
10. US Constitution, article II, § 2.
11. US Constitution, article I, §7.
12. US Constitution, article V.
13. See Robert A. Dahl, How Democratic Is the American Constitution?, 12–18 (Yale University Press, 2d ed., 2003).
14. In fact, many advocates for minority groups victimized by such laws have recognized the limits of the legitimacy of such judicial intervention and called for giving greater voice in voting on crime issues to those directly affected. William J. Stuntz, The Collapse of American Criminal Justice (Harvard University Press, 2011), and Lisa L. Miller, The Perils of Federalism: Race, Poverty, and the Politics of Crime Control (Oxford University Press, 2010).
15. Spanish mathematician and philosopher Ramon Llull had anticipated many of Condorcet’s later ideas in the thirteenth century, but his manuscripts were lost from the time of his life until the early part of the new millennium and thus he had very little impact on the subsequent development of ideas about voting.
16. Kenneth Arrow, Social Choice and Individual Values (Yale University Press, 1970) (originally published in 1951).
17. Witness, for example, the frequent citation of this theorem in a recent poll of economists asking whether an ideal voting system exists. IGM Forum, Primary Voting (March 7, 2016), http://www.igmchicago.org/surveys/primary-voting. However, this view is somewhat misleading. Arrow’s Theorem also applies to market allocations and conversely the positive results about markets also apply to collective decisions (because of QV). The failures of collective decision-making relative to markets for private goods concern more specific features of existing institutions (which we turn to below), not these broad possibilities covered by Arrow’s Theorem.
18. “Sur les assemblées provinciales” in Oeuvres de Condorcet, 8:214–216, 268–271, “Ésquisse” in Oeuvres de Condorcet, 6:176–177.
19. See Gary W. Cox, Making Votes Count: Strategic Coordination in the World’s Electoral Systems (Cambridge University Press, 1997).
20. This most famous pathology of strategic voting is known as Duverger’s law. See Maurice Duverger, Political Parties: Their Organization and Activity in Modern States (Wiley, 1954).
21. Richard J. Evans, The Coming of the Third Reich (Penguin, 2004).
22. Ivan Ermakoff, Ruling Oneself Out: A Theory of Collective Abdications (Duke University Press, 2008).
23. See Richard D. McKelvey, Intransitivities in Multidimensional Voting Models and Some Implications for Agenda Control, 12 Journal of Economic Theory 472 (1976).
24. Martin Niemöller, “First They Came” (c. 1945), American Holocaust Memorial Museum, https://www.ushmm.org/wlc/en/article.php?ModuleId=10007392.
25. Élie Harlévy, A History of the English People in the Nineteenth Century: The Triumph of Reform: 1830–1841 (E. I. Watkin, trans., Barnes & Noble, 1961).
26. Jeremy Bentham, Article on Utilitarianism, in The Collected Works of Jeremy Bentham: Deontology Together with a Table of the Springs of Action and Article on Utilitarianism (Amnon Goldworth ed., Oxford University Press, 1983; originally published in 1829).
27. John Stuart Mill, Considerations on Representative Government (Parker, Son, and Bourn, 1861).
28. Paul A. Samuelson, The Pure Theory of Public Expenditure, 36 Review of Economics and Statistics 387 (1954).
29. Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups (Harvard University Press, rev. ed., 1971).
30. See William Vickrey, Counterspeculation, Auctions and Competitive Sealed Tenders, 16 Journal of Finance 8 (1961); William Vickrey, Automobile Accidents, Tort Law, Externalities, and Insurance: An Economist’s Critique, 33 Law and Contemporary Problems 464 (1968).
31. See Edward H. Clarke, Multipart Pricing of Public Goods, 11 Public Choice 17 (1971); Theodore Groves, Incentives in Teams, 41 Econometrica 617 (1973).
32. Theodore Groves & John Ledyard, Optimal Allocation of Public Goods: A Solution to the “Free Rider” Problem, 45 Econometrica 783 (1977); Aanund Hylland & Richard Zeckhauser, A Mechanism for Selecting Public Goods When Preferences Must Be Elicited (Kennedy School of Government, Harvard University, Discussion Paper 51, 1980).
33. For a more detailed exposition of this graphical analysis, see Nicolaus Tideman & Florenz Plassmann, Efficient Bilateral Taxation of Externalities, 172 Public Choice 109 (2017).
34. Economists Jacob Goeree and Jingjing Zhang independently discovered a more specific version of the idea only a few months after Weyl posted the first version of his work, “Quadratic Voting Buying,” online in 2012. Their paper was published in 2017. Jacob Goeree & Jingjing Zhang, One Man, One Bid, 101 Games & Economic Behavior 151 (2017).
35. This is an artifact of the discretized numerical example, not a feature of the model. The voter gains the marginal benefit from casting a vote times the number of votes cast (MB * v), and pays the square of the number of votes cast (v2). Setting marginal benefit equal to marginal cost, v* = MB/2. Accordingly, the number of votes that a voter casts will be proportionate to her marginal benefit. The result is driven by the fact that the derivative of a quadratic relationship is linear.
