How well do you think current governments do at abiding by their past commitments that large numbers of their constituents disagree with?
Probably not good, which is why I've invented these “enforcement perpetuities”. As far as I know, nobody has used these financial instruments before, so we have no data on them, and must use logic instead. Your question is like asking the inventor of car whether anybody has travelled 100 miles an hour before. It's not only a totally irrelevant question, it's exactly the problem that I'm solving.
So, do you have any logical explanation on why enforcement perpetuities wouldn't sufficiently incentivize future governments? Either the future government can enact the policy and get their debt wiped without a default, or they can continue to pay the debt. Do you think the future politicians, or even the future public, would prefer the latter?
The law is not a big computer program which you can manipulate as you will.
The court 50 years from now can just say "this contract is against public policy" and decide that the government can get its debt wiped without instituting the policy.
Or the government can just directly pass a bill saying "the government gets its debt wiped without instituting the policy".
Sure, you can't manipulate the world at will, but you can certainly predict some subset of future actions that will result from some subset of your own actions. People do this every day (e.g. “If I don't go to work, I'll be fired.”).
The plan I've laid out only doesn't work if the incentives fail for some reason.
Your suggested failure mode is that the government can simply not abide by a financial contract. But that is the government defaulting on its debt. I work in the finance industry. Government defaults are a very big deal with serious consequences for the country. So your suggestion is not really an option. Either the future government can enact the policy and get their debt wiped without a default, or they can continue to pay the debt.
Whether it's considered serious to default on an ordinary debt need not have much to do with whether it's considered serious to default on an unusual type of debt like this.
The reason the U.S. has been able to pay a low interest rate on its debt is because of investors' trust that the U.S. will fulfil its promises (namely, pay its debts on time, and target inflation).
If the U.S. steals money in the eyes of its investors, then the U.S. will be forced to pay a higher interest rate on all of its future debts. Essentially, they would lose some of their customers. So some investors sell, and the only possible buyers are their remaining customers, who would then be overweight on U.S. debt. So the remaining customers would demand a higher discount rate, due to portfolio optimisation concerns.
So will anyone sell? Yes. Investors are the judge, and some of them will judge harshly that a default in one area increases their credence of default in another area. This is a certainty. I know this, because I work in an investment firm and would make this update myself. Sure, other investors might not update their probabilities, but that's irrelevant. The U.S.'s interest rates will increase as a result of their failure to fulfil their promise. The question is, “By how much?”
And if we don't know that answer, will the future government gamble the future of the country on a hope, just so that they can avoid instituting a policy that they should put in place anyway? That'd be a huge mistake. So I stand by the fact that it's a strong enforcement mechanism.
The problem with this reasoning is that it assumes that all debts are the same and that therefore when the US fails to make good on this debt, that extends to the US's credibility for debts in general. You gloss over this point by asking "how much" while ignoring that "how much" includes "not really anything significant". You can't just assume it's significant.
This also ignores the possibility that the decision to discard the debt is made by a branch of the government that doesn't care about the US's reputation. For instance, the courts might declare the debt to be against public policy, or even unconstitutional.
The only reason I gloss over it is its implausibility to me. I think that defaulting on $1T of debt, no matter how odd the conditions are, would significantly affect the credit-worthiness of a country. I think it’s rather obvious that it would. I’d say it’s akin to a government claiming “Oh don’t worry, we’re just defaulting on the debt issued in 2023, the rest of our debt is safe”. Nor does it matter how the debt is defaulted (e.g. by the courts), if you’re an investor.
If you disagree with that assessment, you can speak to other finance professionals. Specifically, I’d recommend people who do credit risk modelling. If you do have those discussions, let me know what they think.
Remember that the government is "defaulting" on debt that the owners of the debt are supposed to expect might go away anyway if the policy is passed. So nobody should be able to rely on the debt anyway.
