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WTF?: What's the Future and Why It's Up to Us by Tim O'Reilly

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IN THE MAY 2011 VANITY FAIR ESSAY THAT BROUGHT THE NOTION of the 1% into the national dialogue, “Of the 1%, by the 1%, for the 1%,” Nobel Prize–winning economist Joseph Stiglitz wrote a chilling reflection on the consequences of a dysfunctional economy that works well for only a tiny fraction of the population. His title, painfully echoing Lincoln’s Gettysburg Address, asks if indeed “government of the people, by the people, and for the people” remains our ideal.

He wrote about the tumult then upending autocratic regimes in the Middle East, noting, “These are societies where a minuscule fraction of the population—less than 1 percent—controls the lion’s share of the wealth; where wealth is a main determinant of power; where entrenched corruption of one sort or another is a way of life; and where the wealthiest often stand actively in the way of policies that would improve life for people in general.” Most tellingly, Stiglitz observed, “In important ways, our own country has become like one of these distant, troubled places,” and asked of the popular uprising, “When will this come to America?”

The Occupy Wall Street protesters were eventually cleared out of their encampments, but the questions they asked continue to resonate through our politics. Will the future provide opportunity for all of us? Or will it crush most of us even further underfoot?

“The 1%” was a key feature of Bernie Sanders’s 2016 presidential campaign, and Donald Trump rode the message of blowing up the incumbents all the way to victory over Hillary Clinton’s defense of the status quo. By all appearances, though, President Trump has little in the way of a policy solution to the fundamental problem that Stiglitz outlined, that the 1%, or more properly, the .01%, have translated their financial power into political power, turning what was once a vibrant democracy and a vibrant economy into a staggering colossus, a platform that no longer works for the benefit of its participants.

You can see how the struggle between people and profit played out in a 2016 New York Times account of the closing of Carrier’s Indianapolis factory and the planned transfer of its 1,400 jobs to Mexican workers making about as much per day as its Indianapolis workers make per hour. Trump made much of this incident during his campaign, pointing to labor outsourcing as the root of the problem. But why do companies seek ever-cheaper labor?

Carrier’s parent company, United Technologies, explained that “the cuts are painful but are necessary for the long term competitive nature of the business and shareholder value creation.” United Technologies Chief Financial Officer Akhil Johri gave the game away with his final words: “. . . and shareholder value creation.” The article went on to explain:

Wall Street is looking for United Technologies to post a 17 percent increase in earnings per share over the next two years, even though sales are expected to rise only 8 percent. Bridging that gap means cutting costs wherever savings can be found, as Mr. McDonough [president of United Technologies’ climate, controls, and security division] suggested at the meeting with analysts.

In theory, companies care about their stock price because financial markets provide the capital that allows them to invest and expand. But guess what: United Technologies didn’t need to go to financial markets for capital. In fact, they have so much capital that in December 2015 they had just committed to spend another $12 billion to buy back their stock.

Despite United Technologies’ rhetoric, it is not a company that needs to cut costs “for the long term competitive nature of the business.” I believe that a set of money managers, already members of the .01%, are demanding that profits rise in order to drive up the stock, so that their own incomes will increase. Top managers in the company go along with this plan because their compensation is also tied to that rise in stock price and because they will lose their jobs if they don’t deliver on it. This is a forced wealth reallocation from one set of stakeholders in the company to another.

That’s why there is so much anger at Wall Street from the followers of both Donald Trump and Bernie Sanders, populists of the right and of the left. The system is rigged. Companies are forced to eliminate workers not by the market of real goods and services where supply and demand set the right price, but by the commands of financial markets, where hope and greed too often set the price.

Most people unthinkingly use the term the market to refer to these two very different markets. Recognizing that they are not the same is the first step toward solving the problem.