36. Mathematical investigations by Weyl and co-authors suggest that this “chance of being pivotal” will be quite similar in a wide range of circumstances across most individuals, especially when the number of voters is large, implying that the approximation is quite accurate. In fact, after investigating a wide range of cases, these analyses could not find an example where QV loses more than 5% of potential welfare; 1p1v can easily lose 100% in cases where the majority imposes its weak interests on a minority of people who have very strong interests. This does not mean QV is perfect, any more than the imperfectly competitive markets our previous chapter sought to address are. Future innovators surely will further refine QV, as we have tried in the previous chapter to refine capitalist markets. Yet QV represents a powerful step toward functioning markets for collective decisions. See Steven P. Lalley & E. Glen Weyl, Quadratic Voting: How Mechanism Design Can Radicalize Democracy, American Economic Association Papers and Proceedings (Forthcoming); Steven P. Lalley & E. Glen Weyl, Nash Equilibria for Quadratic Voting (2017) at https://arxiv.org/abs/1409.0264; Bharat K. Chandar & E. Glen Weyl, Quadratic Voting in Finite Populations (May 21, 2017) at https://ssrn.com/abstract=2571026; E. Glen Weyl, The Robustness of Quadratic Voting, 172 Public Choice 75 (2017).
37. Louis Kaplow & Scott Duke Kominers, Who Will Vote Quadratically? Voter Turnout and Votes Cast Under Quadratic Voting, 172 Public Choice 125 (2017).
38. E. Glen Weyl, The Robustness of Quadratic Voting, 172 Public Choice 125 (2017).
39. There are important subtleties in defining the notion of equal voice, because the definition of issues available for voting and their relative cost may advantage or disadvantage some citizens. See Daniel Benjamin, Ori Heffetz, Miles Kimball, & Derek Lougee, The Relationship Between the Normalized Gradient Addition Mechanism and Quadratic Voting, 172 Public Choice 233 (2017). We are collaborating with several other scholars to probe these questions more deeply.
40. Philosophers such as Ronald Dworkin have argued that the ideally just model of distribution of resources is a competitive equilibrium beginning from a position of equal incomes. See, e.g., Ronald Dworkin, What Is Equality? Part II: Equality of Resources, 10 Philosophy & Public Affairs 283 (1981); Ronald Dworkin, Sovereign Virtue: The Theory and Practice of Equality (Harvard University Press, 2000).
41. Rensis Likert, A Technique for the Measurement of Attitudes, in Archives of Philosophy No. 140, 5–55 (R. S. Woodworth, ed., 1932).
42. Sendhil Mullainathan & Eldar Shafir, Scarcity: The New Science of Having Less and How It Defines Our Lives (Picador, 2014).
43. David Quarfoot, Douglas von Kohorn, Kevin Slavin, Rory Sutherland, David Goldstein, & Ellen Konar, Quadratic Voting in the Wild: Real People, Real Votes, 172 Public Choice 283 (2017).
44. There is still one anomaly in the QV distribution: a dip at 0. This results from a weakness in the weDesign software: we only allow “whole” votes on issues. This may make it impossible to vote a bit more on something you are passionate about once you have already put several votes on this issue, because you may only have a few credits left. Most participants become so engaged that they want to use up all their credits and thus end up using the last few to move issues they otherwise would have given 0 to 1 in either direction. While this further indicates participant engagement, we hope to fix this “bug” as we iterate the software.
45. Alisha Holland, Square Miles: The Spatial Politics of Mass Infrastructure, American Political Science Association Working Paper, 2017.
46. Liran Einav, Chiara Farronato, & Jonathan Levin, Peer-to-Peer Markets, 8 Annual Review of Economics 615 (2016).
47. Chris Nosko & Steven Tadelis, The Limits of Reputation in Platform Markets: An Empirical Analysis and Field Experiment (National Bureau of Economic Research, Working Paper No. 20830, 2015).
48. Andrew Quentson, Can Ethereum-Based Akasha Revolutionize Social Networks? Cryptocoins News, January 29, 2017, https://www.cryptocoinsnews.com/can-ethereum-based-akasha-revolutionize-social-networks/.
49. See Eric A. Posner & E. Glen Weyl, Quadratic Voting as Efficient Corporate Governance, 81 University of Chicago Law Review 251 (2014), for more on the application to corporate governance.
50. For a more detailed elaboration of these ideas, see Eric A. Posner & E. Glen Weyl, Voting Squared: Quadratic Voting in Democratic Politics, 68 Vanderbilt Law Review 441 (2015); Eric A. Posner & Nicholas Stephanopoulos, Quadratic Election Law, 172 Public Choice 265 (2017).
51. Note that there are systems somewhat closer to 1p1v that also avoid this, such as the rule devised by Condorcet, the Approval Voting system proposed by Steven Brams in the late 1970s, and the “Range Voting” system of Warren Smith. See Steven J. Brams & Peter C. Fishburn, Approval Voting (Birkhauser, 2d ed., 2007); Warren D. Smith, Range Voting (unpublished manuscript, November 28, 2000). Available at http://rangevoting.org/WarrenSmithPages/homepage/rangevote.pdf. Unfortunately, these systems do not have the other benefits of QV and in particular in binary referenda institute majority rule.
52. In joint work with computer scientists Nicole Immorlica and Katrina Ligett, one of us is working to prove formally that this logic implies, under reasonable conditions, that QV will always lead to the election of the candidate achieving the greatest happiness for the greatest number, in the sense we discussed above.
53. Michel Balinski & Rida Laraki, Majority Judgment vs Majority Rule, Working Paper (2016). We took a Likert-based survey they used and assumed that each point on the scale corresponded to a number of votes. This likely understates the strength of the result under QV, given the censoring of extremes we discuss in chapter 2. Under this method, Kasich is the only candidate with an average net positive score (.12), followed by Sanders (-.11), Cruz (-.22), Clinton (-.32), and Trump (-.69).
