The Sovereign Individual by William Rees-Mogg and James Dale Davidson

The Sovereign Individual, aka TSI, aka the most important book you’ve never heard of, aka the book that predicted Brexit, is a history book about the future.

The authors, William Rees-Mogg and James Dale Davidson (WRM & JDD) admit it is tough to predict the future, and quote Mercedes saying in 1903 "there would never be as many as 1 million automobiles worldwide. The reason was that it would be implausible that as many as 1 million artisans worldwide would be trainable as chauffeurs". But they’re going to try anyway.
They have a good response to critics who think predictions can never be worth anything: if you drop a $100 bill on the streets of NYC, they believe someone will pick it up. If you agree, then you accept some things can be predicted.
WRM & JDD contend their predictions are like the $100 bill: they forecasting the impact of incentives on behaviour.

In a book written in 1996, they predict most jobs moving online, freeing people to work from anywhere. They predict cryptocurrency:

"This new digital form of money is destined to play a pivotal role in cybercommerce. It will consist of encrypted sequences of multi-hundred-digit prime numbers. Unique, anonymous, and verifiable, this money will accommodate the largest transactions. It will also be divisible into the tiniest fraction of value. It will be tradable at a keystroke in a multi-trillion-dollar wholesale market without borders”

This predates the Bitcoin white paper by 13 years. William Rees-Mogg, editor of the Times* and father of Brexiteer Jacob Rees-Mogg, was not a technologist - he avoided word processors and wrote by hand - but he and Davidson got this really, really right.
*of London, not America's blog of record.

The thesis continues:
For centuries, you had little choice over where you could be geographically, so most people had to endure their government.
The Information Age means you can create value online.
This makes it possible to leave a jurisdiction without changing your job.
This frees you to leave a government without changing your career prospects.
This means you can shop around for governments you like.
If you are a productive individual in a high tax country, you can reduce your tax bill by moving abroad.
Many people will follow their incentives and leave.
This means western governments will face budget deficits: many wealthy citizens will cease paying tax, but it will be politically unpalatable to reduce state spending.
Governments will flail around before inflating away their debt. This will have bad consequences.
Meanwhile, those who left will be doing just fine. They urge you to be among that group, which they call Sovereign Individuals.

History

WRM & JDD assert most books about the future are about the present. They aim to buck this trend by “making this book about the future first of all a book about the past” , and analyse what they call ‘Megapolitics’ in four categories:

• Topography. E.g. no government has ever exclusively controlled the oceans.

• Climate. There was a worldwide cold spell around 1650, the same time as a worldwide period of revolutions. WRM & JDD believe this was causal.

• Microbes. The advent of sexually transmitted diseases drove prudish sexual mores. Lower death rates made battle deaths less tolerable, so better sanitation reduced governments’ willingness to go to war. I’m writing in 2021, and can confirm microbes have dominated political discussion for most of the last year.

• Technology. They assert that "all men are created equal" was true in 1776: a farmer with a hunting rifle was armed as well as a British soldier. By comparison, in 1276 a peasant had no chance against a well-armed knight.

Nation-states

WRM & JDD say the church was the primary institution in western Europe, then (circa 1500) declined in favour of the nation-state. They attribute this to competition and information, ie the printing press, and the subsequent rise of Protestantism (Martin Luther's works accounted for over a third of all German-language books sold between 1518 and 1525) led to competition among denominations.

For the last 500 years there was no meaningful competition among nation-states. The Internet means you can work remotely, which means you can leave, which forces governments to compete for your business. They predict nation-states will decline in significance.

