Highlights: Radical Markets: Uprooting Capitalism and Democracy for a Just Society, by Eric Posner;E. Weyl


Raw Generation of Kindle Notes, up for Summary + Review

Location 67-68

The nineteenth-century liberal was a radical, both in the etymological sense of going to the root of the matter, and in the political sense of favoring major changes in social institutions. So too must be his modern heir.

Location 349-352

Arguments made by the leaders of right-wing populist movements for trade barriers and immigration restrictions fall on willing ears. But rather than explicitly appeal to class identity or distributive justice, the leaders of right-wing populist movements appeal to the ethnonationalist creed of “blood and soil.” These groups look nostalgically back to a past when people like them enjoyed greater economic security and higher status.

Location 355-357

The movements offer little in terms of realistic policy proposals that would benefit their members as well as the general public; they are protesting against the failures of existing political systems rather than acting as a positive force.

Location 459-461

“The rich … are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants; and thus, without intending it, without knowing it, advance the interest of the society.”

Location 463-464

Yet Smith passionately believed that inequality was mainly the result of legal and social restrictions that favored the aristocracy and were incompatible with a market economy.

Location 477-481

The next generation of liberal reformers in the late nineteenth and early twentieth centuries, individuals such as Henry George, Léon Walras, and Beatrice Webb, sought to address these problems. The effects of their handiwork, which built on the legacy of the Philosophical Radicals, remain with us today. Antitrust policies and legal support for labor unions restrained the power of monopolies. Social insurance, progressive taxation, and free compulsory education enhanced competition by expanding access to opportunity. Systems of checks and balances, protection of fundamental rights, and increasing judicial power to protect minority rights addressed the tyranny of the majority.

Location 488-490

This tradeoff fragmented the liberal coalition. Those who had led the second generation of reforms coalesced into the modern political Left, known as liberals in the United States and social democrats in Europe. They prioritized equality within nations and opening of markets to domestic minorities and women, groups previously excluded from market exchange.

Location 492-493

Those liberals who prioritized free markets and efficiency over equality formed the modern political “Right” and came to be known as libertarians in the United States and neoliberals in Europe.

Location 498-500

While some commentators believe that stagnequality is the result of broad economic and demographic forces that are beyond people’s control, we believe that it is the result of a failure of ideas. The economic wisdom of left and right did not cut to the core of the tensions in the basic structure of capitalism and democracy.

Location 498-500

While some commentators believe that stagnequality is the result of broad economic and demographic forces that are beyond people’s control, we believe that it is the result of a failure of ideas. The economic wisdom of left and right did not cut to the core of the tensions in the basic structure of capitalism and democracy.

Location 500-504

Private property inherently conferred market power, a problem that ballooned along with inequality and that constantly mutated in ways that frustrated efforts by governments to solve it. One-person-one-vote gave majorities the power to tyrannize minorities. Checks, balances, and judicial intervention limited such tyranny, but did so by handing power to elites and special interest groups. In international relations, efforts to enhance cooperation and cross-border economic activity empowered an international capitalist elite that disproportionately benefited from international cooperation and faced nationalist backlash from the working class.

Location 525-539

Most markets in which individuals and businesses participate are more like the housing market than the grain market. Factories, intellectual property, companies, paintings—all are highly idiosyncratic, one-of-a-kind assets. In these and many other cases, the assumption of perfect competition makes little sense. The same holds true for labor markets, since all workers have different talents and dispositions and live in different places. Even in many markets for relatively homogenous commodities, such as Internet services or airplane flights, a few dominant firms prevail. And even when there appear to be many such firms, they frequently share owners or they collude. From bottom to top, market power—the ability of companies and individuals to affect prices in their favor—permeates the economy. We claim that market power is omnipresent and intrinsic to the current institutional structure of capitalism and that it is one of the two dominant sources of stagnequality and political conflict. The other primary problem, we believe, is that, at the same time that some markets are clogged with market power, many areas of human life are lacking in markets that could vastly improve people’s well-being. This problem is most acute for goods and services usually provided by governments, like policing, public parks, roads, social insurance, and national defense: what is needed is a market for political influence. A market for political influence? That sounds preposterous. If money were allowed to purchase political influence, wouldn’t politics be controlled by a few plutocrats? The history of political corruption in the late nineteenth-century United States bears this out. Local politicians were commonly bought off by political machines, railroad men, and oil barons. Yet the alternative model, that every citizen should have an equal voice and thus that every issue is determined by majority rule, has its own severe weaknesses.

Location 526-532

highly idiosyncratic, one-of-a-kind assets. In these and many other cases, the assumption of perfect competition makes little sense. The same holds true for labor markets, since all workers have different talents and dispositions and live in different places. Even in many markets for relatively homogenous commodities, such as Internet services or airplane flights, a few dominant firms prevail. And even when there appear to be many such firms, they frequently share owners or they collude. From bottom to top, market power—the ability of companies and individuals to affect prices in their favor—permeates the economy. We claim that market power is omnipresent and intrinsic to the current institutional structure of capitalism and that it is one of the two dominant sources of stagnequality and political conflict.

Location 532-533

other primary problem, we believe, is that, at the same time that some markets are clogged with market power, many areas of human life are lacking in markets that could vastly improve people’s well-being.

Location 545-546

Our supposedly perfectly competitive market economy, so it would seem, is actually plagued by monopolized and missing markets.

Location 617-620

Modern capitalism evolved out of a system of feudal land ownership, which put significant restrictions on people’s freedom to sell land and labor. As Adam Smith explained, a defining feature of capitalism is the right to trade. Capitalism advanced in tandem with the scientific and technological innovations that made trade a valuable and significant part of the economy. A

Location 631-633

Smith and other Radical reformers in Britain (such as Jeremy Bentham and James Mill) saw these privileges and traditions as barriers to achieving the most efficient use of property, or what came to be known as allocative efficiency.

Location 639-640

We will refer to this beneficial feature of private property as investment efficiency.

Location 675-675

However, a landowner can also be regarded as a monopolist because land is so often unique in its character and location.

Location 680-682

Because of the ubiquity of private property in our economy, empirical research suggests that the misallocation of resources due to monopoly and related problems we discuss below may be reducing output by 25% or more annually—trillions of dollars per year in the United States alone.

Location 687-690

So long as the government is benevolent and operated by well-informed experts, there can be no monopoly problem because no private person enjoys the right to exclude others from the land. This central planning approach is closely identified with the ideas of Karl Marx, though Marx ultimately soured on centralized planning, seeing it as too open to abuse.

Location 697-702

Nobel Laureate Ronald Coase called these frustrations the “transaction costs of the market.”10 He explained that to avoid this chaos, business people formed large corporations that would own many assets, such as factories and parcels of land, and employed many workers whom the head of the corporation could centrally direct to accomplish its goals without constant negotiation. Corporations rapidly took over the business landscape during the nineteenth and early twentieth century. Standard Oil, for example, came to dominate oil production and the railroads were managed by similarly large corporations.