54. Daron Acemoglu, Suresh Naidu, Pascual Restrepo, & James A. Robinson, Democracy Does Cause Growth, Journal of Political Economy (Forthcoming).
55. QV also offers the possibility of helping break free of the twin bonds of “political correctness” and costless online vitriol by offering a rich and costly but anonymous way for citizens to express their political convictions.
56. John Kenneth Galbraith, The Affluent Society 187 (Mariner Books, 1958).
Chapter 3. Uniting the World’s Workers
1. For an excellent long-term history of trade, see William J. Bernstein, A Splendid Exchange: How Trade Shaped the World (Grove Press, 2009).
2. Edgar S. Furniss, The Position of the Laborer in a System of Nationalism. A Study in the Labor Theories of the Late English Mercantilists (Houghton Mifflin Company, 1920).
3. We benefited from discussions with Michael Clemens, who shared some of his unpublished research with us. See also Michael Clemens, Economics and Emigration: Trillion Dollar Bills on the Sidewalk?, 25 Journal of Economic Perspectives 3 (2011).
4. Barry Baysinger, Robert B. Eckelund, Jr., & Robert D. Tollison, Mercantilism as a Rent-Seeking Society, in Roger D. Congleton, Arye L. Hillman, & Kai A. Konrad, eds., 40 Years of Research on Rent-Seeking 2: Applications: Rent-Seeking in Practice (Springer, 2008).
5. Furniss, Position of the Laborer in a System of Nationalism.
6. François Bourguignon & Christian Morrisson, Inequality Among World Citizens: 1820–1992, 92 American Economic Review 727 (2002).
7. Technically this measure is only an approximation, as the actual measure uses continuously compounded percentage increases, so that this interpretation is accurate only for relatively modest changes. The formal measure is the difference between the natural logarithm of average income and the average value of the natural logarithm of income.
8. Because the mean logarithmic deviation uses continuous compounding, this calculation is not quite right. In this case the mean logarithmic deviation is actually 2.76 logarithmic points. For less dramatic changes in income, however, this approximation is a good way of thinking about what the mean logarithmic deviation corresponds to.
9. For a thoughtful overview, see Branko Milanovic, Global Inequality: A New Approach for the Age of Globalization (Belknap Press, 2016).
10. Richard J. Evans, The Pursuit of Power: Europe 1815–1914 (Penguin, 2016).
11. Letter from Karl Marx to Sigfrid Meyer & August Vogt (April 9, 1870).
12. Matthew Annis, Henry George, John Stuart Mill, and Solving the “Knotty Labor Question” (October 26, 2011), https://thechinesequestion.wordpress.com/tag/john-stuart-mill/; Edward Alsworth Ross, The Old World in the New (Century Company, 1914).
13. Migration Policy Institute, U.S. Immigrant Population and Share over Time, 1850–Present, http://www.migrationpolicy.org/programs/data-hub/charts/immigrant-population-over-time.
14. Steven Best, The Global Industrial Complex: Systems of Domination, ix (Lexington Books, 2011).
15. Niels Boel, Eduardo Galeano: The Open Veins of McWorld, 54 UNESCO Courier 4 (2001).
16. Pierre-Olivier Gourinchas & Olivier Jeanne, The Elusive Gains from International Financial Integration, 73 Review of Economic Studies 715 (2006).
17. Jonathan D. Ostry, Prakash Loungani, & Davide Furceri, Neoliberalism: Oversold?, 53 IMF Finance and Development 38 (2016).
18. John Gibson & David McKenzie, Eight Questions about Brain Drain, 25 Journal of Economic Perspectives 107 (2011), and Frédéric Docquier & Hillel Rapoport, Globalization, Brain Drain, and Development, 50 Journal of Economic Literature 681 (2012).
19. Obviously, these calculations are exceedingly rough and neglect many factors, such as the changes in wages for migrants such large-scale migration would cause. However, the most rigorous studies by economists nearly uniformly find that gains to global welfare from fully liberalizing migration would range from 50% to 150%, so gains of 20% are actually quite modest by the standards of the literature. See Clemens, Economics and Emigration.
20. Wolfgang F. Stolper & Paul A. Samuelson, Protection and Real Wages, 9 Review of Economic Studies 58 (1941).
21. George J. Borjas, The Labor Demand Curve Is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market, 118 Quarterly Journal of Economics 1335 (2003).
22. George J. Borjas, Issues in the Economics of Immigration (Princeton University Press, 2001).
23. David Card, Is the New Immigration Really So Bad?, 115 Economic Journal F300 (2005); Gianmarco I. P. Ottaviano & Giovanni Peri, Rethinking the Effect of Migration on Wages, 10 Journal of the European Economic Association 152 (2012).
24. National Academy of Sciences, Engineering, and Medicine, The Economic and Fiscal Consequences of Immigration (National Academies Press, 2016).
25. Dane Stangler & Jason Wiens, The Economic Case for Welcoming Immigrant Entrepreneurs (2015). http://www.kauffman.org/what-we-do/resources/entrepreneurship-policy-digest/the-economic-case-for-welcoming-immigrant-entrepreneurs.
26. National Academy, Economic and Fiscal Consequences of Immigration.
27. Christian Dustmann & Tommaso Frattini, The Fiscal Effects of Immigration to the UK (2014), 24 Economic Journal F565 (2016).