And it absolutely does matter that the courts declared the debt invalid, because 1) the courts are supposed to decide based on the law, not based on how it changes the government's reputation and 2) the investor can see the court decision and understand that it's made for reasons that apply to weird debts and not to normal debts, reducing the hit in reputation.
On the first point, if they renege on the policy, the debt is worth $1T if they don’t default (assuming the same discount rate as it was upon issuance). It’s like if you bought a $1M lottery ticket and you won but they didn’t pay out. By your argument, “The ticket was never worth much, so it doesn’t matter”. In reality, that logic doesn’t fly. You’d be very upset, and rightfully so. Again, you could ask other finance professionals their opinion; I don’t think I’m going to convince you.
But yeah, good second point, I retract the method of default not mattering. Is it likely though? What possible constitutional reason could the courts use to overturn the validity of this debt, i.e. specifically the debt I’ve proposed? And why would the courts have waited 50 years instead of acting before the debt is issued?
On the first point, if they renege on the policy, the debt is worth $1T if they don’t default (assuming the same discount rate as it was upon issuance).
It's not possible for the debt to be anywhere near 1T. More generally, it's not possible for the debt to be anything that the government wouldn't be willing to pay as a normal expenditure. "$1T to make sure gays won't get married 50 years from now when it's only weirdoes who think something that absurd would ever happen" won't fly.
What possible constitutional reason could the courts use to overturn the validity of this debt, i.e. specifically the debt I’ve proposed?
Void for being against public policy. You can't have a debt which disappears only if gay marriage is illegal, if the courts say that there's a right to gay marriage. The intent of the debt is to encourage unconstitutional actions on the part of the government, which is against public policy.
And why would the courts have waited 50 years instead of acting before the debt is issued?
Because the whole point of this scheme is to insure against social changes that prevent the government from following through on the 50 year commitment. Obviously those changes would be more likely to show up near the end of the period, not the beginning.
It’s not possible for the debt to be anywhere near 1T.
I suggest you look up the formula for the value of a 50-year inflation-adjusted annuity, and the value of an inflation-adjusted perpetuity, and plug in some realistic values. You’re 100% wrong here, so I don't know why you're making this claim so strongly. (A caveat, which I've already stated, is that the discount rate at the 50-year mark is around the same as it was upon issuance.) It's $1T exactly because of the lottery argument I gave.
You can’t have a debt which disappears only if gay marriage is illegal, if the courts say that there’s a right to gay marriage.
To be clear to other readers, I didn’t recommend making gay marriage illegal.
I asked you specifically what constitutional reason an enforcement perpetuity for a land value tax could be voided. If you can point to a reason that my actual proposal could be constitutionally voided, that’s fantastic, I will change my mind. But you keep avoiding the class of policies that I would advocate for (illustrated by the land value tax). Instead, you try to make me defend a class of policies that are arguably unconstitutional (illustrated by your anti-gay marriage example), which I wouldn’t advocate for.
It’s like if I said “Ukraine should continue the war against Russia”, and then you say “But some wars are unjust”. So? It’s not that even that your claim is wrong, it’s that the truth value of your claim is entirely irrelevant to my claim. I don’t need to defend “all wars” in order to correctly claim that “Ukraine should defend itself”.
You’re essentially trying to get me to defend the class of “all possible policy proposals”, which is just silly.
The problem with your proposal is that a sufficiently motivated legal system will just abrogate it. In order to have a scenario where the system is sufficiently motivated, it would have to be something like gay marriage. There will be things that people 50 years in the future will treat like they treat gay marriage now.
Of course your proposal will work for some policy that nobody cares about. The test is how it works on policies that people do care about.
To be clear to other readers, I didn’t recommend making gay marriage illegal.
...
You’re essentially trying to get me to defend the class of “all possible policy proposals”, which is just silly.
Since society can change a lot in 50 years, this issue could very well be, in 2073, the equivalent of trying to make gay marriage illegal today.
So it's possible that it will simply get laughed out of court and anyone serious, whose opinions matters in the government debt market, will also brush it off.