Location 706-707

So, while corporate planning played an important role in the economy, and helped overcome many local monopoly problems, it never supplanted markets as the primary means of organization.

Location 716-719

“Property is only another name for monopoly.”11 In his treatise on the social economy, Walras stated, “Declaring individual land ownership … means … thwarting the beneficial effects of free competition by preventing the land from being used as is most advantageous for society.”12 Walras believed that land should be owned

Location 738-739

“Land monopolization would no longer pay. Millions of acres, where others are now shut out by high prices, would be abandoned or sold at trivial prices.”

Location 749-752

By 1933, American philosopher John Dewey estimated that George’s Progress and Poverty “had a wider distribution than almost all other books on political economy put together.”18 Many eminent politicians and thinkers were Georgists, including the aristocratic Winston Churchill, the radical progressive Dewey, and the Zionist visionary Theodore Herzl.

Location 792-796

Joseph Schumpeter predicted that socialism would ultimately replace capitalism.21 His view was that most economic activity in capitalist economies took place in corporations and that a corporation is just a bureaucracy in which “management” at the center issues orders to various workers. From this vantage point, it was a small step to an economy in which each industry was dominated by one or two gigantic corporations, with government regulation to ensure that they do not abuse their monopoly power, an outcome not much different from the central planning of socialism.

Location 814-815

“The Problem of Social Cost.” Coase argued that if transaction (that is, bargaining) costs are low, the allocation of property rights is irrelevant from the standpoint of efficiency, because property will be transferred from lower-valued to higher-valued uses through bargaining.

Location 825-827

This misinterpretation assumes away the monopoly problem, implying the superiority of private property because it enhances investment efficiency.28 Most mainstream economists even today continue to assume that bargaining eliminates the monopoly problem.

Location 834-836

While Vickrey never directly spelled out this utopian vision, it connects so many of his ideas that we imagine it was part of the sweeping vision he hoped to bring to the world just prior to his death. We thus label it the Vickrey Commons.

Location 850-853

They showed mathematically that the simplistic interpretation of Coase’s results will never hold except in the unusual case that the buyer and seller are both absolutely certain that the buyer values the asset more than the seller does. Otherwise there is no way for bargaining to overcome the monopoly problem and ensure that assets consistently flow to their best (highest-value) users. This work helped explain why spectrum markets

Location 853-854

Only a true, continuous auction in uses can solve the monopoly problem and hence produce allocative efficiency.

Location 854-857

But continual auctions also may create a problem—for investment efficiency. If possessors know that their possessions can be taken by others at any time and that they will not receive the proceeds of any bid, they will be discouraged from taking care of and improving their property. In this situation, you might well let your house fall into disrepair. Like George’s tax proposal, the Vickrey Commons does not give people good investment incentives.

Location 866-870

ownership and traditional private property. Partial common ownership optimizes allocative efficiency and investment efficiency within a single property regime, as the common ownership can deter monopoly power while the private ownership encourages investment. In the late 1980s, economists Peter Cramton, Robert Gibbons, and Paul Klemperer presented a way to share property rights, which was refined by Ilya Segal and Michael Whinston, among others.33

Location 982-986

In fact, it can be shown that the size of the social loss from monopoly power grows quadratically to the extent of this power. Thus, reducing the markup by a third eliminates close to 59 = (32–22)/(32) of the allocative harm from private ownership. Furthermore, in this example the distortion to investment is eliminated.

Location 1013-1016

Furthermore, control of everything would be radically decentralized; a COST thus combines extreme decentralization of power with partial socialization of ownership, showing that they are, perhaps surprisingly, two sides of the same coin. Far from creating a form of centralized planning, the COST creates a new kind of market—a flexible market in uses, to replace the old market based on permanent ownership.

Location 1067-1070

One such problem is what economists call “signaling” or “adverse selection,” concepts for which economists George Akerlof and A. Michael Spence were awarded the Nobel Prize.51 The possessor of an asset, such as a used car, often knows the quality of the asset better than a potential purchaser.

Location 1073-1076

Another barrier to trade, highlighted by another Nobel Laureate, Richard Thaler, is the “endowment effect.”52 Thaler found that people’s minimum willingness to pay to buy an object is usually lower than their minimum willingness to accept to part with it, even if they have never actually touched or used it.

Location 1094-1099

Economists tend to neglect three other impediments to trade: laziness, incompetence, and malice. Private property allows lazy or misanthropic owners to hoard assets and to do so not for gain, but out of sloth. This problem seems to have been particularly prevalent under feudalism, when landowners were not accustomed to prudence, thrift, or hard work. Nobel Laureate John Hicks once wrote, “The best of all monopoly profits is a quiet life.”55 A COST disrupts the quiet life of a lazy monopolist by forcing her to generate the income to sustain a high valuation or turn her assets over to someone who can better use them.

Location 1155-1158

Moreover, a COST would raise substantial revenue. At the rate of roughly 7% annually that we imagine being near-optimal, a COST would raise roughly 20% of national income. About half of that money would suffice to eliminate all existing taxes on capital, corporations, property, and inheritance, which economists agree are highly inefficient; to encourage investment in the way we described above; and to wipe out the budget deficit and significantly reduce debt, further stimulating investment.

Location 1190-1194

The most persistent distributive conflict in capitalist economies arises from the concentration of wealth. Because most of the returns to capital flow to the very wealthy, a broad distinction exists between those who live primarily off the returns to capital and those who live off their labor. A COST would make most of the return to capital flow to the public, making it more equally distributed than wages. The COST would thus end the conflict between capital and labor, making differences in labor income the leading source of inequality.

Location 1201-1202

Our design of the COST deals with items that have such great personal meaning that it never makes sense to sell them. When the natural turnover rate of an item is low, the tax rate is also low, so that the “price” (in the form of tax payment)

Location 1209-1211

The COST could also make us think about property in a different and healthier way. A COST taxes objects, not personal relationships. Wouldn’t it be better if people invested less of their emotional energy in objects and more in their personal relationships?

Location 1212-1213

Thus, the process by which an owner develops an attachment to an object by incorporating her labor into it has been undermined.

Location 1216-1219

Fetishistic attachment to a privately owned automobile—an extremely expensive durable asset, which even enthusiasts seldom drive for more than an hour or two per day—is, thankfully, becoming a thing of the past. Increasing economic evidence suggests that excessive attachment to homes is inhibiting employment and dynamism in the US economy, a problem a COST would greatly reduce.67 Young

Location 1224-1225

It is hardly a new notion that people invest unhealthy amounts of time and resources collecting things that they hardly ever use and don’t really need.

Location 1235-1238

From Friedrich Engels to George W. Bush, commentators and politicians have argued that owning a share in the national capital stock, usually through the stock market or a home, could help stabilize politics and enhance support for policies that raise the value of the capital stock, a position supported by some research.70 A world in which everyone benefits

Location 1240-1243

Wealth is rarely created solely by the actions of the people who are paid for it under capitalism. They normally benefit from the help of friends, colleagues, neighbors, teachers, and many other people who are not fully compensated for their contributions. A COST would better proportion the distribution of wealth to the labor that created it.