Education was once managed by the church (The Church sponsored universities and provided the minimal education that medieval society enjoyed. The Church also provided a mechanism for reproducing books and manuscripts, including almost all contemporary information about farming and husbandry), then by the nation-state (In the words of Eric Hobsbawm, "state education transformed people into citizens of a specific country: 'peasants into Frenchmen’) and they predict it is soon to be managed by technology.
They predict people will educate themselves not in what they can do for their country but rather what one horrible human in the outgroup did today: As individuals themselves begin to serve as their own news editors, selecting what topics and news stories are of interest, it is far less likely that they will choose to indoctrinate themselves in the urgencies of sacrifice for the nation-state.
People’s sense of kinship with fellow-passport-holders has declined over time in favour of other in-groups [“A London investment banker will probably feel more at home in Seoul than he will in Glasgow”]. Attacks on shared cultural symbols are likely a mistake for politicians who favour more redistribution. If you succeed in making people feel negatively about their country, they probably feel less good paying tax to the government. The authors consider, but think unlikely, the hypothesis that grievance studies is deliberately designed to do this:

_"If Lasch's argument is to be believed, the purpose of heightening a sense of victimization was to undermine nations, making it easier for the new, footloose information elite to escape the commitments and duties of citizenship. We are not entirely convinced that the new elite, especially most of those in the mass media, are cunning enough to reason to such a posture. It would almost be reassuring to feel that they were."_They view nation-states with a mega-metropolis (England, France) as likely to last longer than those with many big cities (Canada). They cite Adam Smith: _Were the streets of London to be lighted and paved at the expense of the [national] treasury, is there any probability that they would be so well lighted and paved as they are at present, or even at so small an expense._Singapore-style city-states, rather than nation-states.

Government as a service

Voters who disliked their government can choose between voice (writing to your mayor) and exit (moving to another jurisdiction). They say voice is becoming harder, and quote Milton Friedman: _Parents could express their views about schools directly, by withdrawing their children from one school and sending them to another, to a much greater extent than is now possible. In general they can now take this step only by changing their place of residence._Exit is becoming easier, and this means high-tax regimes will run into trouble:
Leading nationstates, with their predatory, redistributive tax regimes and heavy-handed regulations, will no longer be jurisdictions of choice. Seen dispassionately, they offer poor-quality protection and diminished economic opportunity at monopoly prices.
WRM & JDD view a long term trend towards viewing government as a provider of services, and a consequent paradigm shift to shopping around for governments you prefer.Suppose the phone company sent a bill for $50,000 for a call to London, just because you happened to conclude a deal worth $125,000 during a conversation. Neither you nor any other customer in his right mind would pay it. But that is exactly the basis upon which income taxes are assessed in every democratic welfare state.
The top 1% of taxpayers in the US pay 38% of federal income tax. In the UK, 5% of people pay more than half of all income tax. Not many of that group need to move before governments have real trouble financing their spending. I expect some high earners will continue paying taxes - they like their country, or like being near family, or just don’t mind subsidising the Queen’s corgi collection. But others...won't.The US taxes citizens abroad and doxxes anyone renouncing their passports. It had ~500 citizenship renunciations/yr in the 90s, had risen to ~4000/yr pre-covid, and hit an all-time high in 2020, the year remote working took off.
Not all government-choosing is tax-based; they comment that “those who like clean streets and resent finding gum under tabletops will find Singapore fetching. Fans of Beavis and Butthead won't.”
I view this as a good thing! Maybe psychedelics users move to Amsterdam, and people who hate alcohol move to Saudi Arabia and everyone is better off.

Inequality

WRM & JDD observe that some people are forced to subsidise others. They reference a model which:
“divides the entire population of the nationstate into two classes: taxpayers, who contribute more to the cost of government services than they consume; and tax consumers, who receive benefits from government in excess of their contribution to the cost”

They have a unique take on Marxism: they think capitalists of the world will unite and throw off their chains!Far from depending upon the state to discipline the workers, as the Marxists imagined, the ablest, wealthiest persons were net losers from the actions of the nation-state. It is clearly they who have the most to gain by transcending nationalism as markets triumph over compulsion
[I’m reminded here of a Victor Mollo quote “It's high time t__hat someone spoke up for the strong against the weak_. The underdogs have had it all their own way far too long.”_]

WRM & JDD acknowledge this will suck for people who “do not excel in problem-solving or possess globally marketable skills”. They predict that group, “leftbehinds”, will turn to nationalism and nostalgia, and “seek to thwart the movement of capital and people across borders”.