You pretty much do need to defend the class of 'nearly all possible policy proposals' to credibly account for unknown value and culture drift over 50 years.
Since society can change a lot in 50 years, this issue could very well be, in 2073, the equivalent of trying to make gay marriage illegal today.
I am confident that you don’t know much about land value taxes. I don’t think you wouldn’t make this claim if you did. From a broad theoretical perspective, they’re sound, though I’m not 100% sold on some implementation details. But as I said in the earlier article, “the examples I’ve given are simply for clarity”. I probably should have restated that here.
To give you an actual example of a policy that I’m 100% certain of, take changing the electoral voting system from First-Past-The-Post to any number of decent alternatives.
You’re asking a very similar question as someone in my other post.
The fact that I claim to know that a small set of very well-justified policies will be good in 50 years is not overconfidence on my part; it’s just I’ve written quite extensively on optimal policy methodology. Have a read here, The Benevolent Ruler’s Handbook (Part 1): The Policy Problem.
A good question someone else asked was, “Fifty years ago, what policies would you have advocated for?” Well, we didn’t have a theoretical foundation for optimal policy 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). The article that I linked you to contains my attempt to lay those theoretical foundations (or the start of it anyway, I haven’t finished it yet).
Once you have these foundations, you can say things like “I know this policy is optimal, and will continue to be so”. Moral drift is irrelevant for such policies. I’m not arguing for a policy against something like polyamory, just because it’s weird by today’s standards. There are policies that we can be extremely confident in.
Why is it that mathematicians are confident about their results? It’s evident that they are highly confident. And it’s evident that they’re justified in being confident. Their results literally hold for the rest of time. They’re not going to flip in 100 years. So why is this the case?
Basically, there are a few stages of belief. Sometimes a belief is stated on its own without anything else. Sometimes a justification is given for that belief. And sometimes it’s explained why that justification is a reliable indicator of truth. Now, you may think you have infinite regress here, but that’s wrong in practice: You eventually reach a point where your justification is so trivially obvious that it almost feels silly to even list those justifications as assumptions in your argument.
Voting systems have been figured out to the level of standard mathematical detail (i.e. belief + justification). And my methodology post that I linked to you is explaining why justifications of the form they use are unambiguously correct in the world of policy. (Again that series is not finished yet, but the only roadblock is making it entertaining to read, I’ve already figured out the mathematical details.)
So to me, arguing against a voting system change is like saying “Maybe there are a finite number of primes” or “Maybe this table I’m resting my arms on right now doesn’t actually exist”. I.e. these really are things that we can, for all intents and purposes, be certain of. And if you’re not certain of these basic things, we can’t really ever discuss anything productively.
It’s not a matter of the Dunning–Kruger effect; it’s that experts understand these problems well enough. You can find professors who specialise in voting theory and ask them. Ask them “Is there any chance that replacing the current presidential voting system with any of the most promising current alternatives will be a mistake in 100,000 years?” The amount of time is totally irrelevant when you understand a problem well enough. One plus one will always equal two.
To be clear, I’m not saying every policy problem is solved. But some policy problems are solved. (Or in the case of voting theory, sufficiently solved as to far outperform the current system, and we know that there is no unknown system will blow our current proposals out of the water due to Arrow’s impossibility theorem.) And establishing some of those policies is difficult because of short-term incentives. This delay tactic is a way to implement that specific subset of policies, and only that subset.
Denying this would require you to think that no such policies exists. Which would commit you to say, “Hey, maybe the Saudi Arabian policy of cutting off a child-thief’s hand shouldn’t be revoked in 50 years. Who can say whether that’ll be a good policy at that point?” And to be honest, if morals do drift that much, I’m very okay with preventing them from acting on that. I think it’d be weird if you weren’t okay with that.