28. Joel S. Fetzer, Public Attitudes Toward Immigration in the United States, France and Germany (Cambridge University Press, 2000).
29. For a systematic study of the nonenforcement of laws as a policy tool see Alisha Holland, Forbearance as Redistribution: The Politics of Informal Welfare in Latin America (Cambridge University Press, 2017).
30. Gary S. Becker, The Challenge of Immigration: A Radical Solution (Institute of Economic Affairs, 2011).
31. See The Economist, Immigration Systems: What’s the Point?, July 7th, 2016, for a review.
32. A few studies, relying on anecdotal data, do document some instances of abuse, but the problem is that existing programs are not structured as guest worker programs. See Janie A. Chuang, The U.S. Au Pair Program: Labor Exploitation and the Myth of Cultural Exchange, 36 Harvard Journal of Law and Gender 269 (2013); Daniel Costa, Guestworker Diplomacy, Economic Policy Institute Briefing Paper No. 317 (July 14, 2011), http://www.epi.org/files/2011/BriefingPaper317.pdf. Instead, they are structured as cultural exchange programs, which then are manipulated by employers and private intermediary institutions who arrange for migration. The abuse arises from this mismatch; a properly structured guest worker program would have more protections.
33. E. Glen Weyl, The Openness-Equality Trade-Off in Global Redistribution, Economic Journal (Forthcoming), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2755304. The rest of the material in this section is based on empirical results from this paper.
34. Michael Clemens, The Walls of Nations (Columbia University Press, forthcoming).
35. Douglas S. Massey, Jorge Durand, & Nolan J. Malone, Beyond Smoke and Mirrors: Mexican Immigration in an Era of Economic Integration (Russell Sage Foundation, 2002).
Chapter 4. Dismembering the Octopus
1. Aristotle, Aristotle’s Politics (Carnes Lord, ed. & trans., University of Chicago Press, 2d ed., 2013) (350 BCE).
2. Claude Menard, Three Forms of Resistance to Statistics: Say, Cournot, Walras, 12 History of Political Economy 524 (1980).
3. Léon Walras, Studies in Social Economics 157 (Jan van Daal & Donald A. Walker, trans., Routledge, 2d ed., 2010) (1896).
4. 15 U.S.C. §§ 1–7 (1890).
5. Ransom E. Noble, Jr., Henry George and the Progressive Movement, 8 American Journal of Economics & Society 3 (1949).
6. Renato Crillo, Léon Walras and Social Justice, 43 American Journal of Economics & Society 1 (1984).
7. Standard Oil Co. of N.J. v. United States, 221 U.S. 1 (1911).
8. For a short history, see William E. Kovacic & Carl Shapiro, Antitrust Policy: A Century of Economic and Legal Thinking, 14 Journal of Economic Perspectives 43 (2000).
9. Einer Elhauge, Horizontal Shareholding, 109 Harvard Law Review 1267 (2016).
10. Lewis Carroll, Through the Looking-Glass 50 (Henry Altemus, 1897).
11. 15 U.S.C. § 18 (amend. 1950).
12. David Gerber, Law and Competition in Twentieth-Century Europe: Protecting Prometheus (Clarendon Press, 2001).
13. See Peter L. Bernstein, Capital Ideas: The Improbable Origins of Modern Wall Street (Wiley, 1992), for a history.
14. A classic statement of this theory is Burton G. Malkiel, A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (W.W. Norton & Company, 10th ed., 2012).
15. Robert J. Shiller, Irrational Exuberance (Princeton University Press, 3d ed., 2015).
16. As of 2010, institutional investors held common stock worth $11.5 trillion. In the same year, index funds held about $1.4 trillion. Marshall E. Blume & Donald B. Keim, Institutional Investors and Stock Market Liquidity: Trends and Relationships, 5 (working paper, Wharton School, University of Pennsylvania, 2012), http://finance.wharton.upenn.edu/~keim/research/ChangingInstitutionPreferences_21Aug2012.pdf.
17. Business Insider’s Global Macro Monitor, Q3 2012; http://www.businessinsider.com/who-owns-the-us-equity-market-2013-1.
18. Joseph A. McCahery, Zacharias Sautner, & Laura T. Starks, Behind the Scenes: The Corporate Governance Preferences of Institutional Investors, 71 Journal of Finance 2905 (2016).
19. OECD Institutional Investor Statistics, 2008–2015. See also José Azar & Martin C. Schmalz, Common Ownership of Competitors Raises Antitrust Concerns, 8 Journal of European Competition Law & Practice 329 (2017), for a more detailed discussion of issues in Europe.
20. This view was widespread in the 1990s. See, e.g., Bernard S. Black, Agents Watching Agents: The Promise of Institutional Investor Voice, 39 UCLA Law Review 811 (1992); Mark J. Roe, A Political Theory of American Corporate Finance, 91 Columbia Law Review 10 (1991). For some early criticisms, see Edward B. Rock, The Logic and (Uncertain) Significance of Institutional Shareholder Activism, 79 Georgetown Law Journal. 445 (1991); John C. Coffee, Jr., The SEC and the Institutional Investor: A Half-Time Report, 15 Cardozo Law Review 837 (1994).
21. From José Azar, Sahil Raina, & Martin C. Schmalz, Ultimate Ownership and Bank Competition (unpublished manuscript, July 23, 2016), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2710252.
