Money as Reward, Money as Vote

For discussions of culture, politics, economics, sociology, law, business and any other topic that falls under the social science remit.

Money as Reward, Money as Vote

Postby Carleas » Fri Apr 19, 2019 2:34 pm

In an idealized market economy, money serves two distinct functions:

First, it acts as a reward for value creation. If a person provides a good or service that others find valuable, that person is compensated with some of the surplus value created in the form of cash. In that way, it rewards the provision of goods or services that others find valuable; the more value (and the greater the portion of that value one can capture), the greater the reward.

Second, it acts as a mechanism for 'voting' about what matters. When a person spends money, it amounts to a statement of values: "this good or service is worth more to me than theses X dollars". Each exchange of money for a good or service is thus effectively a vote about how valuable a good or service is, as it signals to the market that the good or service is worth more than its current price to some people.

Both roles are present in any exchange: producers are being rewarded for the value they add (including the value in connecting people with products and services they value), and buyers are voting for that value with their dollars. And both roles are an important part of a market economy, producing the effects that make markets useful. The votes incorporate information about what everyone wants, and the rewards draw productivity towards those valuable things. Together, the effects resolve issues of scarcity, providing an answer to the question, how can we produce the most value using the resources we have?

In an idealized economy, where every participant starts with equal resources, this makes sense and is efficient in the early rounds: people are incentivized to allocate resources to the most socially valuable pursuits*. But in subsequent rounds, when the allocation of resources is unequal, it isn't obvious that the people who provided value in the past should have more say in what gets rewarded in the future.

One argument is that people who successfully produce value in the past are more likely to provide more valuable information with their votes, i.e. in the past they have voted that certain investments will produce value for others, and their profits show that they were right (again, in a toy economy), so we might expect their subsequent votes will reliably point to future value for others. That argument is not entirely without merit: certain attributes that would make someone a better voter for what's valuable also make someone a better producer of value: appropriate risk weighting, accurate expectations about the future, the ability to delay gratification and invest for the long term, the ability to see alternative possible uses of resources. Conversely, the corresponding shortcoming would be expected to reliably waste resources. A habit of hedonistic spending will see you worse off in subsequent rounds, while a habit of investment and longer-term planning will see you better off. So, up to a point, this allocation of votes tracks ability to vote.

But it's not clear that the effect is always dominant: much of market success is arbitrary, and giving more say to people who essentially win a lottery for economic success is not justified by this rationale. Moreover, over many many rounds, the allocation of starting 'votes' is likely to be severely misallocated. The lottery effects will build over time, as those with more 'votes' get to play the lottery for market success more times. Heirs to previous lottery winners will often not inherit the traits that, by hypothesis, make it reasonable to allocate past winners more votes. And the market information will incorporate more and more idiosyncratic values, as the influence with those with orders of magnitude more 'votes' will dominate the voting, and ignore the votes of large swaths of the market which, combined, have less vote than the very wealthy.

This framing suggests that 1) an unregulated market will degrade over time, and 2) redistributive intervention is necessary to maintain a market economy. Despite relying on an ideal market and a favorable framing, and ignoring other problems inherent in market economies, it shows that the major justifying functions of the market fail without some function to nudge the distribution of votes toward the initial conditions.

This provides support for treating proposals such as a wealth tax, estate tax, and basic income as pro-market policies that strengthen the ability of market forces to allocate scarce resources. At some margin of inequality, the rewards and votes no longer serve their initial function, and there is no market.

*I'm ignoring special cases where markets don't work, e.g. public goods, non-rivalrous goods, etc., because the issue I'm trying to isolate is not one of market failure, but of self-defeating market success.
User Control Panel > Board preference > Edit display options > Display signatures: No.
Carleas
Magister Ludi
 
Posts: 5760
Joined: Wed Feb 02, 2005 8:10 pm
Location: Washington DC, USA

Re: Money as Reward, Money as Vote

Postby Ecmandu » Fri Apr 19, 2019 4:15 pm

I know that you're not counting companies like debeers.

But I would add additional content to non rivalrous goods, price fixing:

Prescription eye glasses only cost 50 cents to produce. The mark up is about 2000%

There are dozens of major eyewear places that all collude for price fixing... technically, they're "competing". Eye glasses is one of the most well known.