If your proposal is intended to be foolproof even 50 years hence, then yes you would need to defend it for many many variations, even if each scenario has a tiny chance because cumulatively they add up to a substantial chance. Especially since you would need to convince many folks in Washington to actually implement it in reality.
And even then all it would take is a single digit number of judges and the top decision makers in the debt market to disagree in 50 years time and the effort will be negated.
If you do discover some method to prove this proposal with the rigor of a bonafide mathematical proof then that may be promising but otherwise…
If you do discover some method to prove this proposal with the rigor of a bonafide mathematical proof then that may be promising but otherwise…
Yeah, voting theory probably has the level of mathematical rigour that would satisfy you. I suggest diving into the topic on your own time. The pattern of explanation is essentially: “We want a policy in the domain of interest (e.g. voting) to satisfy criteria C because it would be ridiculous to argue against that criteria for reasons X, Y, Z. Here’s a logical proof that policy P satisfies criteria C.”
I’m highly confident in such proposals when the assumptions of their logical argument are unobjectionable, and rightly so. Another example would be something like the relatively recent switch to a better kidney donation system.
But I wouldn’t constrain myself to such arguments. As I said,
Denying [that there are policies we can be confident in over the long term] would require you to think that no such policies exists. Which would commit you to say, “Hey, maybe the Saudi Arabian policy of cutting off a child-thief’s hand shouldn’t be revoked in 50 years. Who can say whether that’ll be a good policy at that point?” And to be honest, if morals do drift that much, I’m very okay with preventing them from acting on that. I think it’d be weird if you weren’t okay with that.
As of the time of writing, it’s a very small set of policies that I have this level of confidence in. So no, I don’t need to defend policies that I would never defend. I know that this strategy could be “misused” by my standards. I’m not defending that misuse. I’m merely saying, “This is a strategy that binds future governments to past agreements, and we can use the strategy to pass policies that we know to be good but have short-term consensus hurdles.” There’s a reason I’m sharing this on LessWrong rather than a forum that supports Trump. It’s because it gives us an advantage. Though, if all the comments are anything to go by, I can say that I disagree with almost all of you, so posting here was a probably a mistake.
Everyone arguing against this is acting like constitutions don’t exist, or that the constitution was a huge mistake. Frankly, it’s a ridiculous position. It reeks of isolated demands for rigour.
Yeah, voting theory probably has the level of mathematical rigour that would satisfy you. I suggest diving into the topic on your own time. The pattern of explanation is essentially: “We want a policy in the domain of interest (e.g. voting) to satisfy criteria C because it would be ridiculous to argue against that criteria for reasons X, Y, Z. Here’s a logical proof that policy P satisfies criteria C.”
I’m highly confident in such proposals when the assumptions of their logical argument are unobjectionable, and rightly so. Another example would be something like the relatively recent switch to a better kidney donation system.
But I wouldn’t constrain myself to such arguments. As I said,...
Did you intend to write down some other elaboration, or at least the beginning ideas of a possible proof, and forget?
Otherwise, how does this relate to my prior comment?
(Especially the second paragraph seems like musings regarding some different comment)
Oh, by “prove your proposal” I thought you were referring to the policies I would advocate for. Did you mean prove the enforcement perpetuities would work? In that case, it’s just a payoff matrix, and I’d have to show not reneging on the policy is the best course of action, which I've done in previous comments, but I'll summarise it one last time.
And even then all it would take is a single digit number of judges and the top decision makers in the debt market to disagree in 50 years time and the effort will be negated.
I have been very clear, I am not advocating for unconstitutional policies, so judges can’t overturn it. If you can find a constitutional reason to overturn a 50-year-delayed land value tax, I’m all ears. Nobody as of yet has come up with an answer for that, and they keep avoiding that particular question, instead saying “Oh some policies are unconstitutional”, which again, is irrelevant to what my claims are. If you disagree with this, reread my previous comment.
