Let's talk about the future!


#1

I’ve been thinking about market socialism and how it intends to achieve greater economic efficiency without the social costs of capitalism. Some of the arguments in favor of socialism go around market failures and imperfections, which seem to make an argument for government intervention.
Such market imperfections (as you may recall) include asymmetry of information, moral hazard, conflict of incentives, adverse selection…
This market failures reduce our confidence in market solutions, however, it is a fallacy to argue that because markets are imperfect, governmental intervention (as in a socialist model) is needed. Imperfect information and its externalities are not feasibly solved by a centralized-socialist market either. Thus, it is not a a valid argument against markets that the resulting distribution of income is undesirable.
Moving on, Market Socialism seems to be backed up by the SWT arguing that lump sum redistributions can achieve efficiency. The SWT is often presented as establishing the decentralizability of the economy, but many have argued against the flaws of this theorem.
My question is the following: has anyone given a thought of how new technologies could change market imperfections? Blockchain, AI, machine learning… most of all Blockchain.
Go watch Blade Runner on your closest cinema and think about the potential changes on economics of information and the extent to which the economy can be descentralized not through the price mechanism but through these new technologies.

I would love to get this conversation going!

Best Regards


#2

I think you are touching some key points to understand how the future will work.

The future will change for sure how we think about asymmetrical information and the person we might have to thank is Satoshi Nakamoto. His contribution to the development of the blockchain technology will make information as transparent as possible. The ledgers will hold every transaction ever made. It will work as a a bookkeeping system which everybody can access.

The possible applications it has are infinite:

Tax collecting
Defining property rights
Smart contracts
Eliminating transaction costs

All this will contribute to a more social economy.


#3

Inigo! Hi there!

I totally agree with you. Even though my understading of blockchain technology is limited, asymmetric information is a market imperfection that sometimes calls for government intervention and contracts. However, not even the government has the ability and resources to obtain, process and succesfully disclose all information relevant to economic decision to all agents. Therefore, as you have said, the information argument in favor of socialism is invalid. In particular, consider the Hold-Up problem that we have all studied in our Industrial Organization class. For those who are unfamiliar with it, let me enlighten you with a real world example:

When Airbus developed the A-380 plane, no one in the world had previously designed a turbine with the capacity that the new A-380 needed to fly. Hence, Airbus contacted GE because they needed GE to develop this new turbine, since they were the only company with the infraestructure, resources, and “know-how” to succesfully develop the turbine . In this case, given that the investment is specific (GE will invest only for the purpose of selling it to Airbus), GE could potentially have incentives to lie to Airbus about its cost structure because Airbus has no way to know how much did GE have to actually spend in the R+D process and, therefore, charge higher prices. In this instance, the asymmetry of information could have potentially tear down the deal and no A-380 would have ever existed.

Here is a link to some images of the A-380: https://www.google.com.mx/search?q=airbus+a+380&rlz=1C1GGRV_enUS751US751&source=lnms&tbm=isch&sa=X&ved=0ahUKEwjU9_e89OvWAhWJLhoKHaKqCC8Q_AUICigB&biw=1821&bih=882

So, in this sense, this blockhain technology could have disruptive consequences in the functioning of markets. It could potentially eliminate other IO situations like the principal-agent problem.

I think it is important for us to extend this discussion further even outside this forum. Very interesting point inigo!

Best Regards


#4

As pvegab said, blockchain technology can be used to address market imperfections. One of these applications is in real estate, where it can help reduce costs and prevent fraud (property rights as Emilio mentioned).

Blockchain software “bundles records of transactions into structures called blocks, where each block contains a cryptographically secure fingerprint of the blocks that have come before it. These fingerprints mean that anyone can catch attempts to tamper with data in previous records. And having the data stored across multiple computers reduces the risk of losing information to disaster or sabotage.”

In essence, it helps “validate” a transaction without the need of a registry. An additional point, and relevant for countries like Mexico, is that it helps eliminate issues of corruption within the public registry (There is a very recent case in Tulum, Quintana Roo in 2016).


#5

Here is another application of the technology:


#6

As we know, the core suggest that free contracting is good. Everything in the core would lead to Walrasian Equilibrium outcomes and this means it is efficient.

During class, we learned that asymmetry of information is a market imperfection that prevents the formation of coalitions and because it exists, sometimes is better to restrict coalitions a little bit further. One example for this is perfect discrimination. Even though it is efficient, the monopolist doesn’t have all the information it requires from the consumer in order to implement it, and even if he could obtain it, costs would be very high.

Another example is prostitution. Even if both parts would benefit from a deal, prohibition is the most common policy for it. There are many reasons of why the government tries to stop prostitution like sexual exploitation and the spread of sexually transmitted infections, but their efforts haven’t eliminate this problems.