From Slobodan Milosevic in Serbia to Pat Buchanan in the United States to Winston Peters in New Zealand, to Necmettin Erbakan of Turkey's fundamentalist Islamic Welfare Party, demagogues will rail against the globalization of markets, immigration, and freedom of investment.

This makes sense to me. Many people do not have marketable skills. They dislike this. Their votes reflect their dislike. Some politicians will pander to those voters.
I’m not sure what politicians can do. “Increasing taxes and making the wealthy pay more” doesn’t solve the problem that wealthy people can opt out of paying tax.

Multi-national agreements to tax people could in theory work if every single country - Dubai, Singapore, the Caymans, etc - agrees to implement a minimum income tax.

Even assuming no tax loopholes, no special crown dependencies, no increase in anonymous cryptocurrency transactions etc...that seems unlikely. Switzerland famously ignores multi-national institutions. Its highest income tax rate bracket is 11% (kicking in above $1,000,000 annual income) and it offers the mega-wealthy the chance to negotiate a flat tax.

The next steps

0. the central thesis: many productive people will leave and this will cause western welfare states to become unsustainable.

1. Western governments will try to prevent this. For the same reasons that the late, departed Soviet Union tried in vain to suppress access to personal computers and Xerox machines, western governments will seek to suppress the cybereconomy by totalitarian means

2. They will fail. "It will probably take a slow, painful tutorial in the realities of the cybereconomy before OECD populations are weaned away from expectations of being able to compel income redistribution on a large scale".
   [Possibly my favourite metaphor ever] "The Don Quixote of the twenty-first century will not be a knight-errant struggling to revive the glories of feudalism, but a bureaucrat in a brown suit, a tax collector yearning for a citizen to audit."

3. This may be unpleasant for wealthy citizens seeking to leave. The twilight of state systems in the past has seldom been a polite, orderly process. But they will manage: The ineffectiveness of efforts to bar illegal immigrants convincingly shows that nationstates will be unable to seal their borders to prevent successful people from escaping. The rich will be at least as enterprising in getting out as would-be taxi drivers and waiters are at getting in.

4. Western governments will have huge unfunded liabilities and a shrinking tax base. Effects will include inflation and a rise in real interest rates.

After reading TSI, I think the welfare state will break down, the result is undesirable, and I don’t know what can be done about it. Maybe private philanthropy will fund the welfare state - there’s a trend for billionaires to give more to charity. I hope we can spend less time bashing wealthy philanthropists - if philanthropy earns denunciations in the opinion section of the Guardian...we’ll probably see less of it.
Silver lining: they seem confident there will be fewer resources devoted to state violence.

Random passages I liked

In the 1980s, it was illegal in the United States to send a fax message. The U.S. Post Office considered faxes to be first-class mail, over which the U.S. Post Office claimed an ancient monopoly. An edict to that effect was issued reiterating the requirement that all fax transmissions be routed to the nearest post office for delivery with regular mail. Billions of fax messages later, it is unclear whether anyone ever complied with that law.
[I would read the hell out of a blog post on this]Ironically, the surge in concern about "discrimination" coincided with the early stages of a technological revolution that is bound to make actual arbitrary discrimination far less of a problem than it has ever been before. No one on the Internet knows or cares whether the author of a new software program is black, white, male, female, homosexual, or a vegetarian dwarf.
[fact-check: Bitcoin is worth a trillion dollars and we don’t know if Satoshi was a vegetarian dwarf]

Karl Marx believed in the struggle for survival just as much as Charles Darwin, but he believed it was a war between social classes, themselves formed by economic forces. Adolf Hitler believed in the struggle for survival...But he believed that the struggle was one between different races. Marx, Lenin, Stalin, Mao, and Hitler can all be called social Darwinists, in that they saw the struggle for survival, "Mein Kampf" as Hitler called it, as the central political issue. The Marxists saw social classes as though they were separate species; the Nazis saw races in the same light
I...have heard Communists compared to Nazis, but this justification is novel to me.Private competing currencies circulated in Scotland from early in the eighteenth century until 1844. During that period, Scotland had no central bank. There were few regulations or restrictions on entry into the banking business. Private banks took deposits and issued their own private currencies backed by gold bullion.
[they may take our lives, but they cannae take our freedom to issue private currencies!1]

Rome was already so degenerate by the later decades of the fifth century that its "fall" genuinely eluded the notice of most people who lived through it....Many more decades passed, perhaps centuries, before there was a common acknowledgment that the Roman Empire in the West no longer existed. Certainly Charlemagne believed that he was a legitimate Roman emperor in the year 800.
[Tired: Trump is secretly in office and planning his return.
Wired: the Holy Roman Empire has been secretly continuing for three hundred years]

Other predictions

First, stuff they got wrong.