So, overturning the land value tax would be solely up to the legislators. If the legislators renege on the policy, the debt is effectively a perpetuity. Meaning they have $1T worth of debt that they could have avoided (see the formula for valuing perpetuities). But what if they just don’t pay the debt? That is called a default, and defaults have serious negative consequences for a country.
Defaulting on $1T of debt, no matter how odd the conditions of that debt are, would significantly affect the credit-worthiness of a country. Saying otherwise is akin to a government claiming “Oh don’t worry, we’re just defaulting on the debt issued in 2023, the rest of our debt is safe”.
Let’s say you argue that “It’s not worth $1T at the time of default anyway because the market would assign some probability that the legislators would follow through the land value tax”. True, but irrelevant. It’s like if you bought a $1M lottery ticket and you won but they didn’t pay out. Is it true that “The ticket was never worth much anyway, so it doesn’t matter”? No, that logic doesn’t fly. You’d be very upset, and rightfully so.
So yeah, it’s either enact the policy, continue to pay the debt, or default and have huge negative ramifications for the country. The best outcome for the legislators is obviously to enact the land value tax. If you don’t agree with this, ask a finance professor; I’m not going to continue to try to change your mind.
I am not advocating for unconstitutional policies, so judges can’t overturn it.
That's exactly what someone advocating for a 50 year delayed rule to make sure gay marriage is prohibited would have said, 50 years ago. It turns out that according to the only people who matter, yes he would have been advocating for unconstitutional policies.
Right, but I'm not arguing against gay marriage. Again if you can explain how land value taxes are unconstitutional, I'm all for it. You're saying "people can misclassify". So? Tell me how I've misclassified it as constitutional, even potentially. If you're going to duck my actual question yet again, I'm not interested in discussing further.
The way you've "misclassified" it is that the court can say anything they want, and anything you say that disagrees with the court is, by the standards "who has the guns and enforces the rules", misclassification.
You're not debating the court in a truth-seeking process where you get to win if you can show flaws in their arguments. It doesn't matter exactly what the court's reasoning is, since they are a court and you're not, and what they say goes. They just say it's unconstitutional, post some decision that I'm sure you'll disagree with, and voila, it's unconstitutional.
Your argument is too powerful. And by that, I mean it classifies all policy arguments as dumb. “Oh you want to do X? Well the whole system is screwed up, so you’re naïve for even suggesting it.” Substitute any policy that could conceivably involve the courts for X. That’s your argument. If your arguments can’t delineate between good and bad ideas, your arguments have no value.
Yes, this is something that the court can do to any policy. If you'll notice, high profile Supreme Court decisions are supposedly decided based on the Constitution, but actually depend on the political affiliations of the judges. It's already happening.
That doesn't mean that the system is completely screwed up, that means that the system is screwed up for any politically significant policy that the court wants to overthrow. You shouldn't ask yourself if the policy violates the Constitution; you should ask yourself if the policy is politically significant. If it is, whether the court lets it through depends on politics, not on the Constitution.
In the specific case of decisions many years in the future, the fact that the political landscape changes after so many years makes it more likely that the court's decision will be screwed up than if you just went to court today.
The type of law my proposal falls under is legislation. So you should give an example in the last 100 years where the supreme court invalidated legislation that has nothing to do with the constitution. (Roe vs Wade not being an example, because it's not legislation.)
Or concede that the supreme court hasn't overturned legislation that has nothing to do with the constitution in the last 100 years, and then point to any constitutional reason the court could give for overturning the specific policy I've advocated for (land value tax with a delay and a debt).
I explicitly asked for "legislation that has nothing to do with the constitution", because that's what's actually relevant here. Then you bring up legislation that was struck down based off the 14th amendment's equal protection and due process clauses.
Have you got any examples that actually meet the specified criteria (i.e. within the last 100 years, laws that are legislation, that were struck down by the supreme court without even a tenuous reference to the constitution)? If you don't have any examples, then you need to concede that point, and then reference any places in the constitution that could, even unfairly, be used to invalidate my specific proposal (land value tax).
