Sunday, August 2, 2009

Public Goods without Taxes

Public Goods without Taxes

I propose two types of money. Type A allocates scarcity; one has to pay Type A money to get scarce goods: food, a ticket on a crowded train or a full concert. One gives Type B money to indicate that one likes an item, is satisfied with it and to reward good service.

Businesses charge Type A money; it disappears when a person pays it. Individuals receive Type A money proportional to the amount of Type B Money assigned to them. That is, one's ability to purchase the limited resources of society is proportional to the amount of satisfaction they provide to the rest of society. Every person gets a fixed stock of Type B money and can allocate it to those businesses, organizations and governmental bodies they likes.

There are two necessities to make this system work.

  1. This vote is secret! This is for exactly the same reason that we have a secret ballot. Otherwise, ones employer and government office holders would find way to reward those who voted for them. Or bluntly, we would have vote-buying.

    If the allocation of type B money was public, then hospitals, web sites, airlines would insist that users allocate type B money in order to have service, and the system would degenerate into a market economy like we have now

  2. A business or individual that distributes type B money to any party such that amount is a significant percentage of what they get, must get permission for that rate.

    Otherwise, firms would have an incentive to give more Type B money to their employees than from large services from which they benefit. Thus, a trucking company would have to have approval of the rate they give their employees as opposed to the agencies that build roads, the companies that produce the software they use and the equivalent of Consumer's Report that evaluates the quality of trucks they may purchase (or more precisley on which they expend type A money).

    Or more dramatically, person Q might allocate 30% of their Type B money to their aunt. Perhaps, their aunt is helping taking care of their kid who has autism. Then the permission would be reasonable once they show (perhaps with randomly taken outtakes of a videocamera in their home). This is analagous to a health insurance company not paying for care given by a doctor who is the patient/insuree's father, son, etc.

Note that a business would have the right to distribute the funds in the two categories as they choose. Thus the hypothetical trucking business could decide to give more or less type B money to (the road agencies, the software provider, etc.) as they feel appropriate. They also could allocate the type B money to their employers and business with which they do a lot of business as they choose. Someone else would have to determine the percentage of money to go to each class or set of recipients. I think that "someone else" could be a sortition jury.

Consumers now express social choice in their purchases, for example by buying "Fair Trade Coffee" or by joining Consumer-Supported-Agriculture groups to buy their food locally. However, an individual doing this is acting against their own pecuniary interest. A thorough discussion of this is found in PatriceCasteran, Herbert and Cailleba, Patrice,A Quantitative Study on the Fair Trade Coffee Consumer(September 29, 2008). Available at SSRN:

But under this system, consumers can act to promote fair trade at no cost to themselves. They can distribute the Type B Dollars among all the factors of production as they see fit. That is when we buy food, we could give more or less money to the farmer or farm worker. When we buy a record, we could distribute money to the artist or the checkout person at the distribution point (retail store).

Those who believed the free market best allocated these, would simply make no decision in this regard. Thus a business only has to make agreements regarding distributing the funds of those who believe in the free market and who did not make a "social choice" purchase. Thus, this the system allows both pro-market and anti-market to coexist side by side and one would choose which "side" to be on without being at a personal disadvantage like those who pay more for "fare trade" coffee.

This system eliminates what my intermediate microeconomics course termed "price discrimination." (Microeconomics: Theory and Applications, Edkar K. Browning and Mark A. Zupan Version 8/e page 331) This happens when there is some monopoly power, which is measured by the Lerner index:

(Price - MC) / Price

It ranges from zero to one. where MC is the marginal cost. The owner of a copyright has zero marginal cost--it does not cost any more to let people download the song one more time. In my town of Macomb, Illinois our only transportation out of the town, is the Amtrak. I don't drive. Many times the Amtrak is not full and seats are empty. I would suspect that even if the Amtrak were free, there would be times when seats would be empty. Just not enough people who want to go to Chicago. The marginal cost to put one more passenger on the train is zero. Thus, Amtrak has the highest possible Monopoly level.