WRM & JDD expect commerce online to be done in English. They view a shared language as important to nationality, so they expect more secessionist movements, driven by language & economics - specifically Belgium and Canada (divided by language) and Italy (the North subsidises the south). That prediction looks mediocre! I write from Britain, which left a larger bloc recently, and has developed an active Scottish separatist movement. But neither was driven primarily by linguistic barriers (Scots understand English, and can almost speak it) or economics, so I think this has failed. Alistair Campbell disagrees with me.
They understate the rise of China. _“The fastest-growing and most important new economy of the next century will not be China but the cybereconomy.”_Perhaps it’s too soon to mark them harshly, but this looks less true than it did in 1996.The authors observe “In the United States...nativist sentiment has historically been tinged with more than a slight tincture of racism.” and despite this, they believe black Americans, as “major beneficiaries of income transfers”, will join blue collar white Americans as supporters of nationalism.
I thought that sounded false, but a BBC article discussing why Trump did so well with black voters in 2020 observed that 85% of black Americans favour reducing legal immigration, more than any other demographic.

My reading: ‘nationalism’ encompasses distinct concepts. One is patriotism, and another is opposition to immigration/globalisation. If they meant the second, they were spot-on: American blacks really are significantly more anti-immigration than whites.

Next, stuff they got right.

Leisure time online: _You may take a virtual visit to the Louvre...While you are wondering whether the Mona Lisa had trouble with her teeth, your computer could be downloading S. I. Hsiung's translation of The Romance of the Western Chamber. At times of your choosing, your personal communications system will read the text aloud like a bard of old..._A rise in the number of people with no marketable skills
A trend towards winner-takes-all dynamics
Bots giving medical advice _(“Whatever questions doctors ask, the digital doctor will ask. It may determine that you drink too much wine, or not enough”)_Cryptocurrency
CyberwarfareThe gig economy: The microprocessing revolution is sharply increasing the availability of information and reducing transaction costs...Lifetime employment will disappear as "jobs" increasingly become tasks or "piece work" rather than positions within an organization.

Customised media (they say narrowcasting, we say echo chambers): No longer will you be at the mercy of Dan Rather or the BBC for the news that reaches you. You will be able to select news compiled and edited according to your instructions.

What to do about it

The authors close with practical takeaways, headed by a Chinese proverb: _"Of all 36 ways to get out of trouble, the best way is - leave."_Renounce citizenships that carry obligations. Move your money away from jurisdictions you don’t trust not to confiscate it. Travel widely to familiarise yourself with other locations, to make it easier to decide to move some day. They suggest a business area: “because incomes for the very rich will rise faster than for others in advanced economies, an area of growing demand will be services and products that cater to the needs of the very rich.” Place your business online and prepare to transact in cryptocurrency.
This piece of advice alone was insanely strong. I sorta wish I’d read this book a decade ago and invested in Bitcoin so that I could now be boring my friends by saying “If I’d held onto my Bitcoin from 2011, I’d be a gazillionaire”. Instead I bored my friends by telling them how much this book predicted. One thought cryptocurrency wasn't that far off in the late 90s and pointed out it was the original goal of PayPal.

My response: The Sovereign Individual was published Feb 1st, 1997. Peter Thiel said it was the book he is most influenced by. Paypal was founded in December 1998. The name of Paypal's CEO? Albert Einstein. Peter Thiel.

They say the surest way to predict the future is to create it. Perhaps the second surest is to alert Peter Thiel to your predictions and let nature take its course.

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