Add to your list: price fixing
Ecmandu
ILP Legend
 
Posts: 8319
Joined: Thu Dec 11, 2014 1:22 am

Re: Money as Reward, Money as Vote

Postby Carleas » Fri Apr 19, 2019 6:54 pm

Yes, I agree. Price fixing, monopolies, asymmetric information. There are a lot of ways the market fails. My point here is more that, even where it succeeds, it undermines itself without countervailing regulation/policy.
User Control Panel > Board preference > Edit display options > Display signatures: No.
Carleas
Magister Ludi
 
Posts: 5760
Joined: Wed Feb 02, 2005 8:10 pm
Location: Washington DC, USA

Re: Money as Reward, Money as Vote

Postby Ecmandu » Fri Apr 19, 2019 8:18 pm

Carleas wrote:Yes, I agree. Price fixing, monopolies, asymmetric information. There are a lot of ways the market fails. My point here is more that, even where it succeeds, it undermines itself without countervailing regulation/policy.


It's a compelling idea "constantly pushing votes back to initial conditions"

In many cases with market forces, such as innovation, once the cats out of the bag, it's gone.

So, the regulation would even need to be more sophisticated than your initial offering.

The easiest way to solve the problem is that nobody can make more than x number percent of GDP per year. From there, you're looking at investment redistribution.
Ecmandu
ILP Legend
 
Posts: 8319
Joined: Thu Dec 11, 2014 1:22 am

Re: Money as Reward, Money as Vote

Postby Ecmandu » Fri Apr 19, 2019 8:29 pm

Carleas,

I hope you saw my edit, I made it just at the time you may have been constructing a reply, and then decided not to reply.

About the easiest solution...
Ecmandu
ILP Legend
 
Posts: 8319
Joined: Thu Dec 11, 2014 1:22 am

Re: Money as Reward, Money as Vote

Postby Ecmandu » Fri Apr 19, 2019 10:31 pm

Ecmandu wrote:
Carleas wrote:Yes, I agree. Price fixing, monopolies, asymmetric information. There are a lot of ways the market fails. My point here is more that, even where it succeeds, it undermines itself without countervailing regulation/policy.


It's a compelling idea "constantly pushing votes back to initial conditions"

In many cases with market forces, such as innovation, once the cats out of the bag, it's gone.

So, the regulation would even need to be more sophisticated than your initial offering.

The easiest way to solve the problem is that nobody can make more than x number percent of GDP per year. From there, you're looking at investment redistribution.


So, for example Carleas!

Who truly needs relative to our current GDP, more than 5 million dollars a year?

So, in a very successful company, every employee makes 5 million a year, and the rest goes to redistributive investment.

What this forces capitalism to do, is to make it more democratic.

Want to build something for a billion dollars?

You need the consent of a billion divided by at most 5 million.

That's the perfect capitalist system.
Ecmandu
ILP Legend
 
Posts: 8319
Joined: Thu Dec 11, 2014 1:22 am

Re: Money as Reward, Money as Vote

Postby Ecmandu » Fri Apr 19, 2019 10:34 pm

Carleas, I've thought about this a lot!

Feel free to offer your rejoinders.
Ecmandu
ILP Legend
 
Posts: 8319
Joined: Thu Dec 11, 2014 1:22 am

Re: Money as Reward, Money as Vote

Postby Silhouette » Sat Apr 20, 2019 5:46 pm

Carleas wrote:In an idealized economy, where every participant starts with equal resources, this makes sense and is efficient in the early rounds: people are incentivized to allocate resources to the most socially valuable pursuits*. But in subsequent rounds, when the allocation of resources is unequal, it isn't obvious that the people who provided value in the past should have more say in what gets rewarded in the future.

I am reminded of sports, particularly pre-commercialised sports.

In tennis, for example, all your previous successes and failures will seed you accordingly, but come a new tournament you are all back to ground zero. If anything, success makes it harder for you in future as you qualify to be placed against similarly successful players. This is a pure form of truly fair competition, with the exception of a fairly low barrier to attaining the best equipment, of which there isn't much that is required, and to attract the attention of the best trainers. Sponsorship gives you no advantage beyond not having to worry about your finances.

In team sports, a new season will similarly reset everything - your previous successes and failures may put you in a higher or lower league, but again success makes it harder for you in future - this kind of mechanism is both satisfying for all and keeps itself in check. Some additional drawbacks to the above are the tendency for top teams to buy and sell individual players in accordance to what they think will benefit the team as a whole, which becomes more of a corporate brand. The chemistry between specific players is less important than general adaptability to play well with anyone. Here, the corrupting effects of the free market come into play even more to compromise fairness:

Capitalism has the exact opposite mechanism. Where success in sports makes it harder for you, success in the free market makes it easier for you. The inversion of sportsmanship.