President Trump’s solution is to threaten companies with tariffs on foreign goods or losing government contracts, or to promise backdoor payments to keep jobs in America. None of these address the underlying problem. Financiers, CEOs, and corporate boards should do some deep soul-searching into their responsibility for the current state of the economy, which so clearly no longer works for many ordinary Americans. Alas, as Nick Hanauer said to me, soul-searching by CEOs is as likely to affect the economy as “thoughts and prayers for the victims” are to put an end to gun violence. We need to rethink the incentives that encourage this behavior, and reverse the rules that allow it.


Future economic historians may look back wryly at this period when we worshipped the divine right of capital while looking down on our ancestors who believed in the divine right of kings.

Business leaders making decisions to outsource jobs to low-wage countries or to replace workers with machines, or politicians who insist that it is “the market” that makes them unable to require companies to pay a living wage, rely on the defense that they are only following the laws of economics. But the things economists study are not natural phenomena like the laws of motion uncovered by Kepler and Newton. They are in part the outcome of rules and algorithms devised by humans that attempt to model and influence human behavior. Because many of these rules and algorithms are enforced by law and custom rather than by code, we are blind to the ways that they are similar to the algorithms used by Google and Facebook and Uber. We are following the wrong map.

Because they are shaped by rules crafted by our imperfect understanding, entire economies can go awry in much the same way that simpler digital marketplaces like Google and Facebook, Uber and Airbnb can. Their fundamental fitness functions can be wrong. They can have bias in the data used to train their algorithms. They can be gamed by participants.

Behavioral economics has convincingly refuted the idealized model of “homo economicus,” the rational actor whose pursuit of self-interest can be neatly modeled with mathematical formulae. Modern economics is increasingly looking to historical data rather than to theory, trying to build a better map. Unfortunately, what James Kwak calls “economism,” the reduction of real-world problems to fit a simplistic version of economic theory—that is, substituting looking at the map for looking at the territory, continues to rule the thinking of most politicians and business leaders.

A better way to think about an economy is that it is like a game. Some of the rules of the game do represent what appear to be fundamental constraints—population growth and productivity, the availability of labor or resources, or the capacity of the environment, or even the behavioral patterns of human nature—while others are arbitrary and subject to change, such as tax policy, government entitlements, and minimum-wage requirements. The game has untold possible outcomes. Its complexity comes both from the near-infinite variety that can come from permutations of simple rules and from the fact that billions of humans are playing the game simultaneously, each affecting the outcomes for the others. Even the simplest and most definitive of the “rules” of an economy are far more complex to apply than they appear on paper. As an Internet wag noted many years ago, “The difference between theory and practice is always greater in practice than it is in theory.”

This complexity, and its dismissal based on economic theory, came to mind last year in a conversation I had with Uber’s economists. I was arguing that just as Google’s search algorithm takes many factors into account in producing the “best” results, Uber would benefit if its algorithms took drivers’ wages, job satisfaction, and turnover into account, and not just passenger pickup time, which it currently uses as its fitness function. (Uber aims to have enough drivers on the road in a given location that the average pickup time is no more than three minutes.)

The economists explained to me that Uber’s wages were, by definition, optimal, because they simply represent the equilibrium point between supply and demand, one of the most basic ideas of free market economics.

Uber’s real-time matching algorithm actually satisfies two overlapping demand curves. If there are not enough passengers, the price must go down to stimulate passenger demand. That’s the essence of Uber’s price cuts. But if there are not enough drivers to satisfy that demand, the price has to go up to encourage more drivers to come on the road. That’s the essence of surge pricing. Uber’s argument is that the algorithmically determined cost of a ride is at the sweet spot that will drive the most passenger demand while also providing sufficient incentive to produce the number of drivers to meet that demand. And because driver income is the product of both the number of trips and the rate paid, they believe that even with lower fares, increasing passenger demand will improve driver incomes more effectively than limiting supply, as was done with taxi medallions. They believe that any attempt to set rates specifically to raise driver income would suppress rider demand, and so reduce utilization and thus net wages. Of course, if too many drivers show up, this will also reduce utilization, but the economists seemed confident, based on data that they were not authorized to share with me, that they have generally found that sweet spot.

