Hi Simon, I want to push back on your claims about markets a bit.
Markets are great, especially when there are minimal market failures. I love them. They are responsible for a lot of good things. But the first and second fundamental theorems don’t conclude that they maximise social welfare. That is a widely held misconception.
The first concludes that they reach a point on the Pareto frontier, but such a point could be really quite bad. e.g. a great outcome for one person but misery for 8 billion can be Pareto efficient. I’m not sure that extreme outcome is compatible with your specification (as without market failures, perhaps one can say everyone will also be at least as well off as now), but a world where billions are still living in poverty as they are today is definitely compatible with the 1st theorem plus no market failures, yet is definitely not maximising social welfare.
And the 2nd theorem says that a massive transfer plus markets can reach any Pareto optimal outcome (including a genuinely socially optimal one). However, it is often the transfer that is doing most of the work there, so the conclusion would not be that markets maximise social welfare, but that in combination with a potentially radical redistribution they do.
Hey Toby, thanks for your comment! I’m not sure we really disagree, because I agree that transfers are an important part of the picture, that’s why I said “all of the interesting work is in designing anti-trust and tax measures that are robust to superintelligence”. But I agree that my comment insufficiently emphasized the redistributive aspect. The overall point is that we may not need to design a brand new set of institutions to deal with the rise of superintelligence. At least one hypothesis worth considering is that markets plus avoiding market failure plus redistributive tax and transfer will be sufficient. We already have lots of political institutions that seek to remedy distributive problems associated with markets, and maybe these institutions will scale with growth in GDP. Or maybe not! But at least, I think this is a great place to start for the analysis, as opposed to from scratch
Hi Simon, I want to push back on your claims about markets a bit.
Markets are great, especially when there are minimal market failures. I love them. They are responsible for a lot of good things. But the first and second fundamental theorems don’t conclude that they maximise social welfare. That is a widely held misconception.
The first concludes that they reach a point on the Pareto frontier, but such a point could be really quite bad. e.g. a great outcome for one person but misery for 8 billion can be Pareto efficient. I’m not sure that extreme outcome is compatible with your specification (as without market failures, perhaps one can say everyone will also be at least as well off as now), but a world where billions are still living in poverty as they are today is definitely compatible with the 1st theorem plus no market failures, yet is definitely not maximising social welfare.
And the 2nd theorem says that a massive transfer plus markets can reach any Pareto optimal outcome (including a genuinely socially optimal one). However, it is often the transfer that is doing most of the work there, so the conclusion would not be that markets maximise social welfare, but that in combination with a potentially radical redistribution they do.
Hey Toby, thanks for your comment! I’m not sure we really disagree, because I agree that transfers are an important part of the picture, that’s why I said “all of the interesting work is in designing anti-trust and tax measures that are robust to superintelligence”. But I agree that my comment insufficiently emphasized the redistributive aspect. The overall point is that we may not need to design a brand new set of institutions to deal with the rise of superintelligence. At least one hypothesis worth considering is that markets plus avoiding market failure plus redistributive tax and transfer will be sufficient. We already have lots of political institutions that seek to remedy distributive problems associated with markets, and maybe these institutions will scale with growth in GDP. Or maybe not! But at least, I think this is a great place to start for the analysis, as opposed to from scratch
Thanks for the clarification, and apologies for missing that in your original comment.
You’re definitely right that my original comment failed to explain the importance of redistribution!