Glen Weyl and Eric Posner’s book Radical Markets is full of innovative and novel ideas about how we should organise social institutions. Perhaps most interesting is the idea of the Common Ownership Self-Assessed Tax (COST), a radical alternative to private property. Under the COST, every citizen would self-assess the value of assets they possess, pay a 7% tax on these values and be required to sell the assets to anyone willing to purchase them at this self-assessed price. Everything would constantly be for sale at a price people would be willing to accept. This incentivises socially optimal trades of goods.
Take the example of my house. Under the COST, I would have to set a price for my house at which I would be willing to sell if there were a willing buyer. I would be incentivised not to set the price too high because I would be taxed at 7% of the value I put on the house. Suppose that purchasing power is distributed equally and that people’s willingness to pay for a house is a perfect indicator of the amount of welfare that they would derive from it. If so, under the COST, as soon as someone else would get more welfare from the house than me, then the house would change hands. Compared to private property, the COST improves allocative efficiency. That is, goods go to the people who value them most. Thus, if optimising the welfare of people alive right now is our aim, then the COST produces more social welfare than private property.
Applied to the taxation of land, the COST is a land value tax, which is widely agreed to be the best of all taxes. It is market-based and avoids the problem of bureaucrats having to determine the value of land. The COST can also be applied to all assets: cars, sofas, tables and so on. Weyl and Posner propose that the revenue from the tax should be redistributed in the form of a negative income tax or universal basic income. This would make the COST highly egalitarian.
The COST is the most serious intellectual challenge to the idea of private property in history. It is also relevant to debates in the golden era of political philosophy, after Theory of Justice but before ‘public reason liberalism’. This was when philosophers like Nozick, Jerry Cohen, Ronald Dworkin, Brian Barry and Frank Arneson were disputing the social and economic institutions required by justice. The COST brings debates about the ultimate justification for private property back to life.
1. Background on libertarianism
Libertarians of all stripes usually believe in strong rights of self-ownership. This entails:
- The right to use my self as I wish, and the right not to have others interfere in that right.
- The right to enforce my other rights of self-ownership using force or coercion.
For example, if I want to choose to sell my labour in a call centre, I may do so and no-one may stop me, but if I choose to go to the beach and surf, I may do so and no-one may stop me.
The left-right divide in libertarianism stems from how different theories treat the acquisition of property in natural resources. Right-libertarians hold that people have extensive rights to acquire private property of natural resources, with the most popular version holding that people have a right to acquire natural resources provided they leave enough for everyone else. For example, if I cordon off a piece of land and sow and till it, others who have not worked the land do not have a right to my vegetables, unless they would otherwise be left below some threshold. Provided everyone else is left with a sufficiently high level of natural resources, I gain full libertarian rights over the land, just as I have over myself: people cannot take the land without my consent and I have full rights to use force to deny people the use of it if I so wish.
Left libertarians endorse self-ownership but hold that natural resources are held in common or that there are much stronger egalitarian conditions on people’s rights to acquire natural resources – they might require that everyone have equally valuable shares of natural resources. For example, if I cordon off more land than others, then I have to compensate those others, or they may have the right to reclaim some of the land from me.
Right libertarians and many utilitarians today form an alliance in defence of private property. Utilitarian economists recognise the instrumental value of secure property rights in helping to provide security, and incentivise productive work and investment, which in turn produces goods for consumers, higher wages and improved living standards. The utilitarian defence of private property is conditional – if there is another system of ownership that produces greater welfare, then we should switch to that. Right libertarians hold that people should have a legal right to private property regardless of the instrumental value of such rights. Even if it would increase welfare overall for someone to take my patch of farmland, they nevertheless do not have a right to take my farmland: it is mine and not theirs to take.
2. The COST and private property
The COST would abolish private property as we know it today. Suppose I own land in England, which a developer would like to buy to build a railway between Birmingham and London, bringing large social benefits. I know that the developer has deep pockets, so I will hold out for a very high price, far in excess of the price at which I marginally prefer the money rather than the house. Moreover, if I wish, I can refuse to sell, no matter the social costs. Private property is, in this case, economically inefficient.
In contrast, the COST embodies the idea that by refusing to sell, I am imposing large costs on the rest of society. I have my portion of land, but I should pay a fee to society that reflects the social cost of doing so. I am in essence renting my land off everyone else. For right libertarians in contrast, I am a full owner, not a renter.
