The capitalist market economy seems to result in constantly increasing inequality and in wealth (both assets and income) being concentrated in fewer and fewer hands. The political left (and supporting economic theories) suggest countering economic inequality with income transfers, including progressive income taxation and harsher capital income taxes. The trade union institution’s position is that the answer is restricting supply (people’s access to labor markets) in their own fields, cartelization and other collective blackmail.

Section 2.2 in Fixing the Root Bug addresses many current economic policies and why they are often ineffective at solving the issues they claim to be addressing. In some cases, they might even have adverse effects, harming those they claim to “protect”. Section 3.2 suggests more effective, fair and sustainable solutions – by asking the relevant questions.

  • What is the function of income differences (between professions) in a market economy? Or paying wages at all?
  • What is capital and what does its profit requirement (cost) depend on?

Understanding these issues reveals some important, possibly surprising, insights: No types of work are doomed to be “low-income jobs” and “high-income jobs” forever. Income differences between professions have nothing to do with “productivity” (which can’t even be compared between tasks with incommensurable output). Capital investments don’t necessarily need to make a profit to be “profitable” (enough). Wealth does not always need to gather more wealth (or grant “passive income”) in a market economy.

Capital income and corporate taxes are ineffective at reducing the profit share of capital in the long run, because they don’t reduce the (post-tax) profit requirements of investments and shareholdings. If you want to reduce the (excess and unfair) profits capital currently makes, you need to:

After this, capital makes a profit only when it needs to do so for aggregate supply and demand (for labor and capital) to remain in balance and for someone to be ready to carry the risks of each kind of productive venture.

Wage regulations and income transfers are ineffective at permanently reducing (unfair) income differences, because they prevent these income differences from doing what they are “meant to” do – balance structural supply and demand imbalances in the labor market.

Instead wage regulations (and excessively tempting social support) they raise both the unemployment rate and the interest rate in the state of balance – maintaining higher profit requirements of capital – and hamper efficient competition between companies allowing the current winners to reap even higher profits in excess of profit requirements.

The best way to improve the negotiation position of employees is to give them options: by maximizing mobility and making companies compete over them. Companies cannot extort workers, when workers always have a choice. That’s yet another reason why we have to decouple the demand for employees from the demand for labor – by making it profitable to share work.

Additionally, rigidity does not create economic security (unless we also strictly regulate technological development and people’s consumption choices). Hardness is not strength – at best an illusion of it. Glass is fragile because it is hard! There is no conflict between flexibility and security – quite the contrary. Chronological variance in income is irrelevant for income security – what matters is the “probability variance” in cumulative future income! The biggest problem is that, currently, any unemployment comes with a significant risk of long-term unemployment and marginalization. This is the game theoretical setting that needs to be turned on its head.

Fixing the Root Bug explains how we can achieve maximal income security and adaptability by maximizing flexibility in the labor market: bringing flexibility “within people,” instead of adjustments being made “as people”, as they are currently, when the de facto unit of labor is a human being, “jobs”.

Section 3.2 also presents why fixing the Root Bug would:

  • Help solve the demographic challenge of our aging populations (and possibly render “retirement” as we know it redundant)
  • Likely reduce crime
  • Encourage and facilitate entrepreneurship, creativity and grass-root-level innovation.

“Optionality will take us many places, but at the core, an option is what makes you antifragile and allows you to benefit from the positive side of uncertainty, without a corresponding serious harm from the negative side.” – Nassim Nicholas Taleb, Antifragile: Things That Gain from Disorder
(2012, p. 171)

“Because of the variability of his income, he [a taxi driver] keeps moaning that he does not have the job security of his brother [personnel department clerk in a large bank] – but in fact this is an illusion, for he has a bit more. This is the central illusion in life: that randomness is risky, that it is a bad thing – and that eliminating randomness is done by eliminating randomness.” … “You get pseudo-order when you seek order; you only get a measure of order and control when you embrace randomness.” – Nassim Nicholas Taleb, Antifragile: Things That Gain from Disorder
(2012, p. 84 & 6-7)