I like this idea and have been thinking about a similar instrument that is also a bit simpler. I call it US Equity, and the goal is the same: align interests to the long term, rather than short term, and also prevent outside money from corrupting politicians. It works like this:
* After being elected to office a politician receives X shares of US Equity. They also renounce all other future forms of income (no more lucrative speeches or consulting jobs after office, etc)
* Every year, each share pays a dividend to the politician that is calculated based on some KPI we want politicians to be aligned to. For example, median household income.
* Shares are non-fungible and cannot be sold. These shares represent the entire future earnings of the politician, hence their incentives are for the longterm health of the country. They can't make money any other way, so they must double down on making a positive impact. Moreover, once they have Equity they can be less concerned about reelection, since their shares are lifelong.
* After a politician leaves office, they are just as incentivized to improve the nation. We thus have a large class of aligned ex-politicians that can help encourage healthy conversations across the country.
* We make the dividends pay out quite well, to encourage the best and brightest to become politicians. Because there's no need to find ways to make money on the side, we optimize for smart politicians, rather than corrupt politicians adept at squeezing their gig for cash.
I suspect this incentive structure would improve our bipartisanship and in general encourage politicians to get-shit-done.
Sounds good, but how do you choose KPIs that are more trouble to game and Goodhart than they are to fulfill honestly? Have a prediction market select them?
I think my main hesitation here is the free-rider problem. Except for a couple super highly leveraged positions (ie, the Presidency), and individual representative could pretty easily do nothing to intentionally help the country. And even a super hard working rep can only move the needle so much.
In the U.S., the Supreme Court would strike down almost any imaginable mechanism you legislate to achieve this, and if it's done voluntarily, Congress itself would act to prohibit outside payment to legislators
My main tweak would be that inflation-adjusted Treasury bonds are the most likely such instrument.
I would add the requirement that existing assets, except for (say) two residences + fixtures, four cars and some amount of cash is compulsorily acquired. The value of T-bonds paid is based on a Vickerey auction of the assets to be acquired.
So the idea is roughly "give legislators a 40-year stake in the success of the nation to incentivize them to think along that duration".
First question: why just legislators? Why not give stake to the electorate who yield power to those legislators as well?
Second question: doesn't every individual more than 40 years away from death already have a 40-year stake in the success of the nation? They'll need the support of a healthy nation more and more as they near retirement and old age. If you're within 40 years of death but have loved ones that are more than 40 years from death, this should amount to a similar thing. Why is this not sufficient?
Third question: won't this become just another tool to indebt the future generation to the prior generation? We start at 0.01% gdp_ratio of GDP, but once this cat's out of the bag, doesn't it incentivize legislators to optimize for the maximal GDP(t+40) * gdp_ratio product? i.e. return isn't maximized simply by bumping GDP 40 years down the road, but by increasing the ratio owed 40 years from now past the point at which GDP begins to decrease until the product settles at a maximum.
This proposal does one thing which I find novel. It takes the stake that most people already informally have in the future of the country (point 2) and makes it more immediately monetizable. It allows a person to advocate for the future while avoiding the issues presented by delayed gratification. I think that's the insight worth building on. Whether this is the best way to achieve that, I don't know.
Really good feedback. I’m gathering ideas how to make better policies over at poli.cy - If you’re interested send me an email to org@poli.cy to discuss.
I love the direction of this, we definitely need government to have more skin in the game.
But I think it's pretty hard to trust the settlement process of these futures. Presumably anyone with a large enough position would want to influence the vote, and people would be happy to sell their votes about what happened 40 years ago because it has no influence on them any longer.
So LPFs would be sold to the highest bidder, which would be whichever entity is most confident in their ability to buy votes at the settle, which would basically be the biggest entity.
That said the idea of having retrospective feedback built into the core of a democracy is very cool.
I assume it would be secret ballot so the future votes couldn't be directly bought. But I agree that voters will have little interest investigating the facts around dozens of laws proposed over 40 years ago, so the signal is largely worthless. I mean, are the Brits here for or against the Acquisition of Land Act 1981, and how does their opinion on this actually relate the the "performance" of compulsory purchase orders? How about the Animal Health Act 1981? No, vegans, despite how it might look on the ballot paper it's not about vetinary standards, it's about mass slaughter of potentially infected herds...
For every iconic wedge issue that public opinion changes on or investment that yields massive long term benefits, there are dozens of obscure minor regulatory shifts to niche industries that have been updated several times, and this isn't the stuff people will expect to win massive returns in 40 years on. As others have pointed out they're not attractive as future performance betting markets but very attractive as selling-current-policy-to-the-highest-bidder market.
I think it is more likely to be lobbyists at companies with business models that directly benefit from short-term policies rather than hedge funds, who could just exit their long position on companies most affected.
The key point is that the scheme only works if no one is willing to make a loss buying LPFs. But in reality, there are companies that would willingly lose money on LPFs if it meant buying short-term policies in their interest that pay back more for them than what they lose. This scheme would provide a legal way for them to outright buy such policies, and hence probably do more harm than good.
