Can transaction fees solve the economic gap? Check out this simulation created by Philip Rosedale.
To illustrate the value proposition of Philip Rosedale’s new digital currency project, FairShare, Philip created an interactive simulation of a free market economy. His simulations show that this kind of economy will inevitably lead to a growing gap between the haves and the have-nots.
Everyone starts with the same amount. When people collide, they end up buying and selling things from each other. Their wealth is displayed by size and color. Red people are poorer and green people are richer. Even if time passes and people are the same Rich people steadily become richer because they can give or get more than poor people with each transaction.(Emph. mine)
Raise transaction fees to provide daily income while stabilizing inequality. You can earn daily income with small transaction fees and prevent inequality from becoming too large.
Included above or try it out here on the FairShare site. Philip says there is an optimal transaction fee to close the wealth gap, and argues that this is a better approach than the government imposing some kind of wealth tax.
“Try 8%,” says Philip. “There are two considerations.
- To what extent is inequality stabilized in the Gini index?
- How much do you want everyone’s daily income to be?
“My hunch is that what most communities want is in the 8 to 10 percent range. Stopping the Gini from growing slowly would stop the inequality problem, but beyond that they might want a larger living income.”
More information about the Gini index, the standard benchmark measure of inequality, can be found here on Wikipedia. I tend to be skeptical of technological solutions as an alternative to democratic governance. So why not reduce poverty by taxing the rich directly?
“A wealth tax (as opposed to a transaction tax) would not work because it would transfer wealth into durable assets (gold, real estate) just like people do today,” Philip argues. “Transaction tax is unavoidable. It applies to every transaction. So there is no need or incentive to hide your wealth.”
Second Life’s 20 years are arguably the most successful virtual economy in terms of overall size and the number of community creators who make a good living from it. In his chat last year, Philip explained the basic philosophy of FairShare and how it connects to the economics of Second Life.
“I want to give people something like a Linden dollar, but basically an iPhone app that they can use to buy or sell anything to each other,” he said.
As Philip tells me now, “Even if you have a small community of people trying to take care of each other, you’re going to run into a kind of natural, almost thermodynamic problem, where some randomly selected people basically end up making more money. .”
FairShare aims to solve this seemingly intractable problem by offering those who sign up for a universal basic income, modeled on the universal basic income that helped Second Life’s economy thrive for two decades.
“There is some type of tax that takes money out of the system. In Linden Lab terms, it’s a sink. But there are also money-making faucets in the world. But the money always goes equally to everyone.”
For more information, visit the FairShare website.
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