Location 1245-1248

The COST would create a Radical Market in property, one that emphasized use over ownership. It would be a Radical Market because the root market principles of exchange and competition would be extended far beyond their current institutional embodiment; because the new system would transform economic relations; and because human well-being would be greatly advanced through the reduction of inequality and the advance of prosperity.

Location 1299-1301

This new system required multiple majority votes involving different groups of people, which amounted to needing a supermajority to get anything done. Thus began a long tradition of attempts by democratic governments to limit majority rule.

Location 1301-1309

effort in the classical world was the “mixed constitution,” under which different social classes—typically, the masses, the aristocracy, and a hereditary ruler—were assigned ways to influence government and veto outcomes they disapproved of. In the Roman Republic, for example, the Senate was dominated by aristocrats but certain important offices were reserved for plebeians. The constitution gave ordinary people a voice, but advantages to ancient families and wealthier citizens.3 The idea was to prevent the masses from expropriating the wealth of the rich through the sheer power of numbers that would otherwise prevail under straight majority rule, while also giving the masses the power to block the rich from exploiting them. This system, which lasted centuries, was the greatest governance success of its time. But eventually the large number of veto points led to gridlock, which powerful leaders such as Julius Caesar resolved with extraconstitutional acts, leading eventually to civil war, dictatorship, and then empire. Over the

Location 1301-1309

effort in the classical world was the “mixed constitution,” under which different social classes—typically, the masses, the aristocracy, and a hereditary ruler—were assigned ways to influence government and veto outcomes they disapproved of. In the Roman Republic, for example, the Senate was dominated by aristocrats but certain important offices were reserved for plebeians. The constitution gave ordinary people a voice, but advantages to ancient families and wealthier citizens.3 The idea was to prevent the masses from expropriating the wealth of the rich through the sheer power of numbers that would otherwise prevail under straight majority rule, while also giving the masses the power to block the rich from exploiting them. This system, which lasted centuries, was the greatest governance success of its time. But eventually the large number of veto points led to gridlock, which powerful leaders such as Julius Caesar resolved with extraconstitutional acts, leading eventually to civil war, dictatorship, and then empire. Over the

Location 1690-1693

But when citizens are not perfectly rational and selfish, QV may run into greater problems. If citizens vote for reasons other than their narrow desire to influence the outcome they most want, QV will perform well to the extent that these other motivations are largely uncorrelated (in proportion to individual values) with how individuals are affected by the issue at hand.

Location 1698-1702

A more fundamental issue QV raises is what notion of value or “happiness” it maximizes or should maximize. This brings us to a fundamental problem: how can we measure “the greatest happiness for the greatest number”? How is it possible to compare the happiness of one individual to that of another? Many economists have argued that this task is impractical. They suggest that all we can hope to do is ensure that no one’s happiness can be increased without decreasing anyone else’s, a condition called Pareto efficiency, and that the total happiness is distributed fairly.

Location 1712-1716

Political systems are slow to change. Why would anyone want to adopt QV without evidence that it works? To address this problem, we created a company, Decide (pronounced Q-Decide, and formerly Collective Decision Engines), to commercialize QV for practical everyday purposes. The venture has given us a chance to test, learn about, and improve QV. We hope that these explorations will lay the foundation for QV in the political realm. Below are some of the ways we’ve used QV so

Location 1751-1758

Typically, respondents (especially those with less formal training in mathematics) quickly run into a constraint, running out of credits, and then returning to correct course. Economist Sendhil Mullainathan and psychologist Eldar Shafir have shown in their 2013 book that running into this type of “scarcity” quickly focuses the minds of participants so that they complete the survey carefully.42 In practice, it also seems to deeply engage users: they typically spend a third longer working on QV surveys than a standard Likert survey, even though the same fraction in both cases completed the survey. Respondents in QV surveys also participate more actively, revising their answers to reflect their preferences much more frequently and often providing feedback that taking the QV survey had helped them learn their own preferences more accurately by forcing them to make difficult, even frustrating tradeoffs.

Location 1751-1754

Typically, respondents (especially those with less formal training in mathematics) quickly run into a constraint, running out of credits, and then returning to correct course. Economist Sendhil Mullainathan and psychologist Eldar Shafir have shown in their 2013 book that running into this type of “scarcity” quickly focuses the minds of participants so that they complete the survey carefully.42

Location 1798-1799

With QV, users could have voice credits that they receive for participation (say, a certain number for every stay, ride, or post) that they then could use to evaluate the performance of others on the system.

Location 1801-1802

Such a system combines the best of both tipping and rating, creating a real cost to expressing enthusiasm, but also discouraging free-riding and allowing other participants to benefit from the feedback.

Location 1805-1808

However, the exact implementation is unclear at the time of this writing, and not available to the public; much in the world of cryptocurrencies is secretive. However, we hope that broader use of QV in these contexts will provide a more powerful test than political polling of how QV would work if adopted in social settings where norms and values would adapt to its use.

Location 1817-1819

If a better mechanism could be invented, and be used as a default method of helping people make group decisions across many areas of life, then the shared portions of life would expand and the private portions would contract. QV, based on a platform that allows people to vote in collective choices across many areas of life, would be a step in that direction.

Location 1840-1842

suggests that QV is not limited to binary referenda, or continuous public goods decisions. For almost any collective decision problem, there is some form of QV that achieves the socially optimal outcome. As such, QV offers a coherent basis for a complete democratic system.

Location 1867-1870

The survey application of QV does not allow a full expression of preference intensity because there is no way for participants who care about all the issues more than other people to reveal this fact. Some people don’t care much about politics, others care a lot. The latter group might be willing to give up something else they care about—money, for example—in order to have greater influence than the first group. But the survey doesn’t allow this.

Location 1867-1870

The survey application of QV does not allow a full expression of preference intensity because there is no way for participants who care about all the issues more than other people to reveal this fact. Some people don’t care much about politics, others care a lot. The latter group might be willing to give up something else they care about—money, for example—in order to have greater influence than the first group. But the survey doesn’t allow

Location 1872-1874

The division of labor and the benefits of trade depend on broadening the scope of trade. The same is true in QV: the more uses that can be made of voice credits, the more benefits QV brings by allowing individuals more freedom to choose how and where to use their influence.

Location 1878-1880

The only serious attempt to do so that we know of estimates the effect of democracy on growth, and finds that the introduction of democracy to a country on average causes a 20% increase in national income.54

Location 1896-1900

Because QV penalizes extreme views by making them costlier to express, it encourages moderation and compromise. By offering broader freedom, subject to a budget constraint, it gives citizens greater responsibility and control over collective decisions. In the same way that participation in public protests often gives citizens a sense of ownership over policy choices, QV would offer citizens the chance to feel their voice had been more fully heard, both helping them win on the issue most important to them and reconciling them to the losses they suffer.