I’m not convinced. If Uber had the courage of its convictions, it would be deploying demand-based pricing (including surging prices in a negative direction, below the base price) all the time, much as Google sets ad prices with an auction. Why don’t they? Because they believe that both drivers and customers are more comfortable with a known base price. That is, the difference between theory and practice is greater in practice than it is in theory.

It’s also worth noting that even this seemingly simple market requires rules to prevent opportunistic behavior, such as a driver canceling because he gets a better offer elsewhere, or two friends each calling an Uber and taking the one that arrives first. (Before coming up with the idea for Uber, Garrett Camp was reportedly blocked by San Francisco cab companies for doing just this in the old world of cabs scheduled by calling a dispatcher.) The simple maps of idealized markets leave out many real-world details that must be dealt with in order for the market to actually function properly. Governance is essential.

The question is whether dynamic algorithmic governance can be superior to simpler fixed rules. Even in their current state, Uber’s real-time marketplace algorithms do allow for better matching of supply and demand than the previous structure of the taxicab and limousine industry or the labor market algorithms used by workplace scheduling companies. But Uber can do far better. Algorithms such as these can be a real advance in the structure of our economy, but only if they take into account the needs of workers as well as those of consumers, businesses, and investors.

Here’s the rub in the real world: Uber isn’t just satisfying the two simultaneous demand curves of customer and driver needs, but also competitive business needs. Their desire to crush the incumbent taxi industry and to compete with rivals like Lyft also affects their pricing. And under the rules of the venture-backed startup game, in order to satisfy the enormous prospective valuation placed on them by their investors, they must grow at a rate that will allow them to utterly dominate the new industry that they have created.

Drivers are also not playing a simple game in which they can just go home if their income isn’t sufficient. They have bills to pay and may have to work brutally long hours in order to meet them. They may have leased a vehicle and now must work to pay for it. They may know in theory that they are depreciating the value of the vehicle and running up expenses that undermine their hourly earnings, but in practice they don’t feel they have any choice. Alternative jobs may be even worse, with less flexibility and even lower pay.

Uber has many advantages over its drivers in deciding on what price to set. They can see, as drivers cannot, just how much consumer demand there is, and where the price needs to be to meet the company’s needs. Drivers must show up to work with much less perfect knowledge of that demand and the potential income they can derive from it. Michael Spence, George Akerlof, and Joseph Stiglitz received the Nobel Memorial Prize in Economics in 2001 precisely for their analysis in the 1970s of the ways that the efficient market hypothesis, so central to much economic thinking, breaks down in the face of asymmetric information.

Algorithmically derived knowledge is a new source of asymmetric market power. Hal Varian noted this problem in 1995, writing in a paper called “Economic Mechanism Design for Computerized Agents” that “to function effectively, a computerized agent has to know a lot about its owner’s preferences: e.g., his maximum willingness-to-pay for a good. But if the seller of a good can learn the buyer’s willingness-to-pay, he can make the buyer a take-it-or-leave it offer that will extract all of his surplus.” If the growing complaints of Uber drivers about lower fares, too many competing drivers, and longer wait times between pickups are any indication, Uber is optimizing for passengers and for its own profitability by extracting surplus from drivers.

Despite the information asymmetry in favor of the platforms, I suspect that, over time, driver wages will need to increase at some rate that is independent of the simple supply and demand curves that characterize Uber and Lyft’s algorithms today. Even if there are enough drivers, the quality of drivers deeply influences the customer experience.

Driver turnover is a key metric. As long as there are lots of people willing to try working for the service, it is possible to treat drivers as a disposable commodity. But this is short-term thinking. What you want are drivers who love the job and are good at it, are paid well, and as a result, keep at it. Over the long term, Uber and Lyft will be engaged in as fierce a contest to attract and keep drivers as they are to attract and keep customers today. And that competition may well provide further evidence that higher wages (so-called efficiency wages, as discussed in Chapter 9) can pay for themselves by improving productivity and driving greater consumer satisfaction.

