Glen Weyl gave a great talk at USC yesterday. He presented ideas from his new co-authored book Radical Markets. Here is one of his recent videos. I own two copies of the book and I'm reading one of them! The book is filled with ideas. It presents an intellectual history of economic thinking as it openly debates the left/right views on the inequality challenge we now face.
One of his thought provoking proposal is for there to be common ownership of all assets. Think of your house or your shoes. Rather than owning these assets, what would take place if you could bid each year to rent these? In this "auction for everything", assets would be allocated efficiently. Thaler's endowment effect would vanish and a type of Coase Theorem optimism would unfold.
Glen gave a great example of Elon Musk's hyperloop. What might slow Musk down is the "right of way" and the holdup problem. Under the Posner and Weyl mechanism, Musk wins the auction for the right of way parcels and would be able to launch his idea. Glen quickly sketched the efficiency and equity implications of his ideas.
The revenue collected by this "auction for everything" would then be returned to the people as a dividend (think of how Alaska does this). This would sharply reduce inequality in our society and by allocating assets to the "right users" would stimulate economic growth. You don't have to be Hsieh and Klenow here to seek an economic growth model to figure out how large this effect actually is.
While I need to sit down and read more of Glen's book and think more about its deep ideas, I want to make one smart point. Everyone at the USC presentation was thinking the same thing, "Glen --- this is fascinating but how would you even begin to launch this?" What is the pathway for how capitalism can "save itself" by marching towards socialism?
Today, as usual, random thoughts were crossing my mind. I started to think about Paul Romer's Charter Cities concept. Here is a video of Paul explaining his ideas.
My point: Imagine if Paul could launch two identical charter cities in the developing world and imagine if a second treatment "the Weyl Common Property experiment" could also be run in one of them, what would we observe? Would different types of workers self select to migrate to the charter city? Would economic growth and inequality be higher or lower in the nation that launches the Romer experiment but not the Weyl experiment? This is a two by two matrix. What are your predictions for each box?
The Charter City is a physical place (a new city) in a LDC nation. Romer has an opt in model of labor and capital flowing in to this place that has adopted Western (read "good") institutions such as Swedish rules of the game. If we now superimpose Glen's proposed property structure, what unfolds? The point of the Charter City is to run an experiment. Combining the two approaches offers a new hybrid experiment.
Since all of the assets are new, no endowment effect logic would pollute the set up. There would be no awkward transition dynamics because everything is new in the Charter City.
One issue would arise. Does everyone in the nation or just everyone in the Charter City receive a $ piece of the auction revenue? I believe that Glen would say that it would be efficient to give everyone in the nation a share of the auction revenue. Why? Sharing the Charter City's wealth would remove the "welfare arbitrage" effect. Only those who can truly productively work with the city's capital assets and "good rules" would move there and then rent them.
Weyl's rules over capital ownership would have at least one consequence for Romer's world. Paul envisions that foreign direct investment will flow in. If Goldman Sachs anticipates that once it invests in capital in the Romer/Weyl city that it will have to re-rent the capital the next period will it invest less? Yes, of course.
Would international capital be injected into the charter city if there is no private property? A rational investor might at first invest in a series of 1 year projects rather than engaging in sunk cost investment of building a factory that can produce for 20 years.
So, I think it is useful to think about how the flow of L and K to the Charter City is affected by the nation's property rights regime.
My point in this blog post is that the Charter City creates a lab for experimentation and this radical property rights regime could be bundled with the new city with its new rules. In my understanding of Romer's ideas, he was not specific about the public finance of how the rest of the LDC nation gains from the Charter City. The Weyl/Posner proposal offers specifics for how this would unfold.
Henry George would like the end result.