The Future of Socialism is Privatizing the Atmosphere

Scott recently wrote a quite interesting review of John Roemer’s ‘Future for Socialism’. It sounds rather like Schumpeter’s Capitalism, Socialism and Democracy. Funnily enough his vision for socialism also reminds me of Margaret Thatcher’s plan for property-owning democracy. I haven’t read the underling book, so I can’t comment on that, but I can talk about Scott’s writing. More importantly, it provides an excellent excuse to talk about how to save the environment by privatizing the atmosphere.

Central planning could never work, so a socialist economy doesn’t need it. Bosses and managers seem to be doing a good job keeping their firms profitable, so they can all keep their jobs under socialism. Everyone has different skills, so clearly in a truly socialist system they deserve different wages, in fact whatever wage the market will bear.

…you give everyone an equal amount of these stocks. When the corporations make money, they pay them out in the form of stock dividends, which go to the people/stockholders. So every year I get a check in the mail representing my one-three-hundred-millionth-part share of all the profits made by all the corporations in the United States.

We’ll assume that when Scott says ‘Stock Dividend’, he actually means ‘non-stock dividend.’ A stock dividend is when a company gives extra shares to its existing shareholders. This increases the number of shares outstanding, but has no real economic impact. What Scott presumably means is ‘cash dividend’, which is when a company gives cash to all its shareholders.

However, this immediately opens up a problem with the next part.

Roemer proposes a law that stocks cannot be sold for money, only coupons and other stocks. Every citizen is given an equal number of coupons at birth, trades them for stocks later on, and then trades those stocks for other stocks. This allows smart citizens to invest wisely, and allows a sort of “stock market” that sends the correct signals (this business’s stock price is decreasing so maybe they’re doing something wrong) but doesn’t allow stock accumulation by wealthy capitalists.

While I applaud Roemer’s attempt to make use of the valuable signals sent by prices, his plan for preventing people from selling their shares won’t work. If such a policy was instigated, there would probably be strong demand from people for a way to turn their shares into cash. They’d even be willing to accept a discount for the sake of the liquidity cash offers. So some companies would sell all their assets and pay out all the money as one massive liquidation dividend. By announcing this in advance, the company would basically become a way to turn your shares into cash – just swap your other shares for its shares, and then wait for the single massive dividend.

In this system, businesses would raise funds not by selling stock but by seeking loans from banks.

This is where it really gets crazy. Earlier on Scott said that companies would pay out all their profits as dividends. So they can’t issue new equity, and they can’t retain the profits they’ve earned: companies would eventually become 100% debt financed. As soon as they hit the slightest downturn, without a buffer of equity to absorb losses, they would all go bankrupt. And bring the banks down with them. Then you have zero companies, shareholders would envy those who got their money out before the end, and the living would envy the dead.

So perhaps we’ll lighten the requirement that companies have to pay out all their profits. Companies that routinely raise new equity will be in trouble, like tech companies, but lets assume they solve that problem. Utilities also rely on continued equity issuance, so we won’t be able to charge our devises anyway.

More seriously, this would present massive problems for new companies. Or rather, it would prevent there being any new companies. The way you found a company is by investing some money and becoming the owner of a startup – effectively, the startup sells stock to you. Without this, there’s no way to found a new company. So we have a finite number of companies, that occasionally go bankrupt, take each other over, or liquidate themselves. These companies own all the factors of production, leading to a less and less competitive economy, dominated by a couple of few firms, with absolutely no fear of new entrants shaking up their cosy oligopolies.

So there are some problems with Roemer’s ideas. In fairness to Scott, he spots a lot of other problems himself, and he doesn’t even have an economics background. In fairness to Roemer, perhaps Scott misrepresented him. Lets just say that Roemer-as-paraphrased-by-Scott’s plan has some serious disadvantages.

However, it did make me think of an interesting idea I had a while ago. Here is an way of using joint-stock corporations to solve collective action problems.

How to solve the problem of pollution by privatizing the atmosphere.

At the moment, people are incentivized to over-pollute. If my factory releases dangerous emissions, I get much of the benefit, in the form of profits from selling my product (along with my customers, employees, suppliers etc.) I pay only a fraction of the costs though – most of the pollution effects other people. Since I gain much of the benefit, and little of the cost, I tend to pollute too much.