Lyft and Uber keep their data close to the vest, but my own conversations with drivers suggest that Lyft, which has worked hard to craft policies and systems friendlier to drivers, is gaining on its larger, better-funded competitor. Almost every driver I talk to drives for both platforms. Almost universally, they tell me they prefer Lyft, and some tell me that they’ve quit driving for Uber even though there are more customers. More recently, as the result of cumulative PR missteps on Uber’s part, even the customers are defecting to Lyft. Uber’s aggressive tactics have earned them many enemies, and they have ignored one of the key rules of the modern connected company: as O’Reilly Media President and Chief Operating Officer Laura Baldwin is fond of saying, “Your customers are your conscience.”


Many simplistic apologists for the capitalist system celebrate disruption and assume that while messy, everything will work out for the best if we just let “the invisible hand” of competition do its work. This is true, if we correctly understand the invisible hand. The law of supply and demand is not describing some magical force, but the way that players of the game fight for competitive advantage. As Adam Smith put it, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

The “law” emerges from the contest between players. As labor organizer David Rolf said to me, “God did not make being an autoworker a good job.” Those middle-class jobs of the 1950s and 1960s that so many commentators look back at with nostalgia were the result of a fierce competition between companies and labor as to who would set the rules of the game. The invisible hand became very visible indeed by way of bitter strikes, and then transcended the market into the political process with the National Labor Relations Act of 1935 (the Wagner Act), the Labor Management Relations Act of 1947 (Taft-Hartley), and state “right to work laws.” Over the past eighty years, these acts have tilted the rules first one way, then the other. Today they are heavily tilted in favor of capital, and against labor. Whatever your position on what the right tilt ought to be, it should be clear that the low-wage jobs of today aren’t inevitable, any more than were the high-wage jobs of earlier decades.

Right now we’re at an inflection point, where many rules are being profoundly rewritten. Much as happened during the industrial revolution, new technology is rendering obsolete whole classes of employment while making untold new wonders possible. It is making some people very rich, and others much poorer. It is giving companies new ways to organize; while labor organizing is beyond the scope of this book, this is an ideal time to rethink the labor movement as well.

I am confident that the invisible hand can do its work. But not without a lot of struggle. The political convulsions we’ve seen in the United Kingdom and in the United States are a testament to the difficulties we face. We are heading into a very risky time. Rising global inequality is triggering a political backlash that could lead to profound destabilization of both society and the economy. The problem is that in our free market economy, we found a way to make society as a whole far richer, but the benefits are unevenly distributed. Some people are far better off, while others are worse off.

Thus we come to the fundamental idea of welfare economics, as summarized in plain language by economist Pia Malaney from the Institute for New Economic Thinking: “It’s very hard to find a way to have any policies that have no negative impacts on anyone but can make some people better off. So we found a refinement . . . where we look at the net benefit versus the net cost. And the idea is that . . . we take whatever benefit we have to the society as a whole and we redistribute so that overall people are better off.” In short, the laws of welfare economics assert that when some people are made better off as the result of an economic policy change, the winners must compensate the losers. But as Bill Janeway put it to me in a pungent email, “Unfortunately, the winners rarely do so except as the result of political coercion.”

Many discussions of our technological future assume that the fruits of productivity will be distributed fairly and to the satisfaction of all. That is clearly not the case. Right now, the economic game is enormously fun for far too few players, and an increasingly miserable experience for many others.

“Between the end of World War II and 1968, the minimum wage tracked average productivity growth fairly closely,” writes economist John Schmitt. “Since 1968, however, productivity growth has far outpaced the minimum wage. If the minimum wage had continued to move with average productivity after 1968, it would have reached $21.72 per hour in 2012—a rate well above the average production worker wage. If minimum-wage workers received only half of the productivity gains over the period, the federal minimum would be $15.34.” Instead, as we have seen, the bulk of the value created by increasing productivity has been allocated to corporate shareholders.