22. Jan Fichtner, Eelke M. Heemskerk, & Javier Garcia-Bernardo, Hidden Power of the Big Three? Passive Index Funds, Re-Concentration of Corporate Ownership, and New Financial Risk, 19 Business and Politics 298 (2017); José Azar, Portfolio Diversification, Market Power, and the Theory of the Firm (IESE Business School, Working Paper No. 1170-E, 2017), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2811221.
23. Jie He & Jiekun Huang, Product Market Competition in a World of Cross-Ownership: Evidence from Institutional Blockholdings, 30 Review of Financial Studies 2674 (2017).
24. Azar first wrote about these issues in his 2012 PhD thesis. See José Azar, A New Look at Oligopoly: Implicit Collusion Through Portfolio Diversification () (unpublished PhD dissertation, Princeton University May 2012), http://www.princeton.edu/~smorris/pdfs/PhD/Azar.pdf. He has since transformed that work into papers, including José Azar, Portfolio Diversification, Market Power, and the Theory of the Firm (IESE Business School, Working Paper No. 1170-E, 2017), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2811221, and his joint work cited in notes 21 and 31.
25. Based largely on the legal authority of Section 7 of the Clayton Act, 15 U.S.C. § 18 (1996).
26. See U.S. Department of Justice & Federal Trade Commission, Horizontal Merger Guidelines (2010), https://www.ftc.gov/sites/default/files/attachments/merger-review/100819hmg.pdf; Sonia Jaffe & E. Glen Weyl, The First-Order Approach to Merger Analysis, 5 American Economic Journal: Microeconomics 188 (2013).
27. Germán Guitérrez & Thomas Philippon, Investment-less Growth: An Empirical Investigation (National Bureau of Economic Research, Working Paper No. 22897, 2016). Also, Schmalz reports a conversation with a fund manager, in which the manager admitted to Schmalz that he does not tell his portfolio firms to compete harder against his other portfolio firms since market share is zero sum. Martin Schmalz, Anti-Competitive Effects of Common Ownership (presentation at Columbia Law School, November 3, 2016).
28. Miguel Antón, Florian Ederer, Mireia Giné, & Martin C. Schmalz, Common Ownership, Competition, and Top Management Incentives (Ross School of Business, Paper No. 1328, 2017).
29. Martin C. Schmalz, One Big Reason There’s So Little Competition Among U.S. Banks, Harvard Business Review (June 13, 2016), https://hbr.org/2016/06/one-big-reason-theres-so-little-competition-among-u-s-banks.
30. Sociologists of business refer to this shift as the “Finance-dominated” or “post-Fordist” business model. See William Lazonick & Mary O’Sullivan, Maximizing Shareholder Value: A New Ideology for Corporate Governance, 29 Economics & Society 13 (2000), for a review of the early history of this move. See also Engelbert Stockhammer, Some Stylized Facts on the Finance-Dominated Accumulation Regime, 12 Competition & Change 184 (2008), for an update.
31. See José Azar, Martin C. Schmalz, & Isabel Tecu, Anti-Competitive Effects of Common Ownership, Journal of Finance (Forthcoming).
32. Azar, Ultimate Ownership and Bank Competition.
33. See Antón et al., Common Ownership.
34. David Autor, David Dorn, Lawrence F. Katz, Christina Patterson, & John Van Reenen, The Fall of the Labor Share and the Rise of Superstar Firms (MIT Working Paper, 2017), https://economics.mit.edu/files/12979; and De Loecker & Eeckhout, The Rise of Market Power.
35. Jacob S. Hacker & Paul Pierson, Winner-Take-All Politics: How Washington Made the Rich Richer—And Turned Its Back on the Middle Class (Simon and Schuster, 2011).
36. Eric A. Posner, Fiona M. Scott Morton, & E. Glen Weyl, A Proposal to Limit the Anti-Competitive Power of Institutional Investors, 81 Antitrust Law Journal 669 (2017).
37. Posner et al., A Proposal to Limit the Anti-Competitive Power of Institutional Investors.
38. Ronald J. Gilson & Jeffrey N. Gordon, Agency Capitalism: Further Implications of Equity Intermediation 7 (Columbia Law and Economics Working Paper No. 461, 2014). See also Ronald J. Gilson & Jeffrey N. Gordon, The Agency Costs of Agency Capitalism: Activist Investors and the Revaluation of Governance Rights, 113 Columbia Law Review 863 (2011).
39. We tread speculatively in this paragraph. The industry is complex, fluid, and poorly understood.
40. See Ali Hortaçsu & Chad Syverson, Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of S&P 500 Index Funds, 119 Quarterly Journal of Economics 403 (2004); John C. Coates IV & R. Glenn Hubbard, Competition in the Mutual Fund Industry: Evidence and Implications for Policy, 33 Journal of Corporate Law 151 (2007).
41. John Y. Campbell et al., Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk, 56 Journal of Finance 1 (2001).
42. Karen K. Lewis, Why Do Stocks and Consumption Imply Such Different Gains from International Risk Sharing?, 52 Journal of International Economics 1 (2000).
43. 15 U.S.C. § 18 (1996).
44. 15 U.S.C. § 18 (1996).
45. 353 U.S. 586 (1957).
46. 353 U.S. 586, 597–98 (1957).
47. See Elhauge, Horizontal Shareholding.
48. Thus, our argument does not depend on conscious coordination across firms, as some readers have suggested.
49. Elhauge, Horizontal Shareholding, at 1305–1308.
50. In fact, institutional investors have funded at least one publication to sow doubt about the academic research. See Daniel P. O’Brien & Keith Waehrer, The Competitive Effects of Common Ownership: We Know Less than We Think (February 23, 2017), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2922677. The authors state in their first footnote that they received funding from the Investment Company Institute, an association of investment companies that engages in lobbying and related activities.
