Rodrik: Mark II

Evolving with the inevitable rise of synthetic labour

Summary

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 piece 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.

Background

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

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

Maths

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_nation and the y-axis by 1/N_nation, where N_nation 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_standard, the given country’s total wealth, stretching the wealth intervals across the country’s total wealth.

This gives us:

\(\tilde{y}(x) = W_{standard} \cdot \frac{1}{N_{nation}} \left( (1-k) \cdot \left( \frac{x}{N_{nation}} \right)^{P} + k \cdot \left( 1 - (1 - \frac{x}{N_{nation}})^{\frac{1}{P}} \right) \right)\)

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:

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

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

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

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

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

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

\({T_{standard} \approx m_{standard} \cdot \left[ W_{standard} \ln(\bar{\Delta} + 1) \right] }\)

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

\(m_{standard} \approx \frac{T_{standard}}{W_{standard} \ln(\bar{\Delta} + 1)}\)

Applying m_standard to ∆_N, the wealthiest person in the given country, 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.⁶ Most crucially, we have a direct proportionality relationship between m, t, and T. If we increase the tax on the wealthiest person in a given country by a given multiple, the tax receipt of each person in the country increases by the same multiple.⁷

We can now introduce a scalar coefficient for efficiency, s_E, and a scalar coefficient for wealth, s_W. s_E is the percentage by which we cut the size of governments, a value between 0% and 100%, and s_W is the multiple by which we increase the size of the wealth of nations. Using a logarithmic approximation, we define a given country’s m_initial:

\(m_{\text{initial}} = \frac{1 - s_E}{s_W} \cdot m_{\text{standard}} \)

For a given wealth value, w, such as ∆_N, we can use this value and apply our tax formula to it:

\(t(w) = m_{\text{initial}} \cdot w \cdot \ln(w+1) \)

We can also reverse engineer a similar formula such that for a user-defined ‘tax on wealthiest’ value, which we call u, we can generate the gradient for that curve, which we call m_user:

\(m_{\text{user}} = \frac{u}{\ln(\Delta_{N} + 1)} \)

For each country, we introduce a ‘tax base ratio’, the ratio between this user-defined m, and the initialised m derived bottom-up:

\(\mathrm{TBR} = \frac{m_{\text{user}}}{m_{\text{initial}}}\)

Concurrently, we apply our efficiency scalar s_E to our standard tax revenue, generating an initial tax revenue spent on the institution of government:

\(T_{\text{initial}} = (1 - s_E) \cdot T_{\text{standard}}\)

Now with our TBR figure, we calculate the total amount of tax revenue we raise - for both the institution of government and the protocol of government, the total funding available for the UBIs:

\(T_{\text{final}} = \mathrm{TBR} \cdot T_{\text{initial}}\)

By subtraction, we calculate the ‘Pension Assigned Revenue’ (PAR), the amount of extra tax revenue generated, 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:

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

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

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

We also have a clear formula for our total state pension, p_total, for a given country:

\(p_{\text{total}} = p_{\text{global}} + p_{\text{national}}\)

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

Commentary

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 implementable under our current system, subject to the implementation of new technology. Departments of Government Efficiency are a sensible tool, but their effects are best felt when so much of the government can be cut away that a country’s national state pension can replace the bulk of health and social security spend. Most countries do not have enough wealth to allow for this, which is why we find that the wealth driver dominates the increase in the size of both the global and national state pensions. In this context, the transition from institution to peer-to-peer protocol is well underway. We encourage the reader to test this for themselves with the explorable.

This dual UBI system raises a question about national sovereignty beyond the existence of a national state pension. We can define a country’s sovereignty, s, as follows:

\(s = \frac{p_{global}}{p_{total}} \)

For the wealthiest countries per capita, their total state pension will be larger than the global state pension, but for many countries, this will not be the case. This means that if the global state pension is sufficiently high, they may actually reject it, even though it is in their direct interests to eliminate poverty in their countries. This scenario may lead to shifting national borders, especially in the Global South, where per capital poor countries may seek to be annexed to increase their TSP, and wealthy nations and states within middle-wealth nation states may secede to maintain or increase their TSP, countering such an influx of people who contribute less to the wealth base than they do.

Beyond this, 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. Also, there is scope to expand the set of taxes we replace with this asset tax - expanding coverage to Capital Gains Tax would be most sensible.

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 by nixing any tribal conflict before it arises, so long as the actors are rational and truth-seeking.¹¹ 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. This will require a peer-to-peer global governance mechanism underpinned by a decentralised identity platform like World ID.

Call to Action

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, built on an estimation mechanism, works - it is time for governments to move wealth certificates on-chain in a privacy-preserving manner and to see how well the model matches with the terrain 👊

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. A privacy-preserving blockchain would not disclose the owner of the given asset

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, say a year - it is not immediate. This is especially important for primary residences. This system is primarily in place to determine asset valuations. Some assets, like startup equity, may be tax exempt - to promote growth.

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. 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

7. The country’s state pension would increase, but not by this factor exactly - unless the government is entirely eliminated, which we have not modelled

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

11. Most are, but an extremely vocal and dangerous minority of liberal elites, left-wing authoritarian activists, and ‘elite’ and jihadist terrorists and their apologists, are not