The problem here is one of negative externalities. Equivalently, it the tragedy of the commons. And what is the solution to the tragedy of the commons? Privatization. If one person owns the field, they have the right incentive to preserve its value.

Similarly, we could privatize the atmosphere. People who wanted to use the air (say, by breathing, or burning fuel) would be charged a fee. This would cause them to internalize the external cost, and restore efficiency to the market for pollution.

Of course, this would be rather difficult to administer. How are we going to charge people for breathing? Do people get charged more for having bigger lungs? If people fall behind on their payments, do we cut off their oxygen? Doing so would plausibly count as theft, as currently they enjoy use-rights to the air.

Fortunately, this can easily be solved. Simply give everyone shares in AeroCorp. Because AeroCorp gets most of its money from coal plants and gasoline companies, it pays a dividend each year well in excess of the breathing price. So everyone’s breaths are just netted against the dividend, and they never have to send any money to AeroCorp. Because polluters now have to pay AeroCorp to emit pollutants, they’re less keen to do so, and the negative externality problem is solved.

We could even have a dual share class system. Every human is given a single A-share at birth. These are non-transferable, dilution-protected, and their purpose is to ensure that everyone can afford to breathe. We also have B-shares. These have the same voting and dividend rights as A-shares, but are transferable and dilutable. These are initially auctioned off in a standard IPO. They money raised will be used to fund AeroCorp’s operating expenses. Trading in these shares would ensure price discovery, efficient capital allocation and allow secondary issuance.

There some problems with this system. For example, the firm would be a monopolist, so would tend to charge polluters too high a fee. As such, society would actually end up underpolluting.

Additionally, we need to ensure the two share classes don’t take advantage of one another. There are probably more A-shares than B-shares, but B-shares will be more closely attended to.

One strategy B-shareholders could use would be to have AeroCorp buyback stock. Ordinarily this would be fine – it would raise the value of A-shares. However, in this instance we’re relying on the dividends paid to B-shares to cover the oxygen charge.

A strategy A-shareholders could use would be to insist on new equity issuance, diluting B-shareholders, then paying out the funds raised as a dividend, thereby benefitting themselves.

These two problems could be solved in an attractively symmetrical fashion by giving the B-shares a veto over buybacks and giving the A-shares a veto over new equity issuance.

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Diseased reporting about Africa

The Giving What We Can facebook group recently linked to a Washington Post article called ‘The long and ugly tradition of treating Africa as a dirty, diseased place.’ GWWC didn’t actually write the piece, but they did share it, and described it as ‘a warranted critique’, so we’ll assume they basically agree with the contents.

The article had many interesting parts on Ebola, where they said basically exactly what you would expect them to say on the basis of their political views. But I’m not an expert on ebola, so I shan’t address that.

They have a section on phrenology, where they attack the idea that ‘the size, shape and other physical characteristics of a person’s skull determine that individual’s intelligence.’ Well-known example of scientific misconduct notwithstanding, in truth it appears that skull size does positively correlate with intelligence.. Perhaps one could excuse Seay and Dionne (the authors) by saying that correlation is not the same as determination – there are still clever people with small heads, and idiots with big heads. But at the very least they were extremely misleading.

But the really interesting thing is the accusation that westerns have unfairly portrayed Africa as being a ‘diseased place’. Strangely, nowhere in the article do the authors actually argue that Africa does not suffer from a heavy burden of disease. Perhaps this is one of those things that are wrong to say, even though they’re true?

Yet if so, how strange for GWWC to share it! After all, GWWC recommends Against Malaria Foundation, which combats malaria in Africa. True, AMF also has operations in Asia and South Africa – but when called upon to describe AMF’s good work, GWWC describe it as saving “primarily African children who have been unable to develop immunity. It is one of Africa’s biggest killers.”

GWWC also recommends Deworm the World, which also operates in Africa. As does Project Healthy Children, another GWWC top pick. And SCI, a long-standing GWWC favorite, only operates in Africa.