51. Thomas Piketty, Emmanuel Saez, & Gabriel Zucman, Distributional National Accounts: Methods and Estimates for the United States (National Bureau of Economic Research, Working Paper No. 22945, 2016).
52. Posner et al., Proposal to Limit the Anti-Competitive Power of Institutional Investors.
53. Ibid.
54. Nathan Wilmers, Wage Stagnation and Buyer Power: How Buyer-Supplier Relations Affect U.S. Worker Wages, 1978-2014, American Sociological Review (Forthcoming).
55. Matthew Desmond, Evicted: Poverty and Profit in the American City (Broadway Books, 2016).
56. Clayton M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Harvard Business Review Press, 2016).
57. Luis Cabral, Standing on the Shoulders of Dwarfs: Dominant Firms and Innovation Incentives (2017), http://luiscabral.net/economics/workingpapers/innovation%202017%2007.pdf.
58. Not Patrick Henry, nor Thomas Jefferson. Apparently from the abolitionist Wendell Phillips in 1853. See http://www.bartleby.com/73/1073.html.
Chapter 5. Data as Labor
1. Jaron Lanier, Who Owns the Future? (Simon & Schuster, 2013).
2. While Lanier’s work provided the direct inspiration for our work, the themes he raises appeared roughly simultaneously in other scholarship. See, for example, Lilly C. Irani & M. Six Silberman, Turkopticon: Interrupting Worker Invisibility in Amazon Mechanical Turk, CHI’13 Proceedings of the SIGCHI Conference on Human Factors in Computing Systems (2013), and Trebor Scholz, ed., Digital Labor: The Internet as Playground and Factory (Routledge, 2013).
3. Imanol Arrieta-Ibarra, Leonard Goff, Diego Jiménez-Hernández, Jaron Lanier & E. Glen Weyl, Should We Treat Data as Labor? Moving Beyond “Free,” American Economic Association Papers and Proceedings (Forthcoming).
4. For an entertaining and artistic if exaggerated attempt to draw a connection between women’s work and data work, see http://wagesforfacebook.com/. For a more scholarly analysis of the analogy, see Kylie Jarrett, The Relevance of “Women’s Work”: Social Reproduction and Immaterial Labor in Digital Media, 15 Television & New Media 14 (2014).
5. Marc Anthony Neal, What the Music Said: Black Popular Music and Black Public Culture (Routledge, 1999).
6. Lanier, Who Owns the Future?.
7. Julien Mailland & Kevin Driscoll, Minitel: Welcome to the Internet (MIT Press, 2017).
8. Franklin Foer, The World Without Mind: The Existential Threat of Big Tech (Penguin, 2017).
9. Richard J. Gilbert & Michael L. Katz, An Economist’s Guide to U.S. v. Microsoft, 15 Journal of Economic Perspectives 25 (2001).
10. Sergey Brin & Lawrence Page, The Anatomy of a Large-Scale Hypertextual Web Search Engine, 30 Computer Network & ISDN Systems 107 (1998).
11. Richard Thaler, Toward a Positive Theory of Consumer Choice, 1 Journal of Economic Behavior & Organization 39 (1980).
12. Chris Anderson, Free: The Future of a Radical Price (Hyperion, 2009).
13. Jakob Nielsen, The Case for Micropayments, Nielsen Norman Group (January 25, 1998), https://www.nngroup.com/articles/the-case-for-micropayments/.
14. Daniela Hernandez, Facebook’s Quest to Build an Artificial Brain Depends on this Guy, Wired (2014), https://www.wired.com/2014/08/deep-learning-yann-lecun/.
15. “Complexity” is often used in academic parlance to refer to the difficulty of a problem in the worst case. Often these worst-case bounds are very “conservative” in the sense that they dramatically overstate the requirements in typical real-world applications. With a slight abuse of nomenclature, we use complexity to refer to what a problem requires in a typical or “average” case in practice rather than what it can be proven to require in the worst case.
16. https://news.microsoft.com/features/democratizing-ai/.
17. A monthly Netflix subscription is $10 and a typical subscriber in 2015 watched 1.5 hours daily according to Netflix’s publicly released statistics.
18. Foer, World Without Mind.
19. Carl Benedikt Frey & Michael A. Osborne, The Future of Employment: How Susceptible Are Jobs to Computerisation?, 114 Technological Forecasting & Social Change 254 (2017).
20. Daron Acemoglu & Pascual Restrepo, Robots and Jobs: Evidence from US Labor Markets (National Bureau of Economic Research, Working Paper No. 23285, 2017).
21. Arrieta-Ibarra et al., Should We Treat Data as Labor?
22. David Autor et al., The Fall of the Labor Share and the Rise of Superstar Firms (National Bureau of Economic Research, Working Paper No. 23396, 2017).
23. Julie E. Cohen, The Biopolitical Public Domain: The Legal Construction of the Surveillance Economy, Philosophy and Technology (Forthcoming).
24. Colm Harmon, Hessel Oosterbeek, & Ian Walker, The Returns to Education: Microeconomics, 17 Journal of Economic Surveys 115 (2003).
25. Ming Yin et al., The Communication Network Within the Crowd (Proceedings of the 25th International Conference on World Wide Web 1293, 2016), https://www.microsoft.com/en-us/research/wp-content/uploads/2016/07/turker_network1.pdf.