It is well known that monopolists who maximize revenue create a social dead weight. People who would have bought the product don't because the price is too high. That is why we have antitrust laws. That is only when the price must be the same for each consumer.

If the monopolist could charge a different price to each individual--hypothesize an inexpensive brain-wave reader that could tell how much the person really wants to ride the Amtrak, then there is no deadweight. Each person is charged an amount to determine what they can purchase and everyone would end up consuming the same amount of the product as they would otherwise. This is called perfect price discrimination.

But the most practical case is when the monopolist can charge different amounts to different groups of people. Airlines are a perfect example. The person who has to travel the last minute generally pays more than the one who can book ahead. Passengers don't like this. And the bureaucracy of dealing with these systems is expensive.

An example is the recent charges for checking a bag. The airlines want to show up as the cheapest in the Travelocity or Expedia search. I have found that my travel plans change. I reserved a great fare to travel for a court date (regarding my late mother). Only to find that the court date was cancelled. Similarly, I booked flights only to have my parents have an unexpected illness. The airlines do give bereavement fares for those who lose a loved one but that does not cover all the other circumstances. Those who have a monopoly or lots of fixed fares try to find a way to make those who really want the service to pay a higher fare but still get those who are price sensitive to fill up empty seats.

Alternatively, look at all the different charges for cellular telephone calling plans.

And of course, we have a problem with "public goods," both those that are privately supplied and those that are government supplied. Sometimes business come up with different business models such as "fremium" services, addware, or advertisement such as the Google Model. On NPR, July Sixth, Ted Koppel said that advertising rates for those in the magic age range are five times higher than older viewers. This biases what is shown on television and we thus see more films such as Saw II, Hostel, cheap science fiction, than quality programming that might appeal to an older generation.

This is the ultimately participatory democracy since everyone determines how much of their money should be shared with goods and services supplied by government agencies, how much should be shared with public good providers and those with high overhead costs such as the wonderful companies that make software on an Open Source model. I personally use the Sun software from Java practically every day. Sun lets people download it for free and they contribute to open source. Yet it has had several losing years recently and has finally agreed to be purchased by Oracle. (Just for the record, I have no connection to Sun or Java other than a user and having occassionally purchased a minor amount of software help from Sun.) CNET News says that "The very openness that made the technology popular also made it possible for competitors to profit from Java at Sun expense." On the other hand, the same article does say that 'Java is a key factor in ninety percent of sales.'

The dicussion of the problems with charging for software, and in my opinion all public goods, is best expressed in a version of the Gnu Manifesto, "Consider a space station where air must be manufacturered at great cost; charing each breather per liter of air may be fair, but wearing the metered gas mask all day and all night is intolerable even if everyone can afford to pay the air bill. And the TV cameras everywhere to see if you ever take the mask off are outrageous. It's better to support the air plant with a head tax and chuck the masks."

He also proposes the possibility of a "Software Tax" to support programmers, as x percent of the purchase price of a computer and that one can take a credit The rate could be decided by a vote of the payers of the tax weighted according to the amount they will be taxed on.

Extending the ideas in this article, each user of the computer could assign their tax revenue to the programmers or businesses that support them.

Remember that Type B rewards business, employees, investors, for providing goods. Type A Money controls the consumption of scarce goods. These are things like bread, coal, the space that one lives in s a private house or apartment. They are recognized by the fact that when one person consumes one of these, others cannot consume them. Those who provide more satisfaction in the society get more Type A money; they are rewarded by being able to have more of these items.

But one doesn't have to spend type A money when one uses things that don't interfere with others. That is using software, listening to music, reading the news. But it is also is a seat that otherwise be empty whether in a concert hall, a sports stadium, a plane or a train! And it is using unused capacity on a cell phone system. And it is also foreign aid, defense, police, education to the extent that one consider educating individuals benefits society, and all the things we expect government to provide.

One allocates type B money to these.

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