It is true that another huge swath of the value created by productivity gains in the economy has been allocated to consumer surplus—the difference between what goods sell for and what customers might have been willing to pay. Other value that new technology brings has been provided to consumers free of charge. Consumers don’t pay directly for Google and Facebook and YouTube; advertisers do, invisibly hiding the cost in marginally higher prices. The net consumer surplus is hard to measure, but it has an offsetting effect to lower wages.

Depressed wages for workers and low prices for consumers are not just an inevitable result of automation and free trade, but are driven by fierce competition by companies to expand their market share, as Walmart and Amazon have done with consumer goods and Uber and Lyft have done with taxi fares. These upstarts upset the existing pricing equilibrium between companies and their customers in part as a competitive tactic, a way to undercut the old order.

As Nick Hanauer pointed out, in general we have forgotten the hard-fought lessons of the twentieth century: that workers are also customers, and that unless they receive a fair share of the proceeds, they will one day be unable to afford the products of industry. We are increasingly creating an economy that is producing too much of what only some people can afford to buy, while others just have their noses pressed to the glass. As shown in a recent study based on detailed barcode data from US retail sales from 2004 to 2013, there was a meaningful increase in the variety of products offered to higher-income households and a lower rate of inflation in the price of existing products for those wealthier consumers than for products aimed at those with lower incomes. Inequality feeds on itself, as the market becomes ever more optimized for those with more to spend.

In economic theory, one person’s purchase is another person’s sale, so, by definition, national product is equal to national income. But the distribution of income matters for consumer spending. As Nick Hanauer, who got his start with his family pillow business, put it in the documentary film Inequality for All, “The problem with rising inequality is that a person like me who earns a thousand times as much as the typical worker doesn’t buy a thousand times as many pillows every year. Even the richest people only sleep on one or two pillows.”

People like Nick not only don’t buy thousands of times more pillows, but they can wear only one set of clothes at a time, and can eat only so many meals a day. They do save and invest (Nick, as mentioned earlier, made his first big fortune as the first nonfamily investor in Amazon), and that can have huge “trickle-down” improvements in other people’s lives. But as became clear in the 2008 financial crisis, an increasing amount of that investment has been in financial products that are all about strip-mining value from the economy rather than creating value for all. As Warren Buffett said to Rana Foroohar, “You’ve now got a body of people who’ve decided they’d rather go to the casino than the restaurant.”

As the incomes of ordinary consumers stagnated, companies kicked the can down the road a few decades by encouraging them to pay for goods on credit, but that short-term strategy is crashing down. In The Marriage of Heaven and Hell, written during the most hellish days of the first industrial revolution, the poet William Blake issued what might well be a rule as certain as those issued by any economist: “The Prolific would cease to be Prolific unless the Devourer, as a sea, received the excess of his delights.”

I like to use Walmart as an example of the complexity of the game play and the trade-offs that the various competing players ask us to make as a society. Walmart has built an enormously productive business that has vastly reduced the cost of the goods that it supplies. A large part of the value goes to consumers in the form of lower prices. Another large part goes to corporate profits, which benefits both company management and outside shareholders. But meanwhile, Walmart workers are paid so little that most need government assistance to live. By coincidence, the difference between Walmart wages and a $15 minimum wage for their US workers (approximately $5 billion a year) is not that far off from the $6 billion a year that Walmart workers are subsidized via federal Supplemental Nutrition Assistance Program (SNAP, commonly known as food stamps). Those low wages are subsidized by the taxpayer. Walmart actually pays its workers better than many retailers and fast-food outlets, so you can multiply this problem manyfold. It has been estimated that the total public subsidy to low-wage employers amounts to $153 billion per year.

You can see here that there is a five-player game in which gains (or losses) can be allocated in different proportion to consumers, the company itself, financial markets, workers, or taxpayers. The current rules of our economy have encouraged the allocation of gains to consumers and financial shareholders (now including top company management), and the losses to workers and taxpayers. But it doesn’t have to be that way.