26. Irani & Silberman, Turkopticon; and Mary L. Gray & Siddharth Suri, The Humans Working Behind the AI Curtain, Harvard Business Review, January 9, 2017.
27. Mary L. Gray & Siddharth Suri, this project is currently untitled, but is under contract from Houghton Mifflin Harcourt. (Forthcoming).
28. Annalee Newitz, Raters of the World, Unite—The Secret Lives of Google Raters, Ars Technica (April 27, 2017), https://arstechnica.com/features/2017/04/the-secret-lives-of-google-raters/.
29. For example, a controversy raged in 2017 over Google’s role in the firing of a policy researcher critical of their business practices.
30. See Roland Bénabou & Jean Tirole, Intrinsic and Extrinsic Motivation, 70 Review of Economic Studies 489 (2003), for a survey of this literature.
31. Sara Constance Kingsley et al., Accounting for Market Frictions and Power Asymmetries in Online Labor Markets, 7 Policy & Internet 383 (2015).
32. Arindrajit Dube, Jeff Jacobs, Suresh Naidu, & Siddharth Suri, Monopsony in Crowdsourcing Labor Markets (Columbia University Working Paper, 2017).
33. https://www.nytimes.com/2016/05/06/business/facebook-bends-the-rules-of-audience-engagement-to-its-advantage.html?mcubz=0&_r=0.
34. David L. Harris, Massachusetts Woman’s Lawsuit Accuses Google of Using Free Labor to Transcribe Books, Newspapers, Boston Business Journal (January 23, 2015), https://www.bizjournals.com/boston/blog/techflash/2015/01/massachusetts-womans-lawsuit-accuses-google-of.html.
35. For a review of this research, see Adam Alter, Irresistible: The Rise of Addictive Technology and the Business of Keeping Us Hooked (Penguin, 2017).
36. Bénabou & Tirole, Intrinsic and Extrinsic Motivation; Roland Bénabou & Jean Tirole, Incentives and Prosocial Behavior, 96 American Economic Review 1652 (2006).
37. Aaron Smith, What Internet Users Know about Technology and the Web, Pew Research Center (November 25, 2014), http://www.pewinternet.org/2014/11/25/web-iq/.
38. Lisa Barnard, The Cost of Creepiness: How Online Behavioral Advertising Affects Consumer Purchase Intention, https://cdr.lib.unc.edu/indexablecontent/uuid:ceb8622f-1490–4078-ae41–4dc57f24e08b (unpublished PhD dissertation, University of North Carolina at Chapel Hill, 2014); Finn Brunton & Helen Nissenbaum, Obfuscation: A User’s Guide for Privacy and Protest (MIT Press, 2015).
39. For proposals on how this could be done, see Lanier, Who Owns the Future?; Butler Lampson, Personal Control of Data, Microsoft Research (July 13, 2016), https://www.microsoft.com/en-us/research/video/personal-control-of-data/.
40. Karl Marx, Capital: A Critique of Political Economy (Ben Fowkes, trans., Penguin Classics, 1992) (1867).
41. Friedrich Engels, The Condition of the Working Class in England (David McLellan, ed., Oxford University Press, 2009) (1845).
42. John E. Roemer, A General Theory of Exploitation and Class (Harvard University Press, 1982).
43. Beatrice & Sydney Webb, Industrial Democracy (Longmans Green and Co., 1897).
44. John Kenneth Galbraith, American Capitalism: The Concept of Countervailing Power (Houghton Mifflin, 1952).
45. Robert C. Allen, Engels’ Pause: Technical Change, Capital Accumulation, and Inequality in the British Industrial Revolution, 46 Explorations in Economic History 418 (2009).
46. This is the subject of work in progress by these authors, but was discussed by Acemoglu in a presentation he gave in 2016 at Microsoft Corporation. Daron Acemoglu, The Impact of IT on the Labor Market (September 2016), https://economics.mit.edu/files/12118.
47. In a variety of settings and with various collaborators, one of us is working to quanitfy the marginal value of data.
48. The first paper in this project is Azevedo et al., 2017, “A/B Testing,” but this only relates to a narrow aspect of the use of data for testing new products and suggesting ideas for them. While this is one important component of the value of data labor, it is far from being the main one. In 2018, Weyl, in collaboration with Lanier, Imanol Arrieta Ibarra, and Diego Jiménez Hernández, will be working to build more broadly useful systems for empirically calculating the value of data in various ML settings.
49. See, e.g., Lawrence F. Katz & Alan B. Krueger, The Rise and Nature of Alternative Work Arrangements in the United States, 1995–2015 (National Bureau of Economic Research, Working Paper No. 22667, 2016); Jonathan V. Hall & Alan B. Krueger, An Analysis of the Labor Market for Uber’s Driver-Partners in the United States (National Bureau of Economic Research, Working Paper No. 22843, 2016); Gray & Suri, untitled book project.
50. Mark Aguiar, Mark Bils, Kerwin Kofi Charles, & Erik Hurst, Leisure Luxuries and the Labor Supply of Young Men (NBER Working Paper, 2017).
Conclusion. Going to the Root
1. The most prominent recent exponents of the techno-optimist within economics have been Erik Brynjolfsson and Andrew McAfee in their 2014 book, The Second Machine Age: Work, Progress and Prosperity in a Time of Brilliant Technologies (W. W. Norton & Company). More broadly, the most prominent techno-optimist is Ray Kurzweil, in a series of books.
