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Book Review: Radical Markets by Eric Posner and Glen Weyl
Jovono book review #1: Decoupling markets from capitalism
Glen Weyl, a professor of mine from undergrad, has a new book out with his now-frequent coauthor, Eric Posner, called Radical Markets. It’s interesting. At its core, Radical Markets is about a decoupling. Their radical thought is that markets don’t automatically imply capitalism, even though they support markets and the competition they imply. The great thing about markets is competition, and the bad thing about capitalism is its tendency towards monopolization, contra Peter Thiel, who celebrates monopolies in Zero to One. Their notion of competition is so extreme it even views private property as a suspect form of monopolization. The table of contents misleadingly suggests a disorderly work. One might mistake it for a cousin of Freakonomics, a good book by Steve Levitt, another Chicago economist. Though Freakonomics sort of has a theme — demonstrating Levitt’s organizing principle of economics, that “incentives matter” — ultimately, it’s just a popular retelling of some of his most famous papers, an increasingly common genre among economists and public policy types. From the get-go, Radical Markets tries to convince you it’s something else because it’s pursuing an ideological goal. Although this book is about economics, it reminds me of the project of VC. Our job is to find new markets, and companies that create marketplaces are often the most profitable. The path to success is often about holding onto a core conviction such that you abandon a surprising principle in a way that is coherent, causing you to see new markets. That’s precisely what happens here.
While some of their proposals and diagnoses might seem to come out of nowhere, they’re surprisingly cohesive thematically. Each chapter is organized around a place where you might think there’s a market but, the authors claim, in fact there is not. Where they think there might be any sort of centralization, they oppose it and propose some idea or regulation that will limit the power of not just any one institution but even any one idea by introducing a new market. And unlike the “popular retelling” genre, Radical Markets works hard to not only present the research the authors find interesting but propose political solutions and try to fit it into this big idea. The authors put significant work into arguing that they are following in the tradition of Georgeism, a quasi-political hodgepodge of ideas that peaked around the period of 1890–1920, centered around the proposal that the government tax land and other monopolies. Milton Friedman Friedman himself even called it the “least bad tax” because in economic theory a land tax is efficient. Despite its density, the book somehow manages to feel one idea too short. One extra chapter would have done the trick. I would have loved to see a chapter on the future of work. Posner has written on the gig economy, and I’m sure Glen has had thoughts on adjacent ideas like UBI and a job guarantee.
Another, more implicit, theme that unites these is the idea of a technological progress: that recent advances have given us the potential to deploy markets towards radical ends of justice and efficiency. When I was at Chicago, Glen made an interesting argument to me about planned economies during an office hours visit. He pointed out that the Soviet Union actually tried to build a computer intended to compute what he called “phantom prices” to plan the economy (turns out the Chileans probably got closer). Needless to say, it didn’t work. This was taken as further proof of the Hayek-Lucas view that it was impossible to plan an economy. Today, though, companies like Netflix do what might be considered something similar, where they centrally plan which movies people might want to see (though I’d imagine neither author would argue that computers can run the entire economy yet). His point was that our ideas of what is possible or even correct is informed by the technology available at the time that an idea is tested. This general idea is true outside of economics, too; for example, neural networks were totally unusable for about half a century. It’s also an idea that underpins all of VC: that technology enables new ideas and allows entrepreneurs to revitalize old ones. That’s key to keep in mind as you read this book. Your first impression will be that many of their proposals and diagnoses seem loopy. But what puts it in the realm of crazy rather than good or bad is that they at first appear to be impossible to implement, or that there are no markets for them; that first impression is questionable. For example, though it is early, Glen has been speaking to Buterin about implementing one of his ideas on the Ethereum blockchain. Will it actually happen, or work if deployed? Unclear, but possible, and the main sin of Radical Markets is that the authors come across as too confident in their own proposals, which is based on mostly theoretical research and some evidence that is at best preliminary. As to whether their ideas are politically feasible, or economically desirable, it’s far too early to say for really anything in this book. But that’s what makes it radical, and therefore interesting.
