August 25, 2009 by  
Filed under Sharing Economy

If you don’t know who Robert Shiller is, you should. He’s the Yale economist who predicted both the dot com bubble and the housing bubble that has brought on the current financial crisis. He’s someone we should listen to. His latest book, Animal Spirits, co-authored with Nobel economist, George Akerlof, as usual, lights the way. In it, they argue that capitalism works better when we acknowledge and account for human behavior, rather than having blind faith in the “rationality” of markets.

So, what does Robert Shiller see as our greatest problem today?

In conversation with Charlie Rose he said, “The biggest problem facing this country (US) is not the (financial) crisis, but the growing inequality”. Further adding, “Inequality is worse than we thought because people who are poor will die younger.” You can hear Robert Shiller speaking with Openyear here.

Robert Shiller and Leonard Burman offer a public policy solution to inequality they call The Rising Tide Tax System. Their key idea is that the tax rate on super earners should automatically rise as inequality rises. We thought we might compare it to our influence based approach, Open Pay, to see how they may complement each other.

Category Rising Tide Tax System  (RTTS)
Open Pay
Scope USA
Control Centralized (US Federal Government)
Distributed  (individuals, organizations, Openyear)
Coercive (penalties for non-compliance)
Volitional (positive social rating for participation)
Indirect – US Congress & President
Direct – Individuals and Organizations opting in
% Contributed by Super Earners
Absolute – Driven by Inequality Index
Relative  & Situational – Driven by Earners & Reputation
Cents on the Dollar Reaching Public
$0.23 $0.91
Directly Benefits People Not Working
Yes No (not initially, but aim is to benefit some unemployed in mid-term)
Directly Improves Productivity No Yes (merit based)

We calculate “Cents on the Dollar Reaching Public” as follows:  According to the Tax Foundation, $0.23 of every tax dollar collected is consumed in compliance costs. Of the remaining $0.77, according to War Resistor’s League, 70% of every tax dollar is spent on non-human resource categories (excluding social security). This nets to $0.23 of each tax dollar directly reaching the public through social spending – actually it’s significantly less if we subtract administrations costs. This compares against $0.91 of each Open Pay dollar reaching earners.

So, Open Pay is roughly 4 times more efficient than the RTTS in terms of its impact on inequality. Or, in other words, the recommended minimum 3% super earner contribution to Open Pay is equivalent to 12% under RTTS . RTTS has the great advantage that it benefits people who can not earn, and can be used to fund large scale projects that benefit everyone, rather than simply putting more money in more hands as Open Pay will. Both have their role.

The RTTS got us thinking about the possibility of social business integrations with the US tax code, as happens, say, today with energy industry tax credits. More polivation, public policy and entrepreneurial innovation, working together, like bees and flowers, will probably be needed to boost the harvest.

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