A brief(ish) review of “Radical Markets”

I was going to tweet-storm this, but it became long and unwieldy, so I’m putting comments here instead. Radical Markets is a new book by Eric Posner and Glen Weyl. (Full disclosure: I did not write The Economist’s review of the book, though I recommend the review.) It strikes me as a very important book indeed.

First off, Radical Markets is excellent, and well worth reading. For me, a good non-fiction book is one which occasionally forces me to stop reading and just think for a while. This one did that several times. That said, there are two ways of reading the book, one more powerful than the other. And I suspect the more powerful version is not really the one the authors intended.

The less powerful way, I would say, is as a practical, if radical, guide to improving society through the expanded use of market mechanisms. For example, electoral systems could be augmented to allow for expressions of preference and intensity of preference, by allocating people voice credits, which could be saved and used to buy votes (on a quadratic basis, such that 1 credit buys 1 vote, 4 buy 2 votes, 9 buy 3 and so on). Similarly, the authors argue that private property is inherently monopolistic in nature. They recommend a system in which the right to use property is always for sale, the better to allow property to be controlled by the individuals who value it most, and presumably put it to its best use. Importantly, though, the person controlling the rights to the property must pay a tax based on the value that person places on the property: so a high valuation will discourage others from buying the property away from you, but also mean a larger tax bill.

I have two broad critiques related to this interpretation of the book. One is that the book seems to dramatically underestimate the cognitive load that is likely to be associated with its proposals, and the likely resistance to those programs on that basis. The authors reckon that apps can be used to make management of these markets as easy as possible. Even so, they are asking people to begin thinking in market-oriented ways about lots of things which don’t currently require such thinking. That, after all, is the point: that aggregating the considered, distributed reasoning of lots of people is likely to produce better outcomes. But contributing to that considered, distributed reasoning is a pain; even if it can all be done on an app, you have to sit, and weigh your actions, and worry that you made an error of judgment. To give just one example: Uber has become far more pleasant to use since surge pricing went away. The system “worked better” in some sense, when riders and drivers had to think harder about how much they actually valued the trip. But that thinking was itself a cost of the service.

Secondly, I worry about the authors’ view of the way markets interact with society. In the (highly enjoyable) intellectual history at the start of the book, they argue that humanity once operated within a moral economy, in which the incentives and constraints governing behaviour were shaped by moral or religious principles, cultural norms and status relationships, and so on. The moral economy was subsequently displaced by a market economy, which led to some efficiencies but also some big social problems. Some societies tried to fix the problems by replacing the market economy with a planned economy, but this largely failed. Thus, the best hope to fix our current problems is to think creatively and radically about improvements to and expansions of the market economy.

Perhaps the authors were oversimplifying for the sake of readability, but this strikes me as not exactly right. The moral economy never went away; rather, we embedded a market economy within it. Markets are constrained in all sorts of ways by views about what is fair or unfair, about how people should be treated, about what things should and should not be exchanged on markets, and so on. In my view, this is broadly to the good and at any rate inevitable. And it suggests to me that the way to improve society is not simply to expand the use of markets in clever ways (or perhaps at all) but to think carefully about interactions between the broader moral economy and the market and planned economies which nestle within it. Thinking radically about markets is good. So is thinking about how other human institutions constrain markets, and so, for that matter is radical thinking about moral economies. (In fairness, the authors do some radical thinking about planned economies at the end of the book, and in particular about how big data and machine learning could in some cases do a better job than markets.)

Which brings me to the second interpretation of the book. The book is more radical, and more powerful, if read as a work of political philosophy rather than a guide to market design. Some of the book’s ideas require radical overhauls to current assumptions about how economies and societies ought to be organised. The most radical thing about their proposal to reform property rights is the notion that private ownership of property is in some way a fundamentally flawed idea, and that progress requires movement toward a new norm: that social ownership of property is more just and efficient. I would wager that that notion will speak to many people in a more profound way than the next steps in their argument (that, therefore, all property should be up for auction at all times).

Similarly, the market they envision for “data labor”, in which companies bid for and direct our data-production (as opposed to just hoovering up all the random data we throw off going about our lives) is interesting enough. But the breathtaking idea in that chapter is that we are looking at the digital economy all wrong. Their work suggests that tech giants are not benevolent innovators creating AI tools for the betterment of society, but rather are in some way exploiting us. We, or the digital imprints of our actions, are the fuel for the AI revolution, and we — society — are owed a share of the financial benefits generated by this natural resource.

Reading the book, I wondered whether the authors would be happy if these radical notions proved influential while their preferred market extensions never caught on. Would it be better for society not to think such radical ideas if they are used to justify a more planned, or more morals-based economy, rather than a more market-oriented one? No matter; the book is in the wild now. But that’s a good thing, as far as I’m concerned.