Location 1911-1915

As early as the 1950s, economist John Kenneth Galbraith called this the paradox of “public poverty” among “private affluence”: while children are “admirably equipped with television sets,” “schools were often severely overcrowded and … underprovided.”56 He complained that a “family which takes its air-conditioned … automobile out for a tour passes through cities that are badly paved, made hideous by litter, blighted buildings and posts for wires that long since should have been put underground.”

Location 1962-1964

From the standpoint of economic theory, this “migration imbalance,” as we will call it, is puzzling. Economists believe that global wealth increases when all factors of production—goods, services, capital, labor—are allowed to flow across borders to the locations where they can be most efficiently employed.

Location 1979-1982

Some mercantilists, such as Robinson Crusoe author Daniel Defoe, advocated unrestricted immigration, hoping that migrants would compete with native workers to drive down wages.2 For the same reason, they were wary of emigration, which reduced the size of the national labor force and hence its ability to produce exports.

Location 1983-1986

Mercantilism reflected the interests of the ruling classes of the time.4 Mercantilist policies burdened ordinary people but generated savings for the state that rulers could use to achieve military supremacy and maintain public order. Those rulers saw their populations as resources to be exploited rather than citizens whom they served.

Location 1987-1990

shifted the focus of economic analysis away from the interest of sovereigns in accumulating wealth and toward the desire of ordinary people to enjoy prosperity. They believed that economic freedom of many kinds (to exchange across borders, to borrow and lend, to repurpose and sell land and other capital, etc.) was critical to maximizing the total welfare that a nation’s economy could deliver to its citizens.

Location 1999-2002

The reason is that while different nations went through periods of relative prosperity and decline, persistent differences in mass living standards across countries were unknown until the late nineteenth century. Even the most extreme gaps, such as between China and the United Kingdom, were only a factor of 3. This contrasts with the 10 to 1 gap that opened up by the 1950s.

Location 2003-2004

A natural way to measure inequality is to determine the percentage by which an average individual’s income could be increased if income were equally distributed.

Location 2021-2024

Together these patterns imply that inequality across countries has gone from a relatively insignificant phenomenon in the grand scheme of global inequality, accounting for only a little more than 10% of global inequality in the 1820s, to being the dominant source of global inequality, accounting for two-thirds or more in the second half of the twentieth century and still today accounting for 60–70% depending on whose measurements you rely upon.

Location 2042-2045

First, putting aside the important but limited exception of migration to colonial possessions (starting with the New World centuries earlier), free migration would not have significantly increased the well-being of ordinary people. No one benefited from moving from one country to another if he or she was a proletarian or landless peasant in both.

Location 2045-2046

migration was relatively unrestricted across countries, and controls upon it were scarcely enforced since there was little demand to migrate and because the primitive, risky, and uncomfortable nature of transportation at the time deterred all but the most desperate or ambitious.

Location 2053-2056

Irish migration by British capitalists divided the international working class and undermined socialism.11 Radicals and progressives in many countries, including John Stuart Mill and Henry George, who sometimes dabbled with ugly racist and eugenic arguments, shared these sentiments.12 In the early twentieth century, a decisive shift in attitudes toward migration took place.

Location 2064-2065

But, while significant intellectual and political resources were used for the building of trade and investment institutions, migration received little consideration.

Location 2065-2066

The postwar economic system stood on three pillars: international trade, monetary and macroeconomic stabilization, and development finance.

Location 2092-2094

Together these institutional developments have created an imbalanced global order. Capital, goods, and highly educated labor flows rapidly across borders, generating significant wealth, while less educated workers tend to stay at home. These weaknesses in globalization have long been recognized by “antiglobalization” activists, though not always expressed in precise economic terms.

Location 2095-2098

One thing is the free movement of peoples, the other of money. This can be seen … (at) the border between Mexico and the United States which hardly exists as far as the flow of money and goods is concerned. Yet it stands as a kind of Berlin Wall … when it comes to stopping people from getting across.”15 Those promoting globalization, with their

Location 2101-2105

Studies by the World Bank and prominent trade economists find that eliminating all remaining barriers to international trade in goods would increase global output by only a small amount, 0.3–4.1%. For global investment, the most optimistic estimate in the literature finds a 1.7% increase in global income from the elimination of barriers to capital mobility.16 Many believe that liberalization of international capital markets has gone too far. Three top IMF economists recently argued that even liberalization that has already taken place has brought limited gains to economies while generating inequality and instability.

Location 2106-2108

the benefits of liberalizing migration have dramatically expanded. Sharp reductions in transportation costs have made the natural barriers to migration de minimus compared to the potential gains. On the other hand, the potential economic benefits of migration have exploded. A typical Mexican migrant moving to the United States

Location 2120-2123

If countries allowed unlimited immigration, then the poor workers in capital-starved countries would migrate to wealthy countries like the United States, where their wages would be much higher. While the huge surge of migration would reduce the wages of workers in wealthy countries, global well-being would increase enormously.

Location 2123-2127

The borders of the United States were open for more than half of its history, and the effects were as theory predicts. Migrants benefited from higher wages and Americans benefited from the migrants, who helped build railroads and canals, who worked in mines and on farms and in factories. The social problems brought on by migration were often severe—including a considerable amount of civil strife—but manageable, and over the long term the country prospered. But today, open borders are impractical both economically and politically.

Location 2131-2133

Wealthy countries, by definition, have a greater relative abundance of capital as compared to labor than do poor countries. It is thus natural that trade and migration should both benefit capitalists in wealthy countries and laborers in poor countries at the expense of laborers in wealthy

Location 2159-2162

In contrast to the United States, European countries other than the UK have highly progressive systems of capital and labor taxation that allow the broad public to benefit from the successes of migrants. However, because of these tax systems, because the Continent no longer hosts the world’s greatest universities, and because the Continent has been less successful in fostering entrepreneurship than the United States, fewer high-skilled migrants relocate to Europe than to the United States.

Location 2173-2179

While one might assume that natives living in areas with the highest migrant populations object to migration more than other people do, social science evidence is mixed. Often it is in the rural and economically depressed regions where few migrants reside that opposition to migration is strongest.28 Workers in such areas see migration adding to economic vibrancy in other communities, but not in their own. They gain none of the ancillary social and cultural benefits that dynamic city-dwellers gain from migration, of increased variety in food, color in urban life, or exposure to other cultures that can expand career opportunities. Instead, they see the rest of their country moving in directions that distance it from their experience in ways that increase their isolation and consignment to the cultural periphery.

Location 2192-2193

In short, the system of migration suffers from the same problems as our economy and democracy: a combination of inequity and often arbitrary government discretion.

