By Andrew Hyman, Class of 2019
Let’s for a moment take a trip to “Marketopia” - a society where all assets are up for auction to the highest bidder, and the proceeds of the sale are distributed to all people in equal amounts. Here in Marketopia, the ideas of Adam Smith, Karl Marx, and the lesser known Henry George have been synthesized to fundamentally change the nature of property ownership. According to the authors of Radical Markets: Uprooting Capitalism and Democracy for a Just Society, these changes would unleash market mechanisms that would grow the economy by a third, reduce inequality back to the level of the 1950s, and double median income.
These fantastic claims are laid out in Radical Markets by Professor Eric Posner of the University of Chicago Law School and Glen Weyl, a Senior Researcher at Microsoft. At an event hosted by the Becker Friedman Institute on May 4th at Saieh Hall, Mr. Weyl presented the overall thesis of the book, which is that genuinely open, free, and competitive markets structured to harness countervailing incentives can lead to greater equality, prosperity, and cooperation.
How exactly might “Marketopia” work? The core mechanism is built on the Georgist concept of a “Land Value Tax”: all asset owners would publicly declare the value of their assets and be required to pay a small percentage tax on that value. Tax receipts would go into the public coffers to fund basic government expenditures, with leftover money distributed equally to all citizens in a manner similar to a Universal Basic Income, or UBI.
What would prevent owners from lowballing the value of assets to minimize taxes owed? Here is the catch: the owner must be willing to sell the asset at the publicly declared price. This means someone declaring the value of their shares of Apple stock to be $1 each can count on someone else buying at that price and reselling immediately for a profit. Such countervailing incentives apply to all assets: underpricing any asset encourages an arbitrageur to intervene.
But what about assets like a childhood home, which one might never want to give up? By significantly overpricing it, given the low level of the asset tax (roughly 7% in the authors’ calculations - and only on the equity in the asset), there would not be too much of a penalty. For example, a house worth $500,000 could be given a declared value of $3,000,000. Should someone decide to purchase that home, the original owner will have an extra $2.5M to soothe the pain of losing the family home.
Marketopia is introduced as a simplified example - along with another concept called “Quadratic Voting”, which could be applied to help solve tricky campaign finance issues - to help people understand how these radical markets could actually function. The authors describe how these markets could begin in limited areas, such as spectrum auctions and internet domain names. If proven successful, radical markets could be expanded to other areas of economic life. This presentation was followed by a panel discussion that alternately praised and critiqued Radical Markets for its conceptual innovation and utopian aspirations. The audience heard Nobel Laureate Richard Thaler and economist Steve Levitt of Freakonomics fame, along with 3 other professors from different disciplines at the University of Chicago, provide their perspectives.
First up in the panel discussion was Steve Levitt, co-author of Freakonomics and Economics professor here at Chicago. “The most important part of [this] book are the ideas: radical, interesting. There were things I thought I knew for sure that I wasn’t sure I knew afterwards.” But he also said “in a complex world, I believe in simple solutions… and this seemed complex.” He also raised concerns about bank asset values falling as they incorporate the expected future asset tax payments.
Professor Andrew Chien, Computer Science Director, also began with praise: “[The book] brings an engineering approach to how to organize society,” and he was particularly bullish about opening access to data as an asset, allowing competitive markets to drive innovative applications. Ultimately, he worried about the enforcement of any rules set around these complex markets.
Jennifer Pitts, an Associate Professor of Political Science, broached her critique from a different angle, teasing out the potentially contradictory Smithian and Benthamite influences on the concepts in Radical Markets. She saw an analogy to Bentham’s “Panopticon”: something “beautifully worked out in the mind of the theorist”, but not actually applicable to real life. While finding the book “compelling and well argued,” she also questioned some of the most fundamental assumptions: does the market always determine the best use of assets? Are there areas of society that might not be amenable to this approach? The answer from the authors was the not always satisfying but thoughtfully academic “we aren’t sure”, which is why they recommend an iterative, limited model to prove the concept.
Professor Karin Knorr Cetina offered a pithy take: “I loved the book. I don’t believe it, but I loved it.” The boundaries between left and right, sociology and economics, public ownership and free markets were all blurred in this vision of society. Yet she too worried about complexity, preferring more tailored solutions for specific problems.
The final panelist, our most recent Nobel Laureate here at Booth, professor Richard Thaler, only responded to the utopian vision outlined in Mr. Weyl’s talk but encouraged the authors “to think small”. “That’s the approach I took in Nudge [a book he published in 2009 along with Cass Sunstein]. Look around for pockets where we can make some small changes.” He closed his remarks noting some of the obvious inefficiencies in today’s system while hinting at the potential promise he saw in some of this book’s ideas.
The authors offered a deft and robust response to many of these criticisms, relating the potential of radical markets to the opening up of credit markets: this is a system that seems, and is, incredibly complex - but making it accessible to broad swathes of society has helped fuel growth and opportunity for centuries. Will these bold ideas actually work in practice? Ultimately, there is no answer other than “we aren’t sure”: the proposals in Radical Markets could help transform society, or they may fail for innumerable potential reasons. But the concepts are interesting enough to consider.