Eli Dourado

The utopia of infinite elasticity

In 1993, James Carville famously said, “I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.” Even if your goal is not to intimidate people, it is undeniable that bond markets have a lot of power. If bond markets express their displeasure with the state of a government’s budget, it matters little in the long run how big that government’s army is; financial repression does not work forever, and at some point the government’s spending will decrease.

It’s tempting to think that the bond market is powerful because of corruption, but that is at most a proximate source of power. The real source of power is elasticity. The supply of financial capital is highly elastic; it moves around the globe in milliseconds. Try to tax it and the incidence of the tax will go elsewhere; burden it with regulations and it will flea to a more hospitable climate.

Imagine a world in which _all_ factors of production were as mobile and elastic as financial capital. If labor and physical capital could flea instantaneously and at low cost from bad policies, there would be little danger from either the predatory or incompetent state. In short, it would be a libertarian utopia.

This utopia seems hard to realize. It’s hard to believe that labor and physical capital could ever be as elastic as financial capital is today. Nevertheless, I think this framework provides a way forward for libertarians who have given up on political reform (and maybe even those who haven’t yet). Even if we can’t make the supply of most factors of production infinitely elastic, maybe we can make their supply more elastic. To the extent we succeed, we reduce the power of governments around the world.

Here are a few ideas for building a more libertarian world through higher elasticity:

  1. Labor would be more internationally mobile if there were no language barriers. Consequently, libertarians should (without coercion) support the removal of barriers to language standardization. In practice, this means subsidizing English, which is already the globally dominant language of business and science. As a libertarian, I obviously do not support forcing anyone who does not wish to use English to learn it, but Rosetta Stone’s market capitalization is only around $150 million as of this writing. It should take only a fraction of that amount to induce it to release the English version of its language learning software for free. Alternatively, other methods of learning English could be developed on an open-source basis. Because language has network externalities, this endeavor would not only improve the wellbeing of those who would learn English, it would help those who already know English by giving them more exit options.
  2. We need better and more secure options for telecommuting and for being paid for work. In particular, it would be very good if people could telecommute across legal jurisdictions without the government in the jurisdiction in which they reside being aware of it. It’s hard to imagine how the modern state could be as redistributive as it is without income tax withholding. If people who live in the US, say, could work in a jurisdiction that does not have income tax withholding and be paid covertly, the power of the US government to tax would be greatly diminished. And if workers could shop around between jurisdictions in which to work, the governments in which the firms were located would be forced to adopt efficient policies to attract economic activity. Consequently, libertarians should support an Internet infrastructure that is decentralized, encrypted, and hard to tap, and a payments system that is hard to track, such as Bitcoin or some successor that operates along similar principles.
  3. Almost all factors of production would be more elastic if we could open up new frontiers. Libertarians are excited about seasteading and space colonization. I am not so sure that they will be feasible in the medium term, but I do hope they succeed.
  4. As I argued in a previous post, there are more mobile forms of physical capital in development, and these would serve to limit the amount of control the state can exercise. 3D printers are more mobile and elastic than assembly lines, and solar power is more mobile than the electricity grid. Science fiction has even better examples; witness the (Seed-driven) matter compiler in The Diamond Age or Mr. Fusion from Back to the Future.

I’m not sure what other options there are. Maybe commenters or other bloggers will weigh in. But if I were Peter Thiel or a Koch brother, something like this framework would guide my philanthropy. Libertarian ideas will never be popular; this is how we can create a better society anyway. No, we’ll never get to the utopia of infinite elasticity, but the land of pretty high elasticity is not such a bad place to live.