Location 2195-2198

In an insightful 2010 lecture, the late Nobel Laureate Gary Becker proposed a simple auction-based system for migration: set a quota for migration and auction off the rights to enter the country to the highest bidder.30 The revenue raised by this Radical Market could be used to fund public goods or a universal social dividend, as we saw with common ownership of property in chapter

Location 2200-2203

First, it ensures that a large share of the gains from migration accrue to ordinary people rather than businesses. Hence, it would advance equality. Second, and as a consequence, it would soften political opposition to migration. Third, the program would greatly reduce the role of government bureaucrats and instead harness the knowledge of the migrants who best understand the economic prospects open to them.

Location 2214-2216

This equals a reduction by about 1 percentage point, going an eighth of the way toward restoring the trough of inequality midcentury in the United States. Median household income for a family of four in the United States is about $50,000. Such a family would earn roughly $8,000 under such a system and thus would see their income rise by about 15%, roughly equal to all inflation-adjusted gains for such families since the 1970s.

Location 2271-2273

For this system to work, the law must make two further adjustments. First, migrant workers must be permitted to work for below the minimum wage. Under current law, a worker paid the federal minimum wage would receive almost $15,000 in one year. By way of comparison, the average annual income in Nepal is less than $1,000 and typical Nepalese make closer to $500;

Location 2276-2277

Second, immigration enforcement would need to be strengthened. If Bishal disappears into the underground economy, there must be a reasonable likelihood that he will be caught and deported.

Location 2321-2323

But as anyone who has worked or has offered a job to someone knows, money is rarely the sole factor in determining the success of such relationships. By placing individuals and communities in charge, VIP allows these individuals and communities to include other factors in decisions about which migrants to allow.

Location 2342-2346

It is important to recognize the powerful ways in which the structure of the VIP would reduce the risk of exploitation relative to the current system of migration. Workers are most vulnerable to exploitation when their employment options are limited or they operate as illegal immigrants, outside the protection of the law. When potential employers are forced to compete, workers tend to prosper. This competition is precisely what the VIP promotes: at present, only a few powerful corporations can sponsor visas. Under VIP, every citizen will be able to. The more countries that adopt a VIP system and the more citizens that decide to host, the more options will be available to migrants.

Location 2342-2346

It is important to recognize the powerful ways in which the structure of the VIP would reduce the risk of exploitation relative to the current system of migration. Workers are most vulnerable to exploitation when their employment options are limited or they operate as illegal immigrants, outside the protection of the law. When potential employers are forced to compete, workers tend to prosper. This competition is precisely what the VIP promotes: at present, only a few powerful corporations can sponsor visas. Under VIP, every citizen will be able to. The more countries that adopt a VIP system and the more citizens that decide to host, the more options will be available to migrants.

Location 2342-2346

It is important to recognize the powerful ways in which the structure of the VIP would reduce the risk of exploitation relative to the current system of migration. Workers are most vulnerable to exploitation when their employment options are limited or they operate as illegal immigrants, outside the protection of the law. When potential employers are forced to compete, workers tend to prosper. This competition is precisely what the VIP promotes: at present, only a few powerful corporations can sponsor visas. Under VIP, every citizen will be able to. The more countries that adopt a VIP system and the more citizens that decide to host,

Location 2342-2346

It is important to recognize the powerful ways in which the structure of the VIP would reduce the risk of exploitation relative to the current system of migration. Workers are most vulnerable to exploitation when their employment options are limited or they operate as illegal immigrants, outside the protection of the law. When potential employers are forced to compete, workers tend to prosper. This competition is precisely what the VIP promotes: at present, only a few powerful corporations can sponsor visas. Under VIP, every citizen will be able to. The more countries that adopt a VIP system and the more citizens that decide to host, the more options will be available to migrants.

Location 2358-2362

All of these countries have migration systems designed for the benefits of migration to be broadly shared among natives rather than exclusively accruing to a small group of geographically concentrated capitalists, entrepreneurs, and high-skilled workers. Despite this sharing, the total benefits per native created by migration in these countries to migrants and the countries that send them is far greater than in the more closed OECD countries, because the volume of migration is so much greater. Beyond these features, the migration systems of these countries differ widely.

Location 2383-2385

This is the key reason for the program. If ordinary people like Anthony both gain financially from migration and learn something about the humanity and needs of foreigners, their opposition to immigration will decline. Eventually the number of migrants could be expanded if no serious social problems were encountered and the program was popular.

Location 2389-2396

Furthermore, the large increases in migration would likely make activities that are currently uneconomic in OECD countries viable again, as the example of the GCC countries and our opening vignette illustrate. Factories that have moved abroad could return, offering new jobs for natives, if abundant migrant labor were available, as a political party in Australia led by Nick Xenophon has argued in recent years. Many of the fears of the effects of migrants on wages are actually more justified at our current, low levels of migration. In GCC countries, where migration is much higher, migrant wages are so low and migrant labor so plentiful that migrants engage in activities (domestic service, low-skilled manufacturing, etc.) that are clearly uneconomic for employing natives. Such activities are usually large enough in scale that they require native employers and supervisors, offering direct benefits and often even employment to natives, as illustrated in our opening vignette.

Location 2396-2402

the effects of large-scale migration as we envision it would be similar to those of women’s entry into the labor force over the mid-twentieth century, as economist Michael Clemens argues in a forthcoming book, The Walls of Nations.34 Yes, women competed with men in the workplace, causing some dislocation and resentment. But because most men had close relationships with women, as fathers, husbands, brothers, and sons, they benefited from greater opportunities for women more than they were harmed at work and thus were reconciled to the additional competition. At the same time, while sexism persisted, a growing professional presence for women began to break down stereotypes and patriarchy. Similarly,

Location 2417-2420

Probably the most important concern is that VIP would increase inequality in host countries. Host country middle and working classes would benefit, while a new class of very poor (by American standards) migrant workers will form a new subordinate class, which might seem intolerable under liberal norms.

Location 2426-2431

Evidence from sociological and economic studies of migration indicates that when migrants have the option, most prefer temporary migration for work in circular patterns over permanent migration.35 The experience in the GCC countries is strongly consistent with this pattern, with waves of migrant workers rotating in and out. Only when this option is foreclosed do most attempt to move permanently. This kind of circular migration does not create the pathologies normally associated with class divisions, where the lower class consists of people who are born into an involuntary status they can never leave.

Location 2431-2433

while inequality within the United States might rise (reflecting the lower wealth levels of the foreign workers), both inequality among US natives and global inequality will decline. That is of course the lesson of the GCCs.

Location 2449-2452

This is not to deny that there is something disquieting about the subordinate position in which VIP would naturally place migrant workers. The attitude toward these workers that it would engender, at least in the short term, is unlikely to be enlightened and egalitarian respect. Instead, we would expect some hosts to develop a sense of paternalism and condescension toward the migrants they host, as illustrated in our vignette.