E-sports often have an interesting fairness check, where between seasons MMRs (matchmaking rating)s or Elo ratings are contracted towards the average. This requires that the best players continually have to win back their claim to proficiency, and players stuck playing with inexperienced and/or incompetent players get a chance to play with better players who won't ruin their overall team's performance regardless of how well they do individually.

The common theme of the "marketplace of sports" is that they are regulated/interfered with in order to make things fairer and more satisfying for everyone in the exact way that the free market is not.

Carleas wrote:One argument is that people who successfully produce value in the past are more likely to provide more valuable information with their votes, i.e. in the past they have voted that certain investments will produce value for others, and their profits show that they were right (again, in a toy economy), so we might expect their subsequent votes will reliably point to future value for others. That argument is not entirely without merit: certain attributes that would make someone a better voter for what's valuable also make someone a better producer of value: appropriate risk weighting, accurate expectations about the future, the ability to delay gratification and invest for the long term, the ability to see alternative possible uses of resources.

For sure. In many ways it is better for the mechanism to inherently enable those at the top who are the best at providing for everyone.

The issue is the degree to which putting all your resources in the hands of the few is proportional to the overall benefit that they provide for everyone as a result of their reward.
It's at this point that every pro-Capitalist will shout at me about the Zero-sum fallacy, and I have to explain that I don't think there is a zero-sum of fixed pie, just dimishing returns in addition to the tendency towards oligarchy and even monarchy (autocracy and dictatorship).

It's a false dichotomy to either have the strongest lift everyone up or to lead from the back and enable the weak to lift themselves up and become stronger. I believe there's an optimal threshold of doing both that an unfettered market mechanism, where success makes it easier for you and failure makes it harder for you, fails to deliver.

However, it is true that this threshold is variable. For example, in conditions of scarcity and difficulty, putting all your resources into the hands of the strongest makes more sense because the weakest will drag everyone down and the costs of being dragged down are too great. This is why most of nature selects for such systems - because they are still "in the food chain" and danger/vulnerability is rife. It's also why Capitalism is effective for less developed economies and the less advanced periods in the history of more developed economies. However, once times become easy and resources bountiful - such as in modern western society - the benefits of diverting resources into the hands of the few no longer has the same impact, if any benefit at all - perhaps its even detrimental. The spoilt entitlement of the richest and most pampered upbringing is notoriously damaging and wasteful. It is at this point that the optimal balance swings over to enabling the less fortunate.

This is in addition to the lottery-like nature of modern financial success. Being born into it, happening to get into situations where you meet the right people, or making a good investment that others did not dare to risk - nobody can predict the future, regardless of the fact that predicting the future changes it, and an economic system that centres itself around the ability to do so is little different to gambling.

Carleas wrote:This framing suggests that 1) an unregulated market will degrade over time, and 2) redistributive intervention is necessary to maintain a market economy. Despite relying on an ideal market and a favorable framing, and ignoring other problems inherent in market economies, it shows that the major justifying functions of the market fail without some function to nudge the distribution of votes toward the initial conditions.

Absolutely.

I'm actually interested in the notion of in-built mechanisms that resolve "the rewards and votes no longer serv[ing] their initial function" without resorting to proposals such as "wealth tax, estate tax, and basic income as pro-market policies that strengthen the ability of market forces to allocate scarce resources".

I support such things in the meantime, but I think the world of sports and esports provide a lot of empricial insight on how to make a system satisfying, fairer, and better for everyone.

The cynical part of me suspects, however, that making things better for everyone is exactly not what too many people desire. Too many people would prefer measures to keep others down, even at the cost of themselves, just to gain advantage over them by any means. It's a rational decision for those in a better situation than they ought to be, because fairness is seen as threat to their advantage. I don't agree, I think lifting everyone up will make things better for even them, but their requirement is to be better than other people, not better for themselves. In this case, I believe it is even more important to bring about fairness, to root out such petty sabotage.
User avatar
Silhouette
Philosopher
 
Posts: 3792
Joined: Tue May 20, 2003 1:27 am
Location: Existence


Return to Society, Government, and Economics



Who is online

Users browsing this forum: No registered users