The intuitive case for the ‘property as rental’ idea can be made as follows. Suppose that 5 settlers arrive at a piece of land, and Jim happens to cordon off the largest and most fertile land for himself. He makes good effort with half of it and then makes a half-baked attempt at the other half, but still ends up with 3 times as much food as everyone else. What is it that justifies Jim from using threats of force to keep Sarah from taking the neglected part of his patch and growing her own stuff on it? What about these ideas:
- Jim has mixed his labour with his patch: I have in a very literal way mixed half of my genetic material (which, as a self-owner, I surely own) with that of my wife when making my child. Does that mean I own half my child?
- It is good for Jim’s autonomy and personal projects: What about Sarah’s personal autonomy and projects? If everyone has equal moral status, shouldn’t we care about everyone’s autonomy and personal projects equally?
- There is no further argument, the intuition is strong enough alone: This seems to be at odds with almost all right libertarian philosophers who have thought that some argument for original acquisition is required.
A more plausible way to view the allocation of land is as follows. There is no non-instrumental moral power or moral magic tying land to one person or another. We should allocate rights over the land insofar as those rights improve people’s lives; such rights are instrumentally justified in terms of how much welfare they produce. If I stop other people using a socially valuable thing, then I should compensate them for doing so, and if others would get more value out of it than me, then they should gain access to the land.
The COST could be justified from the point of view of several different theories. I have discussed the welfarist and utilitarian arguments for it above. Left libertarians would like it because it embodies the idea that natural resources are owned by no-one or owned in common. Our possession and control of natural resources is justified insofar as it serves the common good.
Egalitarians (close relatives to left libertarians) would like the allocative efficiency underlying the COST. As long as people have equal purchasing power and are rational, the COST embodies the idea, advanced by Ronald Dworkin, that fairness is ensured when people with equal purchasing power engage in an auction for all the resources, and no-one wants to change their bid given the bids of the others. Similarly, under the COST, there is significant redistribution, and mutually beneficial trades are incentivised so goods go to the people who value them most.
The right libertarian case for the COST
Right libertarians might not like the principle behind the COST, and they would view it as a violation of people’s basic rights to property. But then, today, the state taxes people and corporations for:
- Earning income from work
- Profiting from investments
- Spending money in shops
- Leaving money to their children
- Buying a house
These taxes are widely agreed to be highly inefficient, some egregiously so. For a right libertarian who at least accepts a role for a minimal state, something has to be taxed, and this must be seen as a pro tanto rights violation. If we assume that all taxes are equally undesirable in terms of their effect on rights to private property, we may as well go for the tax that does well according to other criteria, such as making people’s lives go better. The COST is more efficient than an income tax for example because it taxes people for doing things that are to some extent socially harmful – for withholding goods from society. In contrast, income tax taxes people for doing something socially productive – working to earn an income. From a right libertarian point of view, the COST seems like the least worst-option.
3. The COST and self-ownership
That’s how the COST works for natural resources, but what about natural talent? In one of the most controversial parts of Radical Markets, Weyl and Posner argue that the COST could apply to people’s labour as well as to natural resources such as land. Consider a surgeon who announced that she would perform knee surgery for $2,000. She would pay a tax based on that amount and would be required to perform an operation on anyone who offered that amount. The tax would discourage her from overvaluing her time and thus denying her talents to the community, while the need to be on-call would avoid her setting too low a wage. There would, then, be a tax on the talented, which would be redistributed to others in society, and which would incentivise the talented to work.
In this way, the COST is in accord with the luck egalitarianism of Jerry Cohen, who argued that inequalities due to bad luck are unjust. Since differences in our natural talents are due to brute luck, they are unjust. On this hard left luck egalitarianism, the talented are under a moral duty to have a socially useful career, and as Cecile Fabre has argued, this political philosophy pushes in the direction of the state having the right to coerce people to pursue socially valuable careers, though Cohen himself was reluctant to recognise this. Similarly, utilitarians believe that people have demanding duties of beneficence, which also apply to their career choices. If the COST were a low cost way of encouraging socially beneficial work, then the utilitarian would support it.
Left libertarians would want no part of this. The left libertarian would say that if a surgeon doesn’t want to perform surgery, then, as a self-owner, she does not have to and may not be coerced into doing so. This is true even if the surgeon would increase social welfare by performing operations.