I explicitly asked for “legislation that has nothing to do with the constitution”, because that’s what’s actually relevant here. Then you bring up legislation that was struck down based off the 14th amendment’s equal protection and due process clauses.
One prominent method by which the courts overturn things is by stretching and twisting the Constitution to cover the thing they want to overturn. It's going to "have something to do with the Constitution" after the fact, even if it didn't before.
I'm pretty sure that if you had described the Defense of Marriage Act 50 years before the fact to just about any judge or lawyer, they'd have said it had nothing to do with the Constitution, just like a land tax.
Then surely you can twist some part of the constitution to find some relevance to land value taxes as I’ve proposed them. If you can, then credit where credit’s due, you have a point worth considering. If you can’t, then your concerns seem a lot less plausible.
Also, do you concede you were wrong about the U.S. not taking on $1T of debt? Because it seems like you’re really confident about things that you shouldn’t be confident about. Like, stuff that a simple google search would disconfirm. I suspect you have a real problem admitting error. In our other conversation, you totally just Smoke Bombed without so much as a “Oh, my bad”.
Then surely you can twist some part of the constitution to find some relevance to land value taxes as I’ve proposed them.
It's not hard. "Reducing the value of the land is illegal as an uncompensated taking" or "this tax is unconstitutional because it violates the rule about direct taxes" (twisting the definition of direct tax so they can include it, of course) or even just due process because if the tax is instituted, the owner has no way to contest it.
You could say "those arguments are obviously wrong, so they don't count". You could say "they don't apply those arguments in other situations--that's special pleading and sophistry". But it doesn't matter how good or bad the Constitutional arguments are, only that a court would make them. And of course from our point of view 50 years in the past, they are obviously bad arguments to everyone, but 50 years in the past, Constitutional arguments about gay marriage were obviously bad too.
Also, do you concede you were wrong about the U.S. not taking on $1T of debt?
No. The national debt is 33T total, so 1T is a substantial portion of it. Nothing like that can, in practice, be put into place without a complete political realignment.
I have been very clear, I am not advocating for unconstitutional policies, so judges can’t overturn it. If you can find a constitutional reason to overturn a 50-year-delayed land value tax, I’m all ears.
Why do you believe judges of the future won't be able to overturn it?
As a suggestion, being fixated on 'constitutional reason' is detrimental.
The judgement opinions of the court don't need to be backed by any solid reasoning at all, let alone 'constitutional', sometimes even literally self-contradicting reasoning is used, and nonetheless they are still carried out.
ChatGPT4, which passed the bar exam, says you're wrong and that U.S. judges cannot overturn laws unless they are unconstitutional. This was my understanding. Speak to a legal professor, and see who's right here. There's no point discussing further until you do that.
ChatGPT says you're wrong and that U.S. judges cannot overturn laws unless they are unconstitutional. This was my understanding. Speak to a legal professor, and see who's right here. There's no point discussing further until you do that.
Is this a joke?
If it's not, referencing 'ChatGPT' to answer a question regarding a quoted section of your own previous comment is too bizarre for me to make heads or tails of.
At least, I'm assuming you wrote that prior comment?
EDIT: Since you appear to have added a claim that 'ChatGPT' 'passed the bar exam', could you please link the source? This is surprising news.
1Huh that's interesting, though in this case it's clearly incorrect, the supreme court can obviously negate existing laws, previous judgements, etc... regardless of what you may think counts as 'unconstitutional', often even regardless of what eminent law professors may think.
Trying to rely on something that you don't know enough to verify is not wise.
Anyways, do you want to exit the conversation and let ChatGPT continue if it's not a joke?
I don't quite see the rationale otherwise for taking it seriously.
Why should I take your legal claims more seriously than something that can pass the bar exam, when you’re unable to? If you still don’t like that source, you could have googled my claim and found that you’re incorrect:
https://www.google.com/search?q=U.S.+judges+cannot+overturn+laws+unless+they+are+