Of Siren Servers and Radical Markets

Radical Markets: Uprooting Capitalism and Democracy for a Just Society
Eric A Posner and E. Glen Weyl
Nonfiction 337 pages
Princeton University Press, 2018

Who Owns the Future?
Jaron Lanier
Nonfiction 396 pages
Simon & Schuster, 2013

It is difficult to review what one doesn't fully understand. Which isn't to say that I was totally baffled by these two books from these  three authors. Their descriptions of socioeconomic problems made perfect sense to me. It was their solutions that baffled me.

"Radical Markets" looks at capitalism in a radical way, starting with the premise that property is monopoly. While their solutions are sometimes over-explained, they none-the-less failed to convince me. That may be due to my inadequate understanding of economics, or perhaps I've correctly intuited that something is missing in their solutions.

Regardless, the ideas are certainly worth reading. One in particular was splendid. It's called quadradic voting, and it works like this: let's say you have a number of vote credits and you can spend them across a number of issues. To vote once on an issue costs one vote credit, to vote twice costs four credits, and voting three times costs nine. If you really cared about an issue, you could vote four times, spending sixteen vote credits. The more you care, the more it costs you. This might be a good way to decide certain popular issues. We live in times where manipulating complex math is easy. There are all kinds of new solutions we could try.

The authors also discuss the idea of treating data as currency, giving credit for this idea to Jaron Lanier. The idea evolved as a solution to what Lanier calls "Siren Servers." I feel the same ambivalence toward Lanier's solutions as I do to those of the other authors. Lanier's label, "Siren Servers", refers to technology companies that make their money by mining other people's content or data. According to Lanier, people should be paid for the demographic data they provide to those who mine it for marketing products or gaining or suppressing potential votes. Sadly, in the United States a great deal of money is spent persuading voters to embrace policies that harm them while enriching those who already have too much. Paying people for their demographic data won't fix this problem. Limiting how much Political Action Committees can spend would do greater good.

I'm not sure Lanier's solution is workable, but I'm completely sure that Siren Servers are an engine of income inequality. Once software is written, only maintenance costs remain. Siren Servers don't require factories full of workers. Only a few, very well paid, employees are needed. Since there are only a handful of Siren Servers, there is little competition to limit price. Apple can charge an app maker 30 percent for a sale in its app store because no competitor charges less. It may not seem like much, but 30 percent of retail price is a strain for both the app maker and the app consumer. On the unregulated internet, price gouging is business as usual. In its earliest days the internet was used to share government and academic information. As the World Wide Web gained popularity, this information source was commodified. Going forward, the internet needs to be more like a library and less a device for monopolist rent collectors.

Cut them down to size

USA wealth curve 2016

When shrubbery gets overgrown it must be pruned. Same goes for big corporations sprouting monopolistic tendrils. But it's easier to prune a garden than an economy. About half a dozen companies buoy up the value of the stock market. Of those, five are major tech companies. They trade as AAPL, MSFT, AMZN, GOOGL and FB. Most, if not all, of these engage, or have engaged, in monopolistic practices.

Now and then these companies come under scrutiny, but little ever gets done. If one political party has a good idea, the other calls it a partisan ploy. One big reason our politics is so partisan comes down to the influence of large unregulated corporations. Today there are no fairness doctrines to constrain broadcast media, and no rules at all for social media.

Aside from partisan politics, trust-busting doesn't come easy. To tilt at financial monoliths without regard as to where their rubble will topple would be dangerously quixotic. Monopolies must be disassembled carefully. Adding to a hesitancy to disassemble them is the unspoken fear of unleashing the Invisible Hand.

I hope some day to be able to prove my belief that bad old ideas become parasites that stunt the growth of new thoughts. Adam Smith used the term Invisible Hand only twice in his writings and never in the context in which it's popularly used. The idea that an Invisible Hand will balance financial markets in lieu of regulating them has never been tested. That's because financial markets have always been regulated. When regulations were weakened to allow the Invisible Hand more freedom to balance markets, lenders and borrowers got greedy. The result was the Great Recession of 2008. When the government realized that banks were too big to fail — that if the banks failed the greater economy would collapse — it rescued them financially. Institutions were enabled while common folks lost their homes. Enamored of their bonuses, bankers quickly returned to believing in the balancing Invisible Hand.

Because they were too big to fail, the largest financial institutions should have been reorganized. They weren't. Small competitors can play a bit dirty without disturbing the economic order, but when large companies do so, they have become monopolies, and must be cut down for the social good.

It's high time for companies like AAPL, MSFT, AMZN, GOOGL and FB to face regulation and partial disassembly into companies designed to collaborate and compete with smaller entrepreneurs. Just like the Tooth Fairy, there is no Invisible Hand. It's a myth the greedy promoted while grabbing advantages for themselves.

America needs a more balanced economy; one with a larger middle class and reduced levels of both poverty and opulence. Pruning monopolies like the big five will help achieve this but it's not enough to rebalance our economy. According to Economic Policy Institute:

"In 2019, the ratio of CEO-to-typical-worker compensation was 320-to-1 under the realized measure of CEO pay; that is up from 293-to-1 in 2018 and a big increase from 21-to-1 in 1965 and 61-to-1 in 1989."

In 1965, a worker in 1965 whose boss made 21 times his salary could be invited to his boss' home for dinner. In 2019, a worker earning 320 times less than his boss is unlikely to ever meet him. Not only has the degree of income inequality increased enormously, class distinctions have grown, and our sense of community has shrunk. Back in 1965 the wealthiest paid high progressive taxes. They may have complained, but they didn't suffer all that much. We need to tax wealth to prevent it from growing into a weed that disrupts social harmony.

Lastly, a Hands-On effort to balance our economy will work faster and more efficiently than an Invisible Hand ever will. Yet we need to be cautious. The Soviet planned economy didn't work well. It might work better today because of our abundance of internet driven consumer data. Still, we shouldn't attempt it. When Capitalism excels it 's because competing businesses create innovation. Innovation stops happening when companies grow too large. We need to encourage innovation and that means more entrepreneurs and fewer corporate monoliths.

But we won't have more entrepreneurs without the right economic conditions. While many entrepreneurs start with little capital, they can't start at all if they live from one paycheck to the next. Universal Basic Income (UBI), or similar stimulus programs could allow people to take entrepreneurial  risks without risking everything. Larger organizations could receive government startup funding. A helping economy unleashing creativity and innovation is what we need to reverse climate change and restore American prosperity.

V.O Diedlaff is author of, We Can Fix It: Reclaiming the American Dream.