In the face of declining same-store sales and consumer complaints, in 2014 Walmart raised its minimum wage to $10/hour, well above the federal minimum wage of $7.25, while also investing in employee training and career paths, costing the company $2.6 billion. This improved customer satisfaction, employee retention, and sales, but has led to serious dissatisfaction among investors. Bill Janeway likes to note that the competition between parties is often anything but invisible.

We can wait for the push and pull of the many players in the game to work things out, or we can try out different strategies for getting to optimal outcomes more quickly. As Joseph Stiglitz so powerfully reminded us in his book of that name, we can rewrite the rules.

In professional sports, leagues concerned about competitive play often establish new rules. Football (soccer) has changed its rules many times over the past 150 years. NBA basketball added the three-point shot in 1979 to make the game more dynamic. Many sports use salary caps to keep teams in large markets from buying up the best talent and making it impossible for teams in smaller markets to compete. And so on.

The “Fight for 15,” the movement toward a national $15 minimum wage, is one way to rewrite the rules. Businesses and free market fundamentalists argue that raising minimum wages will simply cause businesses to eliminate jobs, making workers even worse off. But as Nick Hanauer said during the Q&A after his talk at my 2015 Next:Economy Summit, “That’s an intimidation tactic masquerading as an economic theory.” Considerable evidence shows that higher minimum wages would likely not have much impact in major cities; most proposals would allow them to remain lower in rural areas, where they might suppress employment.

The critical question, expressed in the true language of Adam Smith’s “invisible hand,” is who gets more, and who gets less. Capital, labor, consumers, taxpayers.

As noted above, a $15 minimum wage might cost Walmart on the order of $5 billion a year. This is no small number. It represents about a fifth of Walmart’s annual profits, and about 1.25% of its annual US revenues. But it could save taxpayers $6 billion per year. If Walmart weren’t able to pass off part of its true labor costs onto taxpayers, the company would have to accept lower profits or raise its prices. But is that really such a bad thing? If Walmart’s profits were reduced by 20%, its market capitalization would certainly fall, a loss to shareholders. But leaving aside the shock of a sudden drop in earnings due to a change in the rules, were Walmart a private company, would its owners really not have wanted to own it if it generated $20 billion a year in profit instead of $25 billion? In the unthinkability of this trade-off, in our unquestioned assumption that companies must continually strive to increase their level of profit, we see the hand of the master algorithm that rules financial markets.

If Walmart were instead to pass along the additional costs to consumers, prices would have to go up by 1.25% (or $1.25 for every $100 spent at Walmart). If the costs were split between shareholders and consumers, that would require only a 10% drop in Walmart profits and an additional 62 cents per $100 spent by consumers. Would people really stop shopping at Walmart if they had to spend little more than an additional half cent for every dollar?

Those higher prices might discourage some customers, but the higher incomes of workers might encourage them to spend more. So it’s not inconceivable that Walmart and its shareholders would come out whole. Nick Hanauer calls it the fundamental law of capitalism: “When workers have more money, companies have more customers and then hire more workers.”

And of course, raising the minimum wage is only one way to address the fact that the current rules of our economy favor owners of capital over human workers. We could give companies tax credits for wages paid; we could tax robots or carbon or financial transactions instead of wages; we could give tax credits for unpaid work raising children or caring for elders; we could think the unthinkable.

Interestingly, Denmark, where there are no minimum wages because there is a robust social safety net, shows us that with the right system design, you can actually have fewer rules. We need to focus on outcomes and realize that all the rules should be open to change if new rules improve what we are actually trying to achieve.

We are mistaking a map for the territory, following a road into the desert because we were promised an oasis at its end. Travelers have returned, telling us that the water is gone, but we keep marching into the waste because the map tells us to do so and we cannot imagine the possibility of another road not yet shown. We have forgotten that maps are in need of an update when the landscape itself has changed. So many of our proposed solutions are like the taxi companies putting televisions and networked credit card readers in the back of their cars rather than reimagining the possibilities of on-demand transportation.