Why does GWWC recommend these charities? Because they tackle diseases that are very cheap to treat, so we can easily do a lot of good by funding their treatments. They’re so cheap that they’ve been irradicated from western countries.

So GWWC should be well aware that Africa suffers from many diseases unknown in the west. Indeed, much of GWWC’s public relations work involves educating people about the opportunity for improvement these diseases represent. GWWC spends a lot of time talking about diseases prevalent in Africa, but absent in the west. So isn’t GWWC basically guilty of representing Africa as a ‘diseased place’?

Sure, GWWC could argue that there’s nothing wrong with saying this. It is, after all, true. But they why are we representing the Washington Post’s article as ‘warranted’?

GiveWell is not an Index Fund.

Someone1 on facebook recently asked

Can we think of donating to GiveWell- or GWWC-recommended charities as being the philanthropic analogue of investing in an index fund? In the sense that it may be possible in principle to do better, but it’s close to the best among readily available options, and almost everybody who tries to do better will do worse.

I think this analogy overlooks some important points about the underlying structure.

An Index contains all the stocks that satisfy some very broad criteria – for example, the S&P500 is basically “is very large US company”. Index funds invest in all the stocks in a specific index.2 Index funds try to do as well as the index on the whole – no better, no worse.

Active managers, on the other hand, by small subsets of the stocks in the index, and try to beat the index. That is, they try to buy stocks that will do better than the average stock in the index.

Part of the appeal of index funds is that many people think that all stocks have basically equally good prospects, ex ante, due to the Efficient Market Hypothesis.There are good reasons to think that free markets are in general very efficient.

Givewell looks at a large number of charities, and selects a very small number to recommend. In this way they’re much more like an active manager than an index fund. An index fund for charities would mean spreading out your donations between thousands of different charities.

There are important differences between the stock market and the charity market. Virtually any time you think you see an inefficiency in the stock market, you are probably wrong. But this does not apply to the charity market. Effective Altruists habitually and credibly claim that there are many orders of magnitude difference between the expected values of different charities (pdf). And the sorts of arguments about risk and diversification that motivate balanced portfolios of investments simply do not apply to charities; with charities, you should pick the best one and donate everything to it.3

Some perhaps Index Funds are Givewell are similar insomuchas they are both good things. But so is chocolate.

This analogy glosses over important differences, and potentially causes sloppy thinking. Just because two things are good doesn’t mean they are good for the same reasons or in the same way. Effective altruists would do well to understand that markets are not like charities. Others would do well to understand the there is no Efficient Charity Hypothesis!


  1. who will remain anonymous until they request otherwise. 
  2. technically some merely invest in representative sub-baskets, but S&P500 indexes probably buy all the constituents. 
  3. unless you are very rich. 

How Politics Makes Vox Stupid

Vox had an excellent article a while ago on how politics makes us stupid. It describes a number of ways in which people behave systematically irrationally about politics.

For example, there is research suggesting that showing people more evidence makes them hold their existing beliefs more firmly – regardless of whether the evidence supported or contradicted their beliefs. It talks about how people avoid evidence that threatens their self-identity.

But Vox made one big mistake with the article. When writing apolitical pieces, designed to reach across party lines and improve the state of political rationality, there is one rule you must always obey. Failing to observe this rule will lead to one side rejecting you and the other side failing to learn the lesson at hand. Failure to observe this rule leads to mindkilling, and Moloch.

The rule is:

If you use a political example from one side, you must use an equal and opposite example from the other side.

If you’re writing an article on irrationality in politics, and you have an example of republicans being irrational, you need to have an equally important example of democrats being irrational, with the same emotional salience, and the same amount of pagespace dedicated to it.

Vox totally violates this rule. And it does it in the predictable direction. It’s a left-wing site in general, and it’s specific examples of irrational behaviour (apart from those lifted from papers):

  • Climate change ‘denialists’
  • Sean Hannity (a conservative commentator)
  • Fox News
  • Antonin Scalia

Every single example of a person or a group they used were right-wing. Did they notice this? If not, then they need to do some serious work on their own bias. If they did, they have done their left-wing readers a great disservice.

The point of learning about biases isn’t to gain a new weapon with which to attack others. The point is to turn the knife upon yourself and cut the cancer from your own mind.