In the “Oxford Handbook of the Economics of Prostitution”, by Manisha Shah and Scott Cunningham, the authors explain how prostitution continues to shift from the street to indoor sex work thanks to the Internet. Shah points out that internet facilitates the functioning of prostitution thanks to free classified advertisement, low cost search and even client reviews. "Reviews create reputation for sex workers, much like Airbnb and EBay create reputation for vendors.

Policy makers should start focusing more on using the new technology to solve old problems. Internet could be use to provide voluntary sex and eliminate asymmetry of information involving STI, a deal that could benefit both parts.

Of course there are many things that would need to be regulated with this idea, but it’s a step forward coalitions in one of the world’s oldest professions.


#7

Hi Iñigo!

As you said new technologies could change market imperfections, please find below a great article regarding trading securities that involves blockchain

“Instead of putting all stock transactions through a centralized hub, the blockchain can be used to directly transfer share ownership between investors”

If an accurate [blockchain] record of all of Lehman’s transactions had been available in 2008, then Lehman’s prudential regulators could have used data mining tools, smart contracts and other analytical applications to recognize anomalies. Regulators could have reacted sooner to Lehman’s deteriorating creditworthiness.

– J. Christopher Giancarlo, Commodity Futures Trading Commission


#8

Here is a paper related to @EstefaniaDiaz’s point: http://cear.gsu.edu/files/gravity_forms/45-9a8e751f713c799256f347c4aad2a49d/2017/04/Online-Erotic-Services-Advertising-and-Murder.pdf. The claim is that classified ads on Craigslist have made sex safer for all parties involved.


#9

In accordance with Ale’s point I think that blockchain has the potential to reduce the asymmetries of information between agents (as many of you have said). But it also could be a very useful tool for public policy, once again justifying government intervention. If we assume that the interaction between non internet users (or limited internet users) and internet users will still exists in a short term, due to poverty, age, culture and other reasons, and the use of blockchain technologies is evolving as quickly as it is now, we will have many informed agents interacting with non informed agents leading to outcomes that could be not maximizing social welfare. Therefore, blockchain technologies could help the government to identify such scenarios where its intervention is needed and justified from a social point of view.
Nevertheless, the use of this technologies also has the potential to do it astray for the government as we have seen in the recent “terrorist spy tech” case in our country.


#10

Hello everyone, I consider all contributions very interesting. I find the diversity of applications of this revolutionary technology fascinating. In addition to all those already mentioned, I find another that could have great social significance: democratization in political elections. The lack of legitimacy in electoral institutions, mainly in developing countries, causes transcendental inefficiencies for economic development and hinders the democratic process.

According to Forbes magazine, the use of Blockchain can increase transparency and make a value proposition in streamlining the electoral process, not only making electoral fraud more difficult, but also helping to render accounts. This alternative raises the possibility of having a democratic process that is safe, inclusive and without sacrificing the privacy of citizens’ rights.

Annex the site which supports me to develop this comment, you can find more information on the subject:


#11

It’s a great application of the technology the one you describe @Raul_Chapa, and certainly it will mean a great advance in democracy, although I think there should be some important efforts to settle the proper conditions for it to have way better results.

Thinking on the case of Mexico, there is no doubt on the despicableness of every election, but still no general effort from society to fix that matter. We do like to complain about it, but what happens when we are called to be an elecction observer?

As long as people doesn’t understand the importance of getting interested on what’s happening in their country, the marvelous qualities of blockchain won’t be exploited at its best in this matter.


#12

Hi Raúl

I agree with you, the digital voting is a great application of Blockchain. The greatest barrier to getting electoral processes online, according to its detractors, is security. Using the blockchain, a voter could check that her or his vote was successfully transmitted while remaining anonymous to the rest of the world. In 2014, Liberal Alliance, a political party in Denmark, became the first organization to use blockchain to vote. With Mexican voter turnout still shockingly low, distributed digital voting may represent a way to enfranchise non-participants.

Last year a team accredited to observe the municipal elections in Estonia - the only country to run Internet voting on a wide scale - revealed that they observed election officials downloading key software over insecure Internet connections, typing PINs and passwords in view of cameras, and preparing election software on vulnerable PCs. Norway also canceled trials of e-voting systems in local and national elections, concluding that voters’ fears about their votes becoming public could undermine democratic process.

Can you imagine what would happen to our governmental structures?


#13

This topic is extremely interesting, to the point that it is the one of the topics of my thesis…

Since it is a bit old the post and has been very commented, I will only add what the famous physicist Michio Kaku says: “Capitalism is now imperfect, but with technology it will become perfect.” He refers exactly to the market failures that will be (and have been) corrected soon.

Here’s a link to one of his many videos stating so: https://www.youtube.com/watch?v=59Ejxp1tRss

Greetings.


#14

The video is incredible, I’m in shock.