Location 2458-2461

The VIP program would thus move the desperation of the world’s poorest out of the shadows, offer a real path to opportunity, and turn the indifference and hatred of the rich world into benevolent condescension (at worst) and, in many quarters we suspect, real sympathy. This is a moral gain relative to the hypocrisy of our current system and perhaps the only plausible way toward a more just international order.

Location 2513-2514

Yet economic research suggests that diversified institutional investors have harmed a wide range of industries, raising prices for consumers, reducing investment and innovation, and potentially lowering wages.

Location 2520-2524

Yet during the early modern era, the major source of monopoly was not this type of individual initiative, but the state, which authorized well-connected individuals or groups to dominate various lines of business. Adam Smith and his contemporaries saw these legal arrangements as the primary source of monopoly. The movement for American Independence was partly a struggle against the monopolistic control of the British East India Company over the trade in tea.

Location 2549-2556

While enforcement was initially slow, the new law became a powerful tool in the hands of the Progressive movement that was just blossoming. Henry George led the way,5 using arguments similar to those of Walras.6 The first great Progressive president, Theodore Roosevelt, promised to bust the trusts. Though legend has exaggerated what he achieved, his administration did bring numerous antitrust lawsuits. The basic dilemma was that while the trusts damaged market competition, enabling them to overcharge for their goods and services, they also could spread the fixed costs of production over many more consumers because of their vast scale, resulting in lower prices, and eliminate local monopolies by buying up land and local business monopolies in what economists call “vertical integration.”

Location 2567-2573

Yet these new interventions did not halt the growing power of concentrated businesses. As legal scholar Einer Elhauge documents, business concentration, and the income inequality many blamed on it, continued to rise during this period.9 It took a Great Depression and the rise of Franklin Roosevelt’s New Deal to establish an activist antitrust and regulatory policy toward private monopolies. Regulators and courts became more aggressive about searching out and blocking methods businesses use to expand their economic power. Congress got involved as well. The original Clayton Act tried to stop concentration by prohibiting firms from buying the stock of other firms. Businesses figured out that they could get around this rule by buying the underlying assets of firms rather than the stock in them.

Location 2582-2584

Beginning in the 1970s and accelerating from the 1980s onward, antitrust authorities lost track of the ways in which capital markets reconfigured themselves to maintain monopoly power. In order to understand the reasons why, we must examine the evolution of the corporate form and its governance in the United States during the twentieth century.

Location 2590-2591

Yet liquid public ownership also created a paradox identified by Adolf Berle and Gardiner Means in their path-breaking 1933 book, The Modern Corporation and Private Property.

Location 2601-2602

Nowadays, most people realize that stock ownership is beneficial only because it gives you the ability to enjoy gains in the market without paying attention to

Location 2608-2609

The development of stock markets gave investors the power to obtain liquidity, but the price to be paid was loss of control—agency costs.

Location 2617-2621

But it also became much easier for industry to concentrate through acquisitions, resulting in monopoly prices, depressed wages, and political corruption. And it also becomes possible for managers to operate firms for their private benefit rather than for the benefit of shareholders. The government has responded episodically with antitrust and corporate governance enforcement, but there is reason to think that these two styles of regulation are in tension. This contradiction lay under the surface for many years, but has come to the fore with the rise of institutional investment.

Location 2622-2625

The logic of shareholder capitalism suggests that investors wish to do as little work as possible while gaining a maximal stable return. Starting in the 1950s, economists developed financial ideas that came to be known as “portfolio theory” based on these principles.13 The major insight was that for the average investor, it makes more sense to buy shares in a diverse group of corporations mimicking the whole economy than to

Location 2678-2682

When combined, BlackRock, Vanguard, and State Street constitute the single largest shareholder of at least 40% of all public companies in the United States and nearly 90% of public companies in the S&P 500.22 The fraction of US public firms held by institutional investors who simultaneously hold large blocks of other same-industry firms increased from less than 10% in 1980 to about 60% in 2010 and has continued to rise since.

Location 2720-2724

Real institutional investors own only about 5–10% of the companies, but the same logic holds. Suppose Vanguard is the largest shareholder of GM and Ford, and BlackRock is the second largest shareholder. Vanguard owns 7% of each firm; BlackRock owns 6% of each firm. Each institutional investor wants GM and Ford to forgo price competition because price reductions lower profits. It doesn’t matter whether their stake is 100%, or 7%, or 6%, or 0.01%. They all agree on the objective.

Location 2726-2729

•  An institutional investor could strategically advise a CEO that profits will increase if the firm raises prices or reduces investment. A recent paper observes exactly this sort of behavior: firms in concentrated industries with a lot of common ownership have made increasingly anemic investments in capacity and innovation.27 Since each CEO knows the investor is likely to be

Location 2731-2733

•  Institutional investors naturally dominate “earnings calls” and other interactions between the Chief Financial Officer (CFO) of leading corporations and their investors. It is the duty of such officers to “keep the investors happy.” If pro-competitive moves by firms are met with scorn from such leading investors, and anticompetitive ones are praised,

Location 2734-2736

•  The institutional investor could design or promote incentive packages for CEOs to reduce their incentive to compete against rivals. CEOs can be judged by performance relative to competitors or by absolute performance.

Location 2741-2749

•  Even less directly, but perhaps most perniciously, institutional investors could promote business standards, practices, and beliefs that superficially appear to be “pro-business” or “pro-shareholder,” but also tend to reduce competition. Under the cover of promoting good corporate governance, institutional investors could promote initiatives to “cut the waste” by reducing investment and the number of workers and instead encourage firms to pay higher returns to shareholders or hoard cash. They could promote lobbying by firms for general “pro-business” policies such as less regulation and lower corporate taxes. Perhaps it is a coincidence, but over precisely the same period that institutional investors rose to prominence, the dominant corporate “ideology” shifted away from one emphasizing investment and innovation and toward one favoring retrenchment, lobbying, and cost-cutting.30 Such initiatives may result in lower competition and thus higher profits for institutional investors.

Location 2767-2770

Like firms that collude to raise prices and reduce output, those that collude in the market for workers are likely to pay lower wages and fire workers to create greater unemployment so they can sustain these lower wages and exploit workers. This phenomenon is known as “monopsony,” the reverse of monopoly. The stagnation of wages for most workers we discussed in our introduction immediately comes to mind, and recent research has shown a tight link between the rise of market power and anemic wage growth.34

Location 2776-2780

A simple but Radical reform can prevent this dystopia: ban institutional investors from diversifying their holdings within industries while allowing them to diversify across industries. BlackRock would own as much as it wants of (say) United Airlines, but it would own no stake in Delta, Southwest, and the others. It would also own as much as it wants of Pepsi, but not Coca-Cola and Dr. Pepper. And it would own as much as it wants of JP Morgan, but none of Citigroup and the other banks. If BlackRock remains large, it would likely end up with very large stakes in the firms it owns—10–20%, or more—in various markets, as illustrated in our opening vignette.