Several things may be said in response to the libertarian. It is true that the COST on labour would coerce the talented. However, as Weyl and Posner point out, the current system offers an even worse choice to the untalented. Those with few marketable skills are given a stark choice: work in harsh, boring or tedious jobs, starve, or live on welfare. If we care about the equal status and freedom of everyone, then we should recognise that the refusal of the talented to engage in socially valuable labour imposes substantial costs on the untalented. In this way, self-ownership privileges the freedom and autonomy of the talented over the untalented.
Furthermore, the talented coerce the less talented by coercively denying them the fruits of their labour. If someone on welfare in the US tries to take some of Jess Bezos’ money, they will be punished. This is coercion. It is hard to recognise because many think it just, but it is coercion nonetheless. Therefore, there must be some argument that the coercion is justified in one case but not the other.
A COST on labour reduces this inequality and relieves the pressure on the poorest in society.
Finally, my argument above against the ‘mixing labour’ argument for original acquisition also seems to me an effective argument against self-ownership. To repeat: I have in a very literal way mixed half of my genetic material (which, as a self-owner, I surely own) with that of my wife when making my child. Does that mean I own half my child? My child is made up of half of my genetic material. That doesn’t make me a slave owner.
4. The COST and the future
The discussion so far has proceeded on the assumption that the main topic of interest in political philosophy is the optimal or just distribution of goods among people right now. But we should care not only about distributing the current pie justly or optimally, but also growing the pie for the future. This crucial point is neglected by leftist political philosophy and by the political left. Both are overwhelmingly concerned with inequality right now, rather than economic growth and the welfare of current people in the future and of future generations.
The COVID-19 pandemic has shown us what exponential growth can do: doublings in cases over a handful of days. Economic growth is also exponential and this really matters. If between 1870 and 1990, the United States had grown one percentage point less per year, the country would in 1990 have had the same standard of living as Mexico. If you can boost the growth rate by two percentage points a year, after 56 years, income will be three times higher than it otherwise would have been.
In the early 1960s, South Korea was as poor as sub-Saharan Africa. If you were the South Korean government in 1960, would you focus on equally distributing income to each person, such that the poorest in society would be levelled up to the princely sum of $160 per year, or would you focus on producing one of the most impressive growth episodes in history and make your country one of the richest on Earth? (Bear in mind that GDP per capita is correlated with almost all objective and subjective measures of welfare.)
When discussing rights to natural resources, it is easy to talk as though people come across natural resources that are already socially useful. But this is not the case. We are not facing a problem in which we stumble across some manna from heaven and we have to decide how to divide it up, but rather one in which we find natural resources that are only made socially useful through talent, endeavour and cooperation in governments, corporations and markets. There is lithium in Chile, but it is only put to use in batteries due to our ingenuity. We should incentivise this ingenuity. This may involve providing unequal rewards to people who carry out socially valuable activities. We should encourage people like Jeff Bezos to build companies that are as good as Amazon. A reward of billions is perhaps excessive, but some substantial reward is justified as long as Bezos is not motivated to produce great companies out of the goodness of his heart.
The best argument for meritocracy and inequality is that it encourages people to do socially useful things. As Scott Alexander says
“If some rich parents pay for their unborn kid to have experimental gene therapy that makes him a superhumanly-brilliant economist, and it works, and through no credit of his own he becomes a superhumanly-brilliant economist – then I want that kid in charge of the Federal Reserve. And if you care about saving ten million people’s jobs, you do too.”
One might add, I also want him to be paid enough to be incentivised to work for the Federal Reserve: this means inequality.
Now let’s return to the COST. I said above that under the COST, people would in essence be renting their land from society. But if your land can be taken off you at any time, you might well let it fall into disrepair. Equally, I could buy a patch of land and then build some attractive flats on it, which would increase demand for the asset and increase its price. The COST would therefore penalise this effort to the detriment of investment. This is known as investment inefficiency. However, Weyl and Posner point out that the tax can be reduced to improve investment efficiency and the gain in investment efficiency is greater than the loss in allocative efficiency. The 7% COST is a rough sweet spot for allocative and investment efficiency. We can tweak the COST downward if we wish to adjust the balance further towards investment efficiency. This would weaken the egalitarian nature of the COST. Nonetheless, a society with a 7% COST would be dramatically more egalitarian than our society.
We should also encourage people to invest in themselves and we have to take account of this if we were to ever set a COST on human capital.