One idea in particular stands out, though: the idea that people should be paid for their data. In an argument echoing Jaron Lanier, Glen’s colleague at Microsoft Research, the authors argue that much of data is labor and that people should be paid for it. I could totally see a version of this happening. The big tech companies all have built their businesses on data that you’ve produced as collateral and given them license to use and own, for free. Given the considerable amount of time people invest in creating this data, and its clear value, one might argue that this is labor (though my friend John Loeber has written about why this is conceptually tricky). People are already paid to produce some of this data on platforms like Mechanical Turk. Perhaps it’s only a matter of time (though there may be economic problems, as my friend Scott Kominers has pointed out). Unlike the other ideas in this book, the idea of data as labor is only radical in what it asks us to reconsider, not what it asks us to do, making it the most likely idea to take hold. In that way, this idea is actually most similar to another Friedman idea from another book: the abolition of the draft, a surprising but logical offshoot of his philosophy of freedom and which he argued for decisively in Free to Choose(apparently effectively enough to sway Nixon). One can imagine a future version of the BAT for this. In fact, perhaps there’s a company to be made out of this.
As a piece of writing, this book is academic in the best way possible. It’s not snobby, but it’s enthusiastically erudite in tone. It’s full of obscure references (Beatrice Webb will be arcane even to most economists), cool tidbits only nerds like me will care about (you’ll not only learn that Aristotle coined the term “monopoly” in a conversation but also who he was talking to and what he was talking about), and chock-full of charts and theorems with citations to the original papers. It expects its readers to have vast historical knowledge and be familiar with contemporary institutions and geopolitics. While most popular books almost try to hide that they’re written by academics, making them clunky instead of crisp, this book is proud of it, which makes it a delight to read. Its only stylistic flaw is its awareness of its own historicity, which shows itself in its occasional overly-grand attempts to put itself in a historical context and its clumsy attempts to craft new terms.
To best understand this book’s place in history, you need to understand Milton Friedman’s extremely influential book Capitalism and Freedom. Set aside that it catapulted Friedman to fame, allowing him to advise governments and enter wider public discourse through his TV series Free to Choose. Capitalism and Freedom was also a deceivingly scattershot review of economic research and policy proposals subtly organized around the idea that economic freedom, and hence capitalism, was necessary for freedom. Indeed, Chapter 2 is about justifying tying political freedom to economic freedom. Friedman was politically similar to what we might today call a libertarian. He called for the abolition of occupational licensing, allowing free competition, the end of trade barriers, and less government spending. Yet, read between the lines and you’ll notice he doesn’t argue for no government or even small government, but minimal government. He supports an idea like the then-unwritten Civil Rights Act, argues for a negative income tax (what we today call UBI), and argues that the Fed did too little, not too much, during the Depression. How do you reconcile these seemingly opposing views? By saying that Friedman is fundamentally pushing for freedom, wherever it may come from, and that his aim is more of an ideological project advanced by discussing economics than the other way around.
So how does Radical Markets fit into all of this? While it is a political descendent of Georgeism, along with clear influences in Smith, Marx, Vickrey, Samuelson, and Harberger, I’d argue that philosophically the book is actually most inspired by Capitalism and Freedom (and, indeed, Posner and Glen open with a quote from that very book, which I took as a subtle hint that the authors agree). The ideas of Radical Markets may seem disconnected, like in Capitalism and Freedom, and you may be skeptical of any (or even all) of them. However, they all do fit into this broader ideological project of expanding markets. Once you wrap your head around rejecting the equivalence of markets and capitalism it becomes clear how they all fit together. That ideological coherence is by far the most interesting and convincing part of the book.
So is this the new Capitalism and Freedom? We won’t know for many years. Ironically, this book’s individual proposals are far less likely to survive than the book’s core premise, that markets and capitalism aren’t one and the same. But to its credit, Radical Markets is a project that at least attempts to be as grand as its predecessor. In a world where it sometimes feels like the intellectual choice is between milquetoast technocrats and grandstanding frauds, it’s refreshing to read a book that is grounded in actual research, is a little crazy, and is so radical that you don’t know whether it’s wrong or right — only that it makes you think.