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Can We Solve Economic Disparity With a Transaction Fee? Check Out This Simulation Created by Philip Rosedale

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To illustrate the value proposition of FairShare, a new digital currency project from Philip Rosedale, Philip created this interactive simulation of a free market economy. Left to its own devices, his simulation suggests, this kind of economy will inevitably lead to growing divides between the haves and have nots:

Everyone starts with the same amount of money.  When people collide, they buy or sell something from each other. Their wealth is shown by their size and color, with red people being poorer and green people being richer.  Over time, even though the people are identical, the rich get steadily richer simply because they can give or get more than the poor with each transaction.  [emph. mine]

To stabilize inequality while providing a daily income, increase the transaction fee. A small transaction fee provides a daily income and stops inequality from growing too large.

Embedded above, or try it on FairShare’s site here. Philip tells me there’s an optimal transaction fee to lessen the wealth gap — and argues that it’s a better approach than the government imposing some kind of wealth tax:

Philip Rosedale Economic Fair Share simulation

“Try 8%,” says Philip. “There are two considerations:

  1. At what Gini Index does inequality stabilize?
  2. How large a daily income do you want everyone to have? 

“My gut is that something in the 8-10% range is what most communities would want. Anything that stops the Gini Index from slowly growing halts the inequality problem, but beyond that you may also want a bigger living income.”

More on the Gini Index, a standard benchmark measure of inequality, on Wikipedia here. I tend to be skeptical of tech solutions as an alternative to, you know, democratic governance. So why not lessen poverty by just directly taxing the wealthy?

“A wealth tax (as opposed to a transaction tax) won’t work because you will transfer your wealth into durable assets (gold, real estate) just like how people do it today,” Philip argues. “A transaction tax is inescapable… it applies to all transactions. So there is no need or motivation to hide your wealth.”

20 years on Second Life is arguably the most successful virtual economy, both in overall size, and the number of community creators who own a good living from it. Philip explained the underlying philosophy of FairShare and how it links to Second Life’s economy in a chat last year:

“I want to give people something like the Linden Dollar but just as an iPhone app that they basically can use to buy and sell anything from each other,” as he put it to me.

“Even with people in a small community trying to look after each other,” as Philip puts it to me now, “you will basically end up with a kind of a natural, almost a thermodynamic problem, where some randomly chosen people will basically just end up getting more and more money.”

FairShare aims to solve this seemingly intractable problem by offering people who sign up a universal basic income modeled after one that’s helped keep Second Life’s economy thriving for twenty years:

“You have some kind of tax that drains money out of the system — a sink, in Linden Lab terms. But then you also have a faucet that puts money into the world. But the money always goes in equally for everybody.”

More here, and course, on the FairShare website.

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