>ConTracked: A proposed replacement for government contracting. For example, the state might issue a billion ConTracked tokens which have a base value of zero unless a decentralized court agrees that a bridge meeting certain specifications has been built over a certain river, in which case their value goes to $1 each. The state auctions its tokens to the highest bidder, presumably a bridge-building company. If the company builds the bridge, their tokens are worth $1 billion and they probably make a nice profit; if not, they might resell the tokens (at a heavily discounted price) to some other bridge-building company. If nobody builds the bridge, the government makes a tidy profit off the token sale and tries again. The goal is that instead of the government having to decide on a contractor (and probably get ripped off), it can let the market decide and put the risk entirely on the buyer.
>Banned because: Wall Street developed a financial instrument that let them short ConTrackeds, then tried really hard to prevent bridges from being built.
Scott is wrong about the short narrative here: a bridge company wanting to build a bridge would love an insane shorter from goldman; it would cheapen the base cost of acquiring an asset the builder knows will be worth a lot later.
If instead the tokens aren’t fungible and cant be sold after the initial auction then the only instruments will be virtual, a sort of prediction market, and again the bridge builder would benefit from engaging in those markets.
If the bridge builder was already going to fail then there would be incentive to sell short the virtual token and the market would therefore have added some prediction value: I don’t think it is broken like Scott suggests.
That's why it's a market. If they do that, and you seem the pushing policies that you don't think will work, you and everyone else who likes money can bet against them. Bribery would be prohibitively expensive relative to the value gleaned, if the market were liquid.
This sound like dogmatism. Markets fail, a lot. The fact a thing is a market is not a guarantee for the intended consequences.
At most it adheres to a paradigm of thinking which is now very popular due to percieved successful past.
Markets do fail in certain circumstances, but I outlined a specific mechanism. If you think there's a way for that mechanism to fail, i'd be interested to hear it, but just saying 'markets sometimes fail' in a generic sense, isn't really much of a counter argument.
I disagree, I think bribery would be cheap and legal. The value of the 40 year future payoff would be tiny compared to the value of getting what you want now.
You might be able to reduce this issue by issuing 1000 LPFs, giving politicians only 1, and making rules that they are only allowed to sell on the public market, not in a private deal. Then in order to bias the market you'd have to spend 1000x what the politician will receive.
Nobody will ever fix any dysfunctional system (in any sector!) -- until and unless they first realize that someone's "dysfunctional" system -- is someone else's "highly functional" (and desired!) system...
Simple example: Rent.
To a tennant, rent is a "dysfunctional system" -- something highly dysfunctional about the world that needs "change".
But to a landlord, rent is a highy functional system(!) -- something to be desired and preserved!
It's the same way with Debt.
It's the same way with Laws.
It's the same way with Taxes.
It's the same way with Corporations.
In fact, a person (should they decide to look objectively, which is difficult for many to do) -- will find this same pattern true in any number of so-called "dysfunctional" systems -- that exist in the world today...
That any given system is "dysfunctional" and needs "change" -- will 99% of the time be found to be in the "eye of the beholder".
If anyone wants to change any "dysfunctional" system in the world, the two primary, most fundamental steps (and there are many more!) to doing so are:
1) Realize that most "dysfunctional" systems -- are actually highly functional -- but only to a select group of people that preserve and protect and promote those systems...
2) Live life (and/or learn to see things) from that group's perspective... Would you be so inclined to change things if you received benefits from that system? If not, then what does this say about human nature? Would you honestly be inclined to change a system that currently benefits you, if other people, other people you don't know, are incovenienced by it? You might say you would, but can you really know this without walking a mile in someone else's shoes?
There is, of course, a whole lot more to this... that's the tip of the proverbial iceberg...
(Note to Future Self: Write a longer essay about this... there's a whole lot more to this simple but profound understanding...)
You would probably enjoy CGP Grey's video Rules for Rulers, which covers very reasonable arguments for why politicians don't enact "good" legislation: https://www.youtube.com/watch?v=rStL7niR7gs
I like the aim of encouraging legislation with long term benefits, but I'm not convinced that monetising this process is the answer. If the crises of the past few decades have taught us anything, it is that the market is not always right, or that the market is right except when it is wrong. As soon as you put money into the picture, you will attract the attention of those who will seek to exploit the system for their personal financial gain, even if that has negative affects for the society in which they live.
But the system is already being exploited for personal financial gain. Making the financial stake explicit and legal removes it from the shadow area and aligns it better with the long-term goals of a nation.
In my view, "making the financial stake explicit and legal" and "[removing] it from the shadow area" won't prevent abuse, but would simply legitimise it. But at the end of the day, I think this boils down to whether you are a market fundamentalist, i.e. whether you have faith in the markets to solve all social and economic problems, or not.
Also, the politician generally seeks to cash out by selling to the current electorate, leaving the outcome of the actual vote long after many of those involved in the original debate are dead somewhat moot. The rewards are for what the electorate think the long term outcome of your policy will be at the time you sell it, not what it actually is.
Take an issue many electorates have strong opinions which have massively changed over the last 40 years like gay rights.
