As my other comment promised, hereâs a couple of criticisms of your model on its own terms:
âIf the best two prisons are equally capable, the profit is zero. I.e. criterion 3 is satisfied.â I donât see why we should assume the best two prisons are equally capable? Relatedly, if the profit really is zero, I donât see why any prison would want to participate. But perhaps this is what your remark about zero economic profit is meant to address. I didnât understand that; perhaps you can elaborate.
Predicting the total present value of someoneâs future tax revenue minus welfare costs just seems extremely difficult in general. It will have major components that are just general macroeconomic trends or tax policy projections. While you are in part rewarding people who manage to produce better outcomes, you are also rewarding people who are simply best able to spot already-existing good (or bad) outcomes, especially if you allow these things to be traded on a secondary market.
You say things like âwhenever the family uses a government service, the government passes the cost on to the companyâ as if the costs of doing so are always transparent or easy (or wise) to track. I guess an easy example would be the family driving down a public road, which is in some sense âusing a public serviceâ but in a way that isnât usually priced, and arguably it would be very wasteful to do so. Other examples are things like using public education, where itâs understood that the cost is worth it because thereâs a benefit, but the benefit isnât necessarily easy to capture for the company who had to pay for the education. Amount of tax paid on salary doesnât reliably reflect amount of public benefit of someone doing their job, for a variety of reasons: arguably this is some kind of economic /â market failure, but it is also undeniably the reality we live in. In essence, this is saying that many things are funded by taxation and not privately precisely because itâs difficult or otherwise undesirable to do this kind of valuation for them.
Once youâve extended your suggestion to prisoners and immigrants, I think itâs worth asking why you canât securitize anyoneâs future âsocietal contributionsâ. One obvious drawback is that once this happens on a large enough scale, it starts distorting the incentives of the government, which is after all elected by people who are happy when taxes go down, but no longer raises (as much) additional revenue for itself when taxes go up.
In part, I think the above remark goes to the core of the philosophical legitimacy of taxation: itâs worth considering how the slogan âno taxation without representationâ applies to people whose taxes go to a corporation that they have no explicit control over.
But perhaps this is what your remark about zero economic profit is meant to address. I didnât understand that; perhaps you can elaborate.
Thatâs correct. Profit=RevenueâCosts. The profit that most people think about is the accounting profit. Accounting profit ignores opportunity costs, which is what you give up by doing what youâre doing (bear with me a moment). Economic profit, on the other hand, includes these opportunity costs in the calculation. For example, letâs say Tom Cruise quits acting and decides to bake cakes for a living. Even if his cake shop earns him $1M in accounting profit, heâs giving up all the money he could earn acting instead. So his economic profit is actually negative.
I think you could actually just fix this in the model and still reach the same conclusion (though youâd need extra assumptions to make it work). I really just wanted to introduce my idea for the prison system, rather than make an airtight argument to justify it.
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Predicting the total present value of someoneâs future tax revenue minus welfare costs just seems extremely difficult in general. It will have major components that are just general macroeconomic trends or tax policy projections.
It is very difficult, but thatâs exactly what the financial markets do.
While you are in part rewarding people who manage to produce better outcomes, you are also rewarding people who are simply best able to spot already-existing good (or bad) outcomes, especially if you allow these things to be traded on a secondary market.
Yep. If someone is great at running prisons, you want them to do so, regardless of how good they are at predicting the future. Ideally, you would have a system that allows any good expert to thrive, even if they know little about anything outside of their expertise. But companies deal with this all the time. When theyâre developing a new product, they have to predict which research ventures will be fruitful and which wonât be. They have to predict how well products will sell. They have to predict product breakage rates. They have to predict what advertising will work the best. All these things are hard, which is why companies fail. But they are replaced by ones who better succeed at solving all the issues.
...
You say things like âwhenever the family uses a government service, the government passes the cost on to the companyâ as if the costs of doing so are always transparent or easy (or wise) to track. I guess an easy example would be the family driving down a public road, which is in some sense âusing a public serviceâ but in a way that isnât usually priced, and arguably it would be very wasteful to do so.
Well, yeah. Thatâs why I say to not measure those things. Only measure the big things. The reason why I mention that later in my post, rather than including it in the core argument, is because you need to âsmooth things outâ with simplifying assumptions to make logical arguments work.
Other examples are things like using public education, where itâs understood that the cost is worth it because thereâs a benefit, but the benefit isnât necessarily easy to capture for the company who had to pay for the education.
You could actually use my proposal as a secondary, opt-in public education system as well.
Amount of tax paid on salary doesnât reliably reflect amount of public benefit of someone doing their job, for a variety of reasons: arguably this is some kind of economic /â market failure, but it is also undeniably the reality we live in.
Sure. But I donât see why we canât fix those systems as well. (Just to clarify, ideally salaries are paid based on marginal contribution, not the total contribution of the industryâwhich is why we donât pay farmers an infinite amount. But I agree that not everyone is paid their marginal contribution.)
...
