Explorable: Re-Satisfying Rodrik's Original Trilemma

Evolving with the inevitable rise of synthetic labour

This is a research article in progress

Abstract

In 2007, FT Chief Economics Commentator Martin Wolf said: “It is capitalism, not communism, that generates what the communist Leon Trotsky once called ‘permanent revolution’.” The ‘revolution’ accelerates drastically when Dani Rodrik’s globalisation trilemma is re-satisfied under a new socio-technological paradigm. The rise of synthetic labour means that we need to re-satisfy this trilemma. This paper proposes a method to do so, increasing the skewness of tax receipts in such a way that the receipts remain affordable for all taxpayers. We believe this solution eliminates poverty, leading to significant progress on the climate and birthgap problems, and eliminates the concept of race.

Introduction

The ‘intractable’ problem of our time is Dani Rodrik’s globalisation trilemma, determining how we improve countries’ democracy (read: welfare), national sovereignty, and global economic integration - AI makes this urgent

Progress exists in a trifecta: societal, economic, and technological. While the triggers for re-satisfactions of the globalisation trilemma are technological, wealthy countries can prepare for these changes ahead of time. For example, the UK threatened its own national sovereignty by not including an assimilation clause in the British Nationality Act of 1948. It could have a welfare state or open borders, but not both. If it had implemented a UAE-style model instead, it would have addressed and overcome its national sovereignty problems today.

It, like the US, could have introduced a guaranteed income for its citizens funded by sovereign debt, and the political discussion of today would be limited to the replacement of debt with wealth as the funding source.¹ We would now be implementing privacy-preserving blockchains to hold digitised and tokenised wealth certificates (i.e. NFTs), valuing the assets in real-time, and proof of personhood systems (e.g. World ID) to allow people to receive global state pension and to prove their eligibility for national state pensions as citizens.

Traditionally, we would cut benefits in today’s situation, as a way to incentivise people to work. Given that superintelligence can fill much of that capacity now, the only way to accomplish this would be to pause all technological progress.² This is impossible because any entity that did not pause technological development (i.e. China) would dominate us.

We propose an ordered six-step implementation process:

1. Convert ownership certificates to non-fungible tokens (NFTs)³

2. Upgrade council tax to a Harberger Tax - without changing the revenue⁴

3. Replace income tax revenue with asset tax revenue⁵

4. Repurpose the income tax rate to a savings apportionment rate⁶

5. Introduce a global state pension - i.e. global UBI

6. Introduce a national state pension - i.e. national UBI

Methodology

The greatest block is the wealth micro data problem, estimating how much wealth each person in a given country has - we use ‘A simple method for estimating the Lorenz curve’ from Thitithep Sitthiyot & Kanyarat Holasut to circumvent this

The Lorenz curve can be represented by a function that captures the distribution of wealth. The curve is given by:

\(y(x) = (1-k) \cdot x^{P} + k \cdot \left(1 - (1-x)^{\frac{1}{P}}\right)\)

Here:

• k is a parameter that affects the shape of the curve

• P = (1 + G) / (1 - G), where G is the given country’s wealth Gini coefficient

This function represents the cumulative distribution of wealth but is normalised. Each axis is bounded by 0 and 1. The x-axis represents the number of people, and the y-axis represents the proportion of wealth that the given proportion of the population has. Hence, we scale the x-axis by N and the y-axis by 1/N, where N is the population, stretching the intervals under the curve across the population size, and ensuring that each interval’s area remains equal to that of the original curve. We then multiply each value by W, the given country’s total wealth, stretching the wealth intervals across the country’s total wealth.

This gives us:

\(\tilde{y}(x) = W \cdot \frac{1}{N} \left( (1-k) \cdot \left( \frac{x}{N} \right)^{P} + k \cdot \left( 1 - (1 - \frac{x}{N})^{\frac{1}{P}} \right) \right)\)

This function is still cumulative, while we need each value of x to represent that individual’s wealth. By the Mean Value Theorem, this is both approximately the derivative of the function around the kth person and the difference between successive intervals around k. For the i-th person, the wealthiest in the given country, we have:

\(\Delta_i = \tilde{y}(x_i) - \tilde{y}(x_{i-1})\)

We now need to apply a tax function to each person. Our asset tax is progressive, meaning each additional ‘asset dollar’ is taxed at a higher rate than the previous one. We define this as:

\({t_{initial}'(x) = m_{initial} \cdot \left( \ln(x + 1) + \frac{x}{x + 1} \right)}\)

Integrating this gives us a tax formula we can apply over each Δ_i:

\({t_{initial}(x) = m_{initial} \cdot x \ln(x + 1)}\)

This gives us a sum T_initial, equal to our desired tax revenue:

\({T_{initial} = \sum_{i=1}^{N} t(\Delta_i) = m_{initial} \cdot \sum \Delta_i \ln(\Delta_i + 1)}\)

While not explicitly solvable without very high compute power, the nature of our chosen t’(x) gives us a very strong approximation where Δ- = W / N:

\({T_{initial} \approx m \cdot \left[ W \ln(\bar{\Delta} + 1) \right] }\)

Rearranging this gives us a very strong approximation for our desired m_initial:

\(m_{initial} \approx \frac{T_{initial}}{W \ln(\bar{\Delta} + 1)}\)

Applying t_initial to A_N produces a ‘Min Tax’, the lowest rate at which we can tax the wealthiest person in the given country. This value also constitutes a feasibility check to determine whether or not the system is implementable without capital flight.⁷

\(t_{\min}(A_{N}) = t_{\text{initial}}(A_{N})\)

Crucially, we have a direct proportionality relationship between m_initial, t_initial, and T_initial. If we increase the tax on the wealthiest person in a given country, the tax receipt of every person in the country increases by the same multiple.

We introduce a global percentage tax on the wealthiest person in every country, t_global(A_N), to which we apply our existing feasibility check. For each country, we introduce a ‘tax base ratio’, the ratio between this global tax percentage and the minimum tax applied to the wealthiest person in the country, such that there is enough tax revenue generated to feed the base scenario:

\(\mathrm{TBR} = \frac{t_{\text{global}}(A_{N})}{t_{\text{initial}}(A_{N})}\)

We can apply this multiple to either m_initial, t_initial, or T_initial for our final figures. We are most interested in how much extra tax revenue we generate, which we call ‘Pension Assigned Revenue’ (PAR), assigning part of it to the given country’s global state pension contribution (PAR_GSP), and the remainder to the country’s national state pension (PAR_NSP):

\(\mathrm{PAR} = T_{\text{final}} - T_{\text{initial}} = \mathrm{PAR}_{\mathrm{GSP}} + \mathrm{PAR}_{\mathrm{NSP}}\)

A country’s global state pension contribution is defined as follows, whereby p_global is the monthly global state pension per month, N_world is the world population, and W_nation is the wealth of the given nation we are evaluating:

\(\mathrm{PAR}_{\mathrm{GSP}} = \frac{p_{\text{global}} \times 12 \times N_{\text{world}} \times W_{\text{nation}}}{W}\)

This leaves us with a clear formula for the monthly national state pension, p_national, for that country:

\(p_{\text{national}} = \frac{\mathrm{PAR}_{\mathrm{NSP}}}{N \times 12} = \frac{\mathrm{PAR} - \mathrm{PAR}_{\mathrm{GSP}}}{N \times 12}\)

To determine our constants k and P, we need three figures: the Gini coefficient (G), and the percentage wealth shares of the bottom and top m% of wealth holders (B_m and T_m).⁸

Results

The government ultimately has three levers for implementation:

1. Increase taxes - subject to implementability criteria

2. Decrease spending through government efficiency

3. Grow wealth through deregulation, fostering talent and private investment

Our results demonstrate that UBI is perfectly implementable under our current system, subject to the implementation of new technology, but ‘liveable UBI’ requires cutting waste and growing wealth. Countries will also have to take into account their Sovereignty, which we define as the ratio between the Global State Pension and the Total State Pension, the sum of the Global State Pension and National State Pension for the given country. We encourage the reader to test this for themselves with the explorable.

Discussion

In this context, the transition from institution to peer-to-peer protocol is well underway. DOGE has made strong progress, especially with USAID, which could free up capital to fund national and global state pensions in the long term. They have already proposed a $5,000 dividend for all Americans as a precursor to a pension for life. Increases in the monetary base due to cheaper currency seem not to be a major issue for the US today, and ought not to be so long as its production capacity can match. For other countries receiving the GSP, denominated in an ‘international dollar’⁹, the same ought to be true.