2. The most prominent techno-pessimistic perspective is offered by Robert J. Gordon in his 2016 book, The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (Princeton University Press).
3. This view is increasingly prevalent among economists. We cannot list the large group of papers published in recent years that document the large and rising importance of market power, but we refer the reader to an excellent blog, http://www.promarket.org, for a comprehensive set of resources.
4. It is perhaps surprising that this view of the economic future is not more broadly held, given that it is central to many economists’ understanding of economic history. For example, according to a 2016 presentation by economist Daron Acemoglu entitled “The Impact of IT on Labor Markets” to the Toulouse Network for Information Technology, the fears of technological displacement of workers by the Luddites in early nineteenth-century Britain turned out to be “wrong,” not because untamed capitalism drove up the price of labor but because radical institutional change (labor unions, universal schooling, etc.) helped workers catch up economically.
5. See Jacob S. Hacker & Paul Pierson, Winner-Take-All Politics: How Washington Made the Rich Richer—and Turned Its Back on the Middle Class (Simon & Schuster, 2011) for an account of the increasing concentration of political power by cooperating firms in past decades.
6. Such a tradeoff would probably violate the First Amendment as it is currently interpreted, but we think that courts would eventually accommodate political developments that are socially beneficial.
7. Eric A. Posner & Nicholas Stephanopoulos, Quadratic Election Law, 172 Public Choice 265 (2017).
8. See Ben Laurence & Itai Sher, Ethical Considerations on Quadratic Voting, 172 Public Choice 195 (2017); Josiah Ober, Equality, Legitimacy, Interests, and Preferences: Historical Notes on Quadratic Voting in a Political Context, 172 Public Choice 223 (2017, for a detailed discussion of these concerns.
9. Milanovic, Global Inequality.
10. Margaret E. Peters, Trading Barriers: Immigration and the Remaking of Globalization (Princeton University Press, 2017).
11. Eric A. Posner & Alan O. Sykes, Voting Rules in International Organizations, 15 Chicago Journal of International Law 195 (2014).
12. Émile Durkheim, The Division of Labour in Society (Simon & Schuster 1997; originally published in 1893).
13. The classic and perhaps most carefully developed version of this critique is by Fred Hirsch, The Social Limits to Growth (Harvard University Press, 1976), but similar themes are developed more recently by Michael J. Sandel, What Money Can’t Buy: The Moral Limits of Markets (Farrar, Straus and Giroux, 2012), and Samuel Bowles, The Moral Economy: Why Good Incentives Are No Substitute for Good Citizens (Yale University Press, 2016).
14. A. O. Hirschman, Rival Interpretations of Market Society: Civilizing, Destructive, or Feeble?, 20 Journal of Economic Literature 1463 (1982).
15. Durkheim, Division of Labour in Society.
16. Jane Jacobs, The Death and Life of Great American Cities (Random House, 1961).
17. Marion Fourcade & Kieran Healy, Moral Views of Market Society, 33 Annual Review of Sociology 285 (2007), highlight that the most powerful visions of markets have been inherently moralizing and not just economic. We hope some readers will find this moral vision an important component of the project of Radical Markets.
18. Some may wonder whether individuals might not come to fear others taking their possessions. However, under the optimal COST rate, individuals would price their possessions above the amount they would be willing to accept and thus a purchase would still be mutually beneficial, just not in as imbalanced a manner as at present. Some individuals might severely understate asset values and try to hide or degrade them to avoid forced sales, but such antisocial strategies could and should be socially sanctioned, just as tax avoidance is; see below in the text.
19. Gary Becker, The Economics of Discrimination (University of Chicago Press, 2d ed., 2010).
20. See Richard H. Thaler & Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (Penguin, 2009).
Epilogue. After Markets?
1. F. A. Hayek, The Use of Knowledge in Society, 35 American Economic Review 519 (1945).
2. Ludwig von Mises, Economic Calculation in the Socialist Commonwealth 19–23 (S. Adler trans., Ludwig von Mises Institute, 1990) (1920).
3. Leonard E. Read, I, Pencil (Foundation for Economic Education, 2010) (1958), https://fee.org/media/14940/read-i-pencil.pdf.
4. Cosma Shalizi, In Soviet Union, Optimization Problem Solves You, Crooked Timber (May 30, 2012), http://crookedtimber.org/2012/05/30/in-soviet-union-optimization-problem-solves-you/.
5. Oskar Lange, The Computer and the Market, in Socialism, Capitalism and Economic Growth: Essays Presented to Maurice Dobb (Cambridge University Press, C. H. Feinstein, ed., 1967).
6. Global Computing Capacity, AI Impacts (February 16, 2016), http://aiimpacts.org/global-computing-capacity/#easy-footnote-bottom-7.
7. J. S. Jordan, The Competitive Allocation Process Is Informationally Efficient Uniquely, 28 Journal of Economic Theory 1 (1982); Noam Nisan & Ilya Segal, The Communication Requirements of Efficient Allocations and Supporting Prices, 129 Journal of Economic Theory 192 (2006).
8. Lange, The Computer and the Market, at 157.
9. The Soviet Union: GDP Growth, Nintil (March 26, 2016), https://nintil.com/2016/03/26/the-soviet-union-gdp-growth/.
10. See, for example, Modiface’s eye-tracking–based advertising analytic system described at http://www.mobilemarketer.com/news/modiface-eye-tracking-app-increases-smashbox-conversions-by-27/447825/.