The barriers to fresh thinking are even higher in politics than in business. The Overton Window, a term introduced by Joseph P. Overton of the Mackinac Center for Public Policy, says that an idea’s political viability depends mainly on whether it falls within the window framing a range of policies considered politically acceptable in the current climate of public opinion. There are ideas that a politician simply cannot recommend without being considered too extreme to gain or keep public office.

In the 2016 US presidential election, Donald Trump didn’t just push the Overton Window far to the right, he shattered it, making statement after statement that would have been disqualifying for any previous candidate. Fortunately, once the window has come unstuck, it is possible to move it radically new directions. This has generally happened in US history as a result of great dislocations, where business as usual just couldn’t continue. It took the Great Depression to give Franklin Roosevelt and Frances Perkins the license to put in place the New Deal. But given that license, they imagined the unimaginable.

I was thinking about the Overton Window in November 2016 after attending the Summit on Technology and Opportunity, hosted by the White House, the Chan Zuckerberg Initiative, and the Stanford Center on Poverty and Inequality. I had done a lunchtime debate with Martin Ford, author of the bestselling book The Rise of the Robots, which makes the case that artificial intelligence will take over more and more human jobs, including knowledge work. Martin argues for universal basic income as the solution—making sure that every person receives a basic cash grant sufficient to meet the essentials of life.

I was positioned as the techno-optimist in the debate, because I have argued that eliminating human jobs is a choice, not a necessity. When we focus on what needs doing, and what might be possible when humans are augmented by new technology, it is clear that there is plenty of work to go around for both humans and machines. It is only our acceptance of the notion that financial efficiency is the primary fitness function for the economy that locks us into the race to the bottom, in which humans are seen as a cost to be eliminated.

But in the debate with Martin and in subsequent conversations with attendees at the event, I found myself thinking and saying things that hadn’t occurred to me before. Stanford’s Rob Reich, the moderator of the discussion, said to me afterward, “I thought going into this that Martin was the radical. But I realized that you’re the real radical. You’re saying that universal basic income is just a software patch on the existing system. We need a complete reboot.”

When imagining the future, it’s best if you stretch out your view of the possible by postulating extreme futures. So let’s assume that machines do replace a vast majority of human work, and most humans are put out of work. What are some of the sacred cows that we might toss through the shattered Overton Window of public policy?

If most humans are out of work, a brief exercise of “If this goes on . . .” thinking would quickly lead us to realize that personal income taxes can no longer be the primary source of government revenue. Some other source will be needed, so why not start thinking about it now? What would happen if we postulated a zero income tax for earned income?

If there were no income tax, what about replacing it entirely with so-called Pigovian taxes, taxes on negative externalities? A carbon tax is one of those ideas. A financial transactions tax or other form of tax on the massive redirection of corporate profits toward financial speculation and away from investment in people and the real economy might be another. (The problem of Pigovian taxes, though, is that they tend to reduce the production of whatever negative externality they are feeding on. So if they succeed, they decline. But that’s a good thing, since it means that, like a business, government will always have to reinvent itself.)

But whatever the solution, it’s time to end halfway measures that endlessly split the difference between what is needed and what is politically possible. We need bold proposals, once unthinkable. After all, virtually everything we take for granted today was once unthinkable. For millennia, humans dreamed of flying, but it only became possible one hundred years ago. As we face the challenges of the next economy, we need similar flights of boldness and invention. Dreaming the future is not reserved for technologists. The government of the people, by the people, and for the people also requires massive reinvention for the twenty-first century.

Once we’ve pushed the Overton Window wide open, we can start working toward more desirable futures, in which machines don’t replace humans, but allow us to build a next economy that will elicit the WTF? of astonishment rather than the WTF? of dismay.


I’m not an economist, a politician, or a financier equipped with quick answers as to why things can or can’t change. I’m a technologist and an entrepreneur who is used to noticing discrepancies between the way things are and the way they could be, and asking questions whose answers might point the way to better futures.