Go back to 1981 and a politician would not have struggled to sell futures on draconian restrictions on gay rights. Many people would have bought in the belief such policy would prove essential to save civilization, or at least sensible in the context of worrying reports about a new disease. Sure, those futures trade at a massive discount by the early 2000s and don't pay out in 2021, which means the citizens who bought them (or more likely their inheritors, whose view on the issue is very different...) lose on the bet, but the politician would have been significantly enriched at the time despite the future's verdict being that it was very bad policy.
I love the thought that went into this proposal and think the feedback mechanism to incentivize legislators thinking more concretely about the future (or give them a means to vote their conscience) is very interesting. I think two concerns haven't been raised yet by other comments.
First, this proposal still doesn't seem to resolve the central problem: popularity or perceived future popularity of a policy are not necessarily linked to them being 'good' for the nation. Two examples: 1) What prevents a firm from buying LFPs close to maturity and running massive public relations campaigns to boost their popularity at the time of the vote? Larger corporations/industries lobby now with significant effect on legislative popularity, so this seems likely. The less confidence a legislator has that the "true" popularity will be reflected at the time of settlement, the more it incentivizes maximizing short term industry rent seeking/regulatory capture/etc.
2) There are a host of issues where I think the electorate is durably trending in a particular direction and that direction is bad. In contrast to your meat example, I don't want to buy LFPs in these because it endorses those views. If I believe popularity beyond the time horizon (eg 60 years) will be very different than before the time horizon I'm stuck with an incentive to buy (and thus lend support) to something I think is bad.
The second concern is: why doesn't this incentivize large wealth transfer programs that benefit the generation at t+40? Rather than create sustainability, it seems like you'd get escalating wealth transfers that would disadvantage current citizens to pay future ones.
Kind of an interesting idea. I wonder if it might be better applied to specific legislation. For instance, for every bill that passes, all the legislators that voted for it get a share that's tied to that bill. Anyone who voted against it gets a sort of anti-share.
Decades hence, an opinion poll is run on the popularity of the legislation. If the net approval rating is positive, the people who hold shares get paid, in proportion to the popularity of the bill. If it's underwater, the people holding anti-shares get paid.
One could even give a legislator proportionally more shares or more antishares in inverse proportion to their share of the vote. For instance, if you were Barbara Lee who voted against the bill that allowed the U.S. to fight the war in Afghanistan, she'd get the same payout if her vote was in line with future public opinion as the entire rest of the House together would get if allowing the war was popular by the same margin.
Not an American but got the impression that founding of EPA is not considered universally positively. More generally, I fear such scheme as this will vastly increase the drive to (re)interpret the past. We have enough of that already.
You probably have to separate out "the EPA" (a somewhat loaded term) from the things the EPA did, like ban Lead in drinking water, or eliminate acid rain.
If you break it down to the concrete actions, most of the historical ones are reasonably popular. Even today (well, 2017) "The EPA", unqualified, was reasonably popular:
> Some 39 percent of Americans would like to see the EPA, the nation’s top environmental regulator, “strengthened or expanded,” while another 22 percent hope for it to “remain the same,” according to the poll. Just 19 percent said they would like to see the agency “weakened or eliminated” and the rest said they “don’t know.”
I'm not sure this fully identifies the problem with politics. The people who want to make large amounts of money go into business. The only billionaire in the US government last year was Trump. It isn't even obvious his wealth will save him from the hornets nest he stirred up.
These are people who care more about power and image than they do about monetary incentives. The money is a means to power, not an end in itself. Market incentives aren't their cup of tea, and they just rewrite the incentives if they can't do what they want.
The problem sits with the American public. They keep asking for incoherent things and refuse to agree on even basic facts. That isn't some minor issue that can be worked around with a clever system, people need to start resetting their expectations.
Eg, the public at large demands houses make good financial investments and that everyone can afford a house. This is not achievable. The problem isn't the politician's incentives, it is the public's not accepting that reality and negotiating the social contract around it. The debt based shenanigans to try and make both true are not good ideas and logically can't work.
So basically this is based on the idea that anyone who is working in the government doesn't actually have any sense of patriotism, love of their country, or wanting to improve humanity.
* After being elected to office a politician receives X shares of US Equity. They also renounce all other future forms of income (no more lucrative speeches or consulting jobs after office, etc)
* Every year, each share pays a dividend to the politician that is calculated based on some KPI we want politicians to be aligned to. For example, median household income.
* Shares are non-fungible and cannot be sold. These shares represent the entire future earnings of the politician, hence their incentives are for the longterm health of the country. They can't make money any other way, so they must double down on making a positive impact. Moreover, once they have Equity they can be less concerned about reelection, since their shares are lifelong.
* After a politician leaves office, they are just as incentivized to improve the nation. We thus have a large class of aligned ex-politicians that can help encourage healthy conversations across the country.
* We make the dividends pay out quite well, to encourage the best and brightest to become politicians. Because there's no need to find ways to make money on the side, we optimize for smart politicians, rather than corrupt politicians adept at squeezing their gig for cash.
I suspect this incentive structure would improve our bipartisanship and in general encourage politicians to get-shit-done.