Enforcing Far-Future Contracts for Governments
(This post has been strongly downvoted by Jiro. All other votes appear to have been positive.)
I recently made a post titled Far-Future Commitments as a Policy Consensus Strategy. Read that first if you’d like. But the basic idea is that we can pass otherwise unpassable policies by agreeing today that we will enforce them in the future. (In that article, I said a 100-year delay, but I probably should have made it 50 years.)
Are these contracts enforceable? Yes.
Most commenters believed this delay to be unworkable. Surely there’s no way to force a government to hold to promises made 50 years ago. Right?
Well, here’s my attempted solution to the reneging problem in the case of land value taxes.
Let’s say the government issues $1 trillion of what are essentially inflation-adjusted perpetuities, except upon the institution of the delayed law, they cease to pay out. (Unless the law is instituted before the 50-year period, in which case, they only cease to pay out after 50 years.) If the law is not instituted, then they continue to be perpetuities.
So the future government can either enact the policy and get their debt wiped for free, or they can continue to pay the debt. If reneging is guaranteed, we’re essentially just selling regular perpetuities. No big deal; we pay a fair interest rate. If there’s a no chance of reneging, we’re selling a kind of annuity, and we will still pay a fair interest rate.
And there is basically no chance of reneging: name a government that wouldn’t accept the offer to wipe their debt without a default. So at no cost to ourselves, we can offer the future government a trillion dollars, but only if they do the right thing. All we do is issue “enforcement perpetuities” instead of issue regular debt, whenever today’s government needs liquidity.
But let’s say the worst-case scenario occurs: we actually sold perpetuities (the future government is going to renege) but the market thought we were selling a 50-year annuity, so they paid less than it was worth. How much less? Since cashflows occurring more than 50 years into the future are discounted by at least 1+d to the 50th power, not very much. As unlikely as it is to ever happen, it’s not that bad of a financial mistake on our part.
So if everything goes to plan, aren’t the landowners losing money here? Again, not really, due to the money being discounted by 50 years. But if you want to correct that rounding error, here’s how you do it. Upon selling the enforcement perpetuities, the government splits the ownership of all property into two assets: land and buildings. So if you own a house, now you own the house itself, as well as a financial asset for the land underneath it. The land asset pays off a cashflow equal to the land value tax (if you’re taxed $1000 on Jan 1st, the government pays you $1000 on the same day). Now, some of the money raised from the enforcement perpetuities can be immediately used to buy those land assets from all current landowners at the fair present value. And since the land assets only start paying cashflows after 50 years, they cost very little.
Whether that’s the best solution or not, I don’t know. Even if there’s something wrong with the contract I just laid out, I would be shocked if there were not a way to do this correctly. I’m sure there are plenty of creative solutions.
I think this idea for an enforcement perpetuity works generally, but passing laws that can only be reversed via supermajority is also plausible (though I’m not a legal expert, so this with a grain of salt). For the America’s terrible presidential voting system, you could make a constitutional amendment requiring a unanimous vote to overturn it. The amendment would say something like “The electoral system will switch to system X on Jan 1st 2073”.
How do you know which policies will be good in the future?
Someone asked me what policies I would have advocated for 50 years ago, and whether they are still good policies today. I responded that we didn’t have a theoretical foundation for what makes a policy optimal at that point. Given that, there is no policy I would have tried to have advocated for in this way (even though the land value tax was invented before 1879).
I’m actually in the middle of writing a series that lays out those theoretical foundations, which you can read here: The Benevolent Ruler’s Handbook (Part 1): The Policy Problem. I’ll probably make a future post on how exactly that series applies to this policy idea.
That said, this delay strategy is definitely a last resort. If you can implement a good policy today, then do that. But if you face insurmountable road blocks, and you know the policy is optimal by some reasonable definition (again, read the linked articles), then it may very well be the best option available to you.
As a side note, another problem people had was that the idea seems “silly”. To my mind, anything that solves a big problem is not silly, but I’ll take them at their word. I assume they say this only because no one has done it before. In December, putting a dead tree in your house and covering it with lights doesn’t seem silly because it’s something that everyone does. The first successful instance of this will be much harder than every other attempt.
Have I changed my mind?
So I still stand by my claim that this tactic of delayed policy is something with a lot of potential, and that we should try it.