Why do we have lower taxes on capital when it is so abundant that much of it is sitting on the sidelines rather than being put to work in our economy? Why do we tax labor income more highly when one of the problems in our economy is lack of aggregate consumer demand because ordinary people don’t have money in their pockets? When economists like former Treasury secretary Larry Summers talk about “secular stagnation,” this is what they are referring to. “The main constraint on the industrial world’s economy today is on the demand, rather than the supply, side,” Summers writes.

Why do we treat purely financial investments as equivalent to real business investment? “Only around 15% of the money flowing from financial institutions actually makes its way into business investment,” says Rana Foroohar. “The rest gets moved around a closed financial loop, via the buying and selling of existing assets, like real estate, stocks, and bonds.” There is some need for liquidity in the system, but 85%? As we’ll see in the next chapter, this great money river is accessible only to a small part of our population, and relentlessly directs capital away from the real economy.

Why do productive and nonproductive investments get the same capital gains treatment? Holding a stock for a year is not the same as working for decades to create the company that it represents a share of, or investing in a new company with no certainty of return.

John Maynard Keynes recognized this problem eighty years ago during the depths of the Great Depression that followed the speculative excesses of the 1920s, writing in his General Theory of Employment, Interest, and Money: “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”

Keynes continued, “The spectacle of modern investment markets has sometimes moved me towards the conclusion that to make the purchase of an investment permanent and indissoluble like marriage, except by reason of death or other grave cause, might be a useful remedy for our contemporary evils. For this would force the investor to direct his mind to the long-term prospects and to those only.” Warren Buffett has proven that this is actually a very good strategy. Yet our policies don’t favor the kind of value investing that Buffett practices.

A financial transactions tax calibrated to eliminate all the benefits of front-running and other forms of high-speed market manipulation would be a good place to start, but we could go much further in taxing financial speculation while rewarding productive investment with lower rates. Larry Fink, the CEO of BlackRock, suggests that at a minimum, long-term capital gains treatment should begin at three years rather than one, with a declining rate for each additional year that an asset is held.

We could even institute a wealth tax such as that proposed by Thomas Piketty. And if we were to tax carbon rather than labor, rather than starting by substituting a carbon tax for income taxes, it might be better to substitute a carbon tax for Social Security, Medicare, and unemployment taxes. These rule changes might be costly to some capital owners but might well benefit society overall.

These are political decisions as much as they are purely economic or business decisions. And that is appropriate. Economic policy shapes the future not just for one person or one company, but for all of us. But we should realize that it is in our self-interest to improve the rules we are now playing under. In his article about income inequality, Joseph Stiglitz explains how Alexis de Tocqueville, a Frenchman writing about American democracy in the 1840s, considered “self-interest properly understood” to be “a chief part of the peculiar genius of American society.”

“The last two words were the key,” Stiglitz writes. “Everyone possesses self-interest in a narrow sense: I want what’s good for me right now! Self-interest ‘properly understood’ is different. It means appreciating that paying attention to everyone else’s self-interest—in other words, the common welfare—is in fact a precondition for one’s own ultimate well-being. Tocqueville was not suggesting that there was anything noble or idealistic about this outlook—in fact, he was suggesting the opposite. It was a mark of American pragmatism. Those canny Americans understood a basic fact: looking out for the other guy isn’t just good for the soul—it’s good for business.”

Throughout history and across continents, economies have played the game using different rules: No one can own the land. All land belongs to kings and aristocrats. Property is entailed and cannot be sold by the owners or heirs. All property should be held in common. Property should be private. Labor belongs to kings and aristocrats and must be supplied on demand. A man’s labor is his own. Women belong to men. Women are independent economic actors. Children are a great source of cheap labor. Child labor is a violation of human rights. Humans can be the property of other humans. No human can be enslaved by another.

We look back at some of these rules as the mark of a just society and others as barbaric. But none of them was the inevitable way of the world.

Here is one of the failed rules of today’s economy: Human labor should be eliminated as a cost whenever possible. This will increase the profits of a business, and richly reward investors. These profits will trickle down to the rest of society.

The evidence is in. This rule doesn’t work. It’s time to rewrite the rules. We need to play the game of business as if people matter.

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