Introduction

Outline

1. Introduction/general philosophical assumptions
2. Dead Weight Loss
3. DWL minimizing tax policy
4. Gutting Regulations
5. Contractors delenda est
6. Seizing the Means of production
7. Contra co-ops and small businesses
8. Contra homeownership

The Vision

What is socialism? Classically, it is the workers owning the means of production. Production is made up of 2 main inputs: labor and capital. Similarly, income accrues to the provider of those two inputs. A socialist society has the owners and recipients of that income overlap as much as possible. In the case of a worker co-op, this is direct. The firm is owned by its workers and they deal with the volatility and incentives that entails. Alternatively firms might be state owned entities, where the state is allegedly controlled by the workers and works to their betterment (there are varying levels of adherence to this mission).

As I will establish later, co-ops exacerbate financial risk for workers and create problems for firm expansion. Similarly suboptimal, state owned enterprises are relatively shielded from creative destruction and are used politically to the detriment of their operations.

There is a way to maintain effective capital structures and leverage market competition while still maintaining significant worker ownership: the humble sovereign wealth fund.

Taxation

Why not crank taxes up as high as they go? When you tax something, you get less of it.

Here’s a basic supply and demand graph, quantity is on the x-axis and price is on the y-axis.

Now look what happens when we introduce a tax.

There’s now less goods being produced. If you tax the number of windows in a home, people will build homes with less windows. The government is making less money than they expected and people are now living a worse life because of the missing windows.

Economists classify the value of positive sum trades which are prevented as deadweight loss.

Note that $P$ and $Q$ are the initial price and quantity and are thus fixed. Similarly $\varepsilon_s$ and $\varepsilon_d$ are the marginal elasticity of supply and demand and are similarly fixed (kind of). Thus we can see that deadweight loss is proportional to the square of the tax rate $t$.

Now let’s look at what happens with land (in the economic sense). No matter how expensive a license to use a certain portion of radio frequencies is, there will not be new radio frequencies to use.

And when a tax is implemented, there’s no deadweight loss.

A similar story plays out with physical plots of land (though there is very minor supply elasticity with land reclamation). No matter how much you tax the value of the physical land, you will have no economic inefficiency until people begin to abandon land due to equilibrium price going negative.

Welfare

The magnitude of welfare spending I advocate for is founded by my belief that happiness scales with the logarithm of consumption and a committment to being at least quasi-utilitarianism. If you disagree with either of these two points, I hope you find my points on program design interesting.

The scientific literature on happiness generally looks at measures of income or wealth rather than consumption. A recent adversarial collaboration between Killingsworth, Kahneman and Mellers analyzed self reported happiness data from 33,391 employed adults in the US. They showed that the majority of people had their happiness increase in proportion to the logarithm of their income. They claim that “[t]here is an unhappy minority, whose unhappiness diminishes with rising income up to a threshold, then shows no further progress” and there is a group whose happiness scales faster than logarithmically. These more granular groupings explained why past studies showed a plateau in happiness around 75-90k.

With that in mind, there’s a pretty simple case for redistribution: taking 1k from a richer person makes them sad at a lesser rate than it makes a poorer recipient happy. If this were to only factor at play, it would be optimal to make everyone equal in consumption (a common interpretation of communism) however there are countervailing forces.

1. Redistribution is leaky - it requires resources to run a bureaucracy. You need to fund an agency to investigate how much money people are making, to enforce compliance and to distribute the money to its recipients.
2. Redistribution destroys incentives - Imagine you currently make 20k a year in labor income with the government giving you an extra 40k a year to equalize incomes at 60k (if you divide personal expenditures by the US population you get 58k as of september 2024). Would you want to work twice as many hours and make 40k in labor income if your take home pay remained at 60k? The same goes for those who are net giver, would you give more effort to make 140k rather than 100k in labor income if it didn’t change how much you took home?
3. Redistribution reduces capital allocation efficiency - In some sense, the people with more money are better at making money. This tends to be a positive sum process so taking money away from them reduces their influence over capital allocation and thus reduces economic growth.

Redistribution advocates such as myself have to deal with these problems in some way, or at least think they are counterbalanced by the good done.

Material Prosperity is Good

The Vanguard of the Revolution