There are two deeper economic questions:

• How do we handle liquidity issues? Given the exponential distribution of the tax base, these will be rare, but countries would be wise to offer taxpayers the opportunity to transfer assets (stripped of their voting rights) to their sovereign wealth fund instead of cash if an asset sale is too challenging

• How will the role of non-dom status and tax havens change? To be a non-dom would mean to be treated as a country in your own right, meaning that you would pay directly into the global state pension pool based on the proportion of total global assets that you hold, and you would pay a ‘residency fee’ to the country you are living in¹⁰

The second-order effects here are profound. The climate problem, and I suspect the birthgap problem, can only be solved after the poverty problem is solved. Beyond that, the mechanism we have developed, which constitutes a system of full, global, peer-to-peer economic unification, by definition, eliminates the concept of race. It increases well-being for the individual, builds global economic integration directly between individuals, and strengthens the relationship that each individual has with their nation. Hence, meritocracy usurps DEI, and climate infrastructure usurps ESG.

From here, the main question is how to determine the size of the global state pension with consensus between every person on the planet. On a technical basis, we require a peer-to-peer global governance mechanism underpinned by a decentralised identity platform like World ID. On a psychological basis, countries will have to take into account their Sovereignty, as defined above. Model expansion for temporal analysis would be helpful; currently limited by our inability to predict precisely how the wealth distribution changes year over year for a given country under different scenarios.

Conclusion

We introduce a global, citizenship-agnostic UBI for global economic integration, a citizen-only national UBI for democracy and welfare, and increase citizenship requirements for national sovereignty. The implementation will not be smooth, and a Third World War will likely transpire before the solution is implemented. However, the model works - it is time for governments to move wealth certificates on-chain in a privacy-preserving manner 👊

1. This conservatively assumes that the economic benefits would not have, in and of themselves, led to more impactful technological innovations

2. Non-assimilated people are particularly blinded to this due to their propensity to believe that natives, particularly white natives in the West, are lazy, and that is the reason that their parents and grandparents succeeded

3. On a privacy-preserving blockchain that does not disclose the owner of the given asset, with potential exemptions for some assets (e.g. startup equity)

4. Specifically, we use a softened version of the Harberger tax to prioritise allocation efficiency above financial efficiency, but it is not absolute. If an owner is undervaluing a given asset, they are given a period of time to increase their valuation - it is not immediate. This is especially important for primary residences. This system is primarily in place to determine asset valuations.

5. In general, wealth inequality is significantly higher than income inequality, so the tax receipts of the vast majority of people will become negligible even with a sizeable national state pension; given that the curve is scale-free, this also means that the majority of ‘wealthy’ people would have a lower tax receipt than they do today

6. There will be a substantial decrease in taxes for most people, and an essential elimination of income taxes. The income tax rate will remain, but will be repurposed as a ‘savings apportionment rate’ (SAR). If you earn £100k in income, you are currently paying £30k in tax. Under this system, if you had £0 in wealth, the government would direct you to place that in savings and investments instead - building your wealth reserves. In our model, the introduction of a national state pension would entail an increase in the SAR for any given income, and by exactly that state pension amount at some fulcrum point. Say that fulcrum point is £100k, and we have a national state pension of £1,000 per month (£12k per year), then you would have an effective ‘income’ of £112k and an absolute apportionment of £42k, an effective 37.5% savings rate vs the original 30% tax rate. The SAR is increased uniformly and fairly to pay for the national state pension. Given that the majority of the national state pensions would be ‘netted out’, we expect that the proportion of ‘UBI recycling’, where a person receives UBI and feeds it straight back into the tax system, would be very low on a per-person basis. The people who probably have enough wealth that the UBI would make little material change to their livelihoods.

7. The percentage asset tax rate of the wealthiest person in the given country cannot exceed the growth in the price of gold (8%) less the sum of target inflation (2%) and family office fees (2-4%), yielding a maximum possible asset tax rate of 2-4% - a ‘Min Tax’, or later, a t_global, above this figure renders our system not implementable

8. For example, if m = 0.3 then B_m refers to the proportion of wealth of the bottom 30% of wealth holders and T_m refers to the proportion of wealth of the top 30% of wealth holders; it is easiest to use m = 0.5 (50%), for example in the UK where B_m = 9% and T_m = 91%

9. Most likely a stablecoin underpinned by an algorithmic decentralised central bank

10. There is technically an alternative whereby a digital-only country of non-doms is formed, they pay tax along a curve much like any other country, and pay residency fees based on where they spend their time