But perhaps this is what your remark about zero economic profit is meant to address. I didn’t understand that; perhaps you can elaborate.
That’s correct. Profit=Revenue−Costs. 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 you’re doing (bear with me a moment). Economic profit, on the other hand, includes these opportunity costs in the calculation. For example, let’s say Tom Cruise quits acting and decides to bake cakes for a living. Even if his cake shop earns him $1M in accounting profit, he’s 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 you’d 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 someone’s 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 that’s 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 they’re developing a new product, they have to predict which research ventures will be fruitful and which won’t 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.
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You say things like “whenever the family uses a government service, the government passes the cost on to the company” 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 “using a public service” but in a way that isn’t usually priced, and arguably it would be very wasteful to do so.
Well, yeah. That’s 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 “smooth things out” with simplifying assumptions to make logical arguments work.
Other examples are things like using public education, where it’s understood that the cost is worth it because there’s a benefit, but the benefit isn’t 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 doesn’t reliably reflect amount of public benefit of someone doing their job, for a variety of reasons: arguably this is some kind of economic / market failure, but it is also undeniably the reality we live in.
Sure. But I don’t see why we can’t fix those systems as well. (Just to clarify, ideally salaries are paid based on marginal contribution, not the total contribution of the industry—which is why we don’t pay farmers an infinite amount. But I agree that not everyone is paid their marginal contribution.)
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Once you’ve extended your suggestion to prisoners and immigrants, I think it’s worth asking why you can’t securitize anyone’s future “societal contributions”. 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, that’s 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.
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In part, I think the above remark goes to the core of the philosophical legitimacy of taxation: it’s worth considering how the slogan “no taxation without representation” applies to people whose taxes go to a corporation that they have no explicit control over.
I’m not sure what you’re 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 shouldn’t be allowed to buy government bonds?
That’s correct. Profit=Revenue−Costs. 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 you’re doing (bear with me a moment). Economic profit, on the other hand, includes these opportunity costs in the calculation. For example, let’s say Tom Cruise quits acting and decides to bake cakes for a living. Even if his cake shop earns him $1M in accounting profit, he’s 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 you’d 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 that’s 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 they’re developing a new product, they have to predict which research ventures will be fruitful and which won’t 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. That’s 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 “smooth things out” 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 don’t see why we can’t fix those systems as well. (Just to clarify, ideally salaries are paid based on marginal contribution, not the total contribution of the industry—which is why we don’t pay farmers an infinite amount. But I agree that not everyone is paid their marginal contribution.)
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Yes, that’s 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.
...
I’m not sure what you’re 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 shouldn’t be allowed to buy government bonds?