Once youâve extended your suggestion to prisoners and immigrants, I think itâs worth asking why you canât securitize anyoneâs future âsocietal contributionsâ. One obvious drawback is that once this happens on a large enough scale, it starts distorting the incentives of the government, which is after all elected by people who are happy when taxes go down, but no longer raises (as much) additional revenue for itself when taxes go up.
Yes, thatâs right! But it is a solvable problem. A taxation system that financially compensates people for rule changes would mitigate this. In effect, the prisons would be paid as if the taxation system were fixed at the time the inmate contract was made.
...
In part, I think the above remark goes to the core of the philosophical legitimacy of taxation: itâs worth considering how the slogan âno taxation without representationâ applies to people whose taxes go to a corporation that they have no explicit control over.
Iâm not sure what youâre saying here. People still get to vote. The government has simply exchanged their taxation stream for its present value. Are also you saying private companies shouldnât be allowed to buy government bonds?
As my other comment promised, hereâs a couple of criticisms of your model on its own terms:
âIf the best two prisons are equally capable, the profit is zero. I.e. criterion 3 is satisfied.â I donât see why we should assume the best two prisons are equally capable? Relatedly, if the profit really is zero, I donât see why any prison would want to participate. But perhaps this is what your remark about zero economic profit is meant to address. I didnât understand that; perhaps you can elaborate.
Predicting the total present value of someoneâs future tax revenue minus welfare costs just seems extremely difficult in general. It will have major components that are just general macroeconomic trends or tax policy projections. While you are in part rewarding people who manage to produce better outcomes, you are also rewarding people who are simply best able to spot already-existing good (or bad) outcomes, especially if you allow these things to be traded on a secondary market.
You say things like âwhenever the family uses a government service, the government passes the cost on to the companyâ as if the costs of doing so are always transparent or easy (or wise) to track. I guess an easy example would be the family driving down a public road, which is in some sense âusing a public serviceâ but in a way that isnât usually priced, and arguably it would be very wasteful to do so. Other examples are things like using public education, where itâs understood that the cost is worth it because thereâs a benefit, but the benefit isnât necessarily easy to capture for the company who had to pay for the education. Amount of tax paid on salary doesnât reliably reflect amount of public benefit of someone doing their job, for a variety of reasons: arguably this is some kind of economic /â market failure, but it is also undeniably the reality we live in. In essence, this is saying that many things are funded by taxation and not privately precisely because itâs difficult or otherwise undesirable to do this kind of valuation for them.
Once youâve extended your suggestion to prisoners and immigrants, I think itâs worth asking why you canât securitize anyoneâs future âsocietal contributionsâ. One obvious drawback is that once this happens on a large enough scale, it starts distorting the incentives of the government, which is after all elected by people who are happy when taxes go down, but no longer raises (as much) additional revenue for itself when taxes go up.
In part, I think the above remark goes to the core of the philosophical legitimacy of taxation: itâs worth considering how the slogan âno taxation without representationâ applies to people whose taxes go to a corporation that they have no explicit control over.
Thatâs correct. Profit=RevenueâCosts. The profit that most people think about is the accounting profit. Accounting profit ignores opportunity costs, which is what you give up by doing what youâre doing (bear with me a moment). Economic profit, on the other hand, includes these opportunity costs in the calculation. For example, letâs say Tom Cruise quits acting and decides to bake cakes for a living. Even if his cake shop earns him $1M in accounting profit, heâs giving up all the money he could earn acting instead. So his economic profit is actually negative.
I think you could actually just fix this in the model and still reach the same conclusion (though youâd need extra assumptions to make it work). I really just wanted to introduce my idea for the prison system, rather than make an airtight argument to justify it.
...
It is very difficult, but thatâs exactly what the financial markets do.
Yep. If someone is great at running prisons, you want them to do so, regardless of how good they are at predicting the future. Ideally, you would have a system that allows any good expert to thrive, even if they know little about anything outside of their expertise. But companies deal with this all the time. When theyâre developing a new product, they have to predict which research ventures will be fruitful and which wonât be. They have to predict how well products will sell. They have to predict product breakage rates. They have to predict what advertising will work the best. All these things are hard, which is why companies fail. But they are replaced by ones who better succeed at solving all the issues.
...
Well, yeah. Thatâs why I say to not measure those things. Only measure the big things. The reason why I mention that later in my post, rather than including it in the core argument, is because you need to âsmooth things outâ with simplifying assumptions to make logical arguments work.
You could actually use my proposal as a secondary, opt-in public education system as well.
Sure. But I donât see why we canât fix those systems as well. (Just to clarify, ideally salaries are paid based on marginal contribution, not the total contribution of the industryâwhich is why we donât pay farmers an infinite amount. But I agree that not everyone is paid their marginal contribution.)
...
Yes, thatâs right! But it is a solvable problem. A taxation system that financially compensates people for rule changes would mitigate this. In effect, the prisons would be paid as if the taxation system were fixed at the time the inmate contract was made.
...
Iâm not sure what youâre saying here. People still get to vote. The government has simply exchanged their taxation stream for its present value. Are also you saying private companies shouldnât be allowed to buy government bonds?