Location 2781-2783

Based on more detailed calculations in our joint work on this proposal with Fiona Scott Morton (former chief economist of the Antitrust Division of the DOJ), we think 1% is a reasonable threshold.36

Location 2785-2787

Under our scheme, institutional investors face a tradeoff. They can be small and fully diversified—within as well as across industries. Or they can be large and partially diversified—not within but only across industries. We also exempt investors that opt to be purely passive (that do not engage in any corporate governance activities).

Location 2799-2801

Institutional intermediaries compete and are rewarded on the basis of “relative performance” metrics that give them little incentive to engage in shareholder activism that could address shortfalls in managerial performance; such activity can improve absolute but not relative performance [of the institution].

Location 2803-2807

Because a large institutional investor owns roughly the same shares, including the shares of Firm X, as other large institutional investors, it has gained nothing relative to its own competitors in the financial services industry. It will still gain by increasing the overall size of the stock market, which increases the share it takes of it, and thus it will still have some incentives to engage in the sorts of corporate governance we highlighted earlier. However, these incentives are greatly dampened relative to the case in which each corporation is mostly controlled by a single institutional investor.

Location 2811-2815

That competition at present centers primarily on fees, services, and the illusory ability of fund managers to “pick” stocks.40 If our proposal were put into effect, competition would instead focus on the quality of governance that institutional investors provide, leading to a market where competition between institutional investors would directly help solve the Berle-Means problem by holding institutional investors accountable for governing the companies they invest in to maximize returns.

Location 2826-2828

First, if our policy did limit diversification within an industry, the size of this effect would be small. Financial economists have found that a randomly chosen portfolio of as few as fifty stocks achieves 90% of the diversification benefits available from full diversification across the entire market.

Location 2830-2832

These include the fact that an important component of variance in individual stock returns is accounted for by an industry component, so diversifying across industries is substantially better than diversifying randomly, and that our proposal only affects holdings in concentrated oligopoly industries, not all industries.

Location 2834-2835

We therefore believe our proposal would preserve nearly all of the gains from diversification for typical investors, even if investors chose to hold only the funds offered by a single institution.

Location 2836-2838

worsen diversification at all. If savers truly want that last bit of diversification, they can simply invest some of their money in many different institutional investors. Our rule would do nothing to prevent such direct diversification by individual investors.

Location 2839-2844

institutional investor could be allowed to own as much equity as it wants—within industries as well as across industries—as long as it never communicates with the operational firms; commits itself to “mirror voting,” in which it votes the same as other shareholders do; and commits to a clear, verifiable investment strategy such as indexing that allows the investor no discretion in selling some stocks and buying others, and hence prevents the investor from punishing firms by selling their stock. Thus, the cost to diversification of our policy is de minimus. Law on Our Side The legal prohibition on institutional investing patterns that lead to the monopoly problems we highlight is quite clear.

Location 2839-2843

An institutional investor could be allowed to own as much equity as it wants—within industries as well as across industries—as long as it never communicates with the operational firms; commits itself to “mirror voting,” in which it votes the same as other shareholders do; and commits to a clear, verifiable investment strategy such as indexing that allows the investor no discretion in selling some stocks and buying others, and hence prevents the investor from punishing firms by selling their stock. Thus, the cost to diversification of our policy is de minimus.

Location 2855-2859

“Even when the purchase is solely for investment, the plain language of Section 7 contemplates an action at any time the stock is used to bring about, or in attempting to bring about, a substantial lessening of competition.”46 So, in the end, the only question is whether the acquisition of stock does or does not reduce competition. Section 7 has been used to block numerous mergers and other asset acquisitions over the years. It has not been used against institutional investors.

Location 2876-2880

A law firm that sued institutional investors, on the other hand, would be bringing a case against capital as a class. Given that institutional investors effectively control most of the corporate economy, if a law firm attempted to bring a case against institutional investors, it would run the risk of losing all work for public corporations. While the antitrust laws were designed to constrain large corporations and trusts, their sponsors never quite imagined the sort of systematic coordination of all business in the economy that institutional investors have within their grasp.

Location 2886-2888

Anyone who earns substantially more of their income from capital or corporate power than is average in the population would stand to lose the monopoly profits that institutional investors earn for them. This group includes most families in the top 10% of income earners, but almost none outside this group.

Location 2909-2912

However, it would most likely do so not by actually reducing the amount of resources used to make coal, but instead by using the new labor market power of the mines to artificially depress wages and increase unemployment. Prior to the merger, the mines had to compete for workers, buoying wages. After the merger, the joint mine would be the only game in town and could force down wages to the point where workers drop out of the labor force and/or go on disability, leaving society to effectively pay their wages.

Location 2913-2916

famous anticompetitive trick in typical markets is called “resale price maintenance.” In this scheme, a supplier of, say, clothing insists that no retailer sells the clothing below a particular price. This can help ensure that the retailers do not compete with each other on price, increasing retailer profits. The clothing supplier can take advantage of these increased retail profits

Location 2917-2921

A large retailer, such as Walmart, can insist that none of its suppliers of (say) clothing pay workers more than the minimum wage. This lowers the wage all workers expect and thus allows each supplier to stay competitive in the labor market while paying an extremely low wage. This in turn lowers the costs and raises the profit of suppliers, even though it may drive workers out of the labor force by lowering their earning opportunities. Walmart can benefit from these increased profits by striking more favorable deals with the suppliers. Wilmers provides evidence that something like

Location 2926-2930

In his 2016 landmark sociological study of urban housing in the United States, Evicted, sociologist Matthew Desmond suggests that landlords in poor neighborhoods often buy up enough housing to have substantial power to drive up rents by holding units vacant and artificially depressing supply.55 Yet as far as we know, no antitrust case has ever been brought against such local but potentially devastating attempts at monopolization.

Location 2938-2943

While such acquisitions doubtless help accelerate a path to market for start-up products and provide badly needed financing, they also have a dark side. Economist Luís Cabral has named these mergers “Standing on the Shoulders of Dwarfs”: they may crush the possibility of new firms emerging to challenge the business model of existing industry leaders, instead co-opting them to cement the dominance of those leaders.57 To prevent this dampening of innovation and competition, antitrust authorities must learn to think more like entrepreneurs and venture capitalists, seeing possibilities beyond existing market structures to the potential markets and technologies of the future, even if these are highly uncertain.

Location 2944-2946

Fears about the political influence of large firms were a central motivation for the original antitrust laws. Economist Luigi Zingales makes a forceful case in his 2012 book, A Capitalism for the People, that antitrust law should be used to block mergers that result in the acquisition of political influence through

Location 3001-3002

Facebook is open and honest about how it uses data and pays for the value it receives with money. The user’s role as a vital cog in the information

Location 3001-3003

Facebook is open and honest about how it uses data and pays for the value it receives with money. The user’s role as a vital cog in the information economy—as data producer and seller—is highlighted.

Location 3006-3008

Reality is different, however, as “the inventor of virtual reality” Jaron Lanier highlights in his brilliant 2013 book Who Owns the Future?,1 which inspired many of our ideas in this chapter.2

Location 3017-3019

People’s role as data producers is not fairly used or properly compensated. This means that the digital economy is far behind where it should be, that the income from it is distributed to a small number of wealthy savants rather than to the masses, and that many of us have a false fear of AI creating mass unemployment when humans are more necessary than ever to our digital economy.

Location 3031-3032

Many early designs supported technologies that would have made it easier for receivers of information to automatically pay the providers. These designs used two-way links where every piece of information would effectively carry its full provenance with it.

Location 3045-3045

Internet companies relentlessly pursued users under the banner “usage, revenues later” (a “backronym” for “url”).

Location 3055-3057

In fact, a social and business movement developed around the concept that online services should be free, as embodied in entrepreneur and writer Chris Anderson’s 2009 best-selling book, Free: The Future of a Radical Price.12

Location 3068-3070

Together, these forces established an environment where users were reluctant to pay for anything and the providers of services therefore searched for alternative means of staying afloat. Desperate for some way to monetize their massive user base, Google turned to advertising to stabilize its balance sheet. Facebook, YouTube, and others followed Google’s

Location 3083-3086

The core idea of ML is that the world and the human minds that intelligently navigate it are more complicated and uncertain than any programmer can precisely formulate in a set of rules. Instead of attempting to characterize intelligence through a set of instructions that the computer will directly execute, ML devises algorithms that train often complicated and opaque statistical models to “learn” to classify or predict outcomes of interest, such as how creditworthy a borrower is or whether a photo contains a

Location 3090-3092

Neural networks work differently. Rather than inputs directly and independently determining outputs, the inputs are assumed to combine in complex ways to create “features” of the phenomenon being studied, which in turn determine other features, which eventually determine the outcome.

Location 3114-3115

Neural networks thus achieve astonishing intelligence through repeatedly reprocessing increasingly complex inputs into more complex ones through a series of layers, until they finally reach their desired prediction.

Location 3129-3131

It would thus end up “overfitting” to irrelevant details of particular images, such as the fact that all images containing a face might have exactly three red pixels in the picture. The problem of overfitting—that is, of trying to fit a complex model to insufficient data—is

Location 3148-3150

The number of programmers required, unlike the amount of data and computation, does not inevitably grow with the complexity of nets. More basic research, proposing new algorithms, or training techniques, can have a greater impact, but in practice the advantages granted by such algorithmic advances are usually short-lived and quickly replicated. The crucial components of success for nets are data and computational power.

Location 3159-3163

Because these services have high “sample complexity,” they require vast stores of data on which to train the ML systems. Thus, the vast data sets collected by Google, Facebook, and others as a by-product of their core business functions became a crucial source of revenue and competitive advantage. Companies that started as reluctantly free service providers in search of a revenue model and morphed into advertising platforms are now in the process of becoming data collectors, delivering services that lure users into providing information on which they train AIs using ML.

Location 3164-3166

Jaron Lanier describes such platforms as “siren servers.” Their allure, he explains, derives from the combination of the free services they offer because of their scale and exceptional data access. Yet Lanier worries about the social and economic consequences of their business model. Because they do not pay their users for data, they do not give their users proper incentives to supply data that are most needed.

Location 3184-3186

watching. People’s time is worth more than a few percent of a cent. This phenomenon is broader than video, however; the siren servers have thrived on devaluing creative content from news to music and appropriating the value it generates for themselves rather than creators.

Location 3198-3200

According to one of our ongoing projects with collaborators including Lanier, the share of income going to labor in the largest tech companies is roughly 5–15%, lower than any industry other than extractive ones such as oil, and dramatically lower than service-sector companies like Walmart, where labor’s share is roughly 80%.

Location 3204-3205

changing in their business model, we may be headed for a world where labor’s share falls dramatically from its current roughly 70% to something closer to 20–30%.

Location 3207-3210

They are trained with and learn from human data. Thus AI, just as much as fields or factories, offers a critical role for ordinary human labor—as suppliers of data, or what we will call data as labor. Failing to recognize data as labor could thus create what Lanier calls “fake unemployment,” where jobs dry up not because humans are not useful but because the valuable inputs they supply are treated as byproducts of entertainment rather than as socially valued work.

Location 3214-3215

Why is it important for people to be paid for data in money rather than in-kind in the form of valuable services?

Location 3216-3221

Hal Varian, chief economist at Google, who has argued that data are omnipresent these days and that what is scarce are the talent and computational power needed to make sense of these data. Varian thinks that all that is needed for AI services to succeed is for nothing to stand in the way of “natural” collection of data by siren servers, and ample rewards to talented engineers and perceptive investors for their contribution to the mechanics and infrastructure. In this view, data are much more like capital than labor: they are a naturally available resource, harvested from the public domain (where they are freely available), and transformed into something useful only by the hard work of programmers, entrepreneurs, and venture capitalists who then deserve to own the data.

Location 3225-3228

exchange value of a good is determined by the marginal value of the last unit of a good available, rather than the average value gained by its consumption. While the average value of water is high, its marginal value is low as it is so plentiful. Varian’s argument is that while data may have enormous value in total or on average, on the margin no individual’s data are worth much.

Location 3243-3246

The world of ML is different from the world of standard statistics for two reasons that mirror the reasons why data have so little value in the classical statistics perspective. First, the difference in approach between ML and standard statistics is how they relate to complexity. Recall that different problems of different complexity require different amounts of data. In statistics, the goal is to solve a single, simple problem. In ML, as data grow we try to teach the AI system new and more complicated things, to solve problems with increasing sample complexity.

Location 3248-3250

complexity, there are not enough data to even get started on learning. Above this size, most learning has already taken place, so additional data quickly run into the diminishing returns we highlighted above.

Location 3248-3250

When the available data are much below the sample complexity, there are not enough data to even get started on learning. Above this size, most learning has already taken place, so additional data quickly run into the diminishing returns we highlighted above.

Location 3259-3266

the overall learning of the system is quite different, as the figure illustrates. While at any given time the system is only in the data range of learning one or a few things, at any given time it is most likely learning something. In the figure, a vision system based on a third of the data (labeled photographs) that has been collected has already mastered recognizing the presence of a human, and additional labeled photographs are of little value. The system also is not yet close to having enough data to understand the nature of the action in the photograph; this is much too complex a problem. However, between these two complexities it can learn to label all discrete objects in the photograph. Thus, additional data are now useless for both the recognition and analysis problems, but very useful for the labeling problem. From this perspective, the primary determinant of the marginal value is not the statistics of a given ML problem, but rather the distribution of complexity across different problems.

Location 3271-3273

However, a speech recognition system with all but very high accuracy is mostly useless, as it takes so much time for the user to correct the errors it makes. This means that the last few percentage points of accuracy may make a bigger difference for the value of a system than the first 90% does. The marginal value grows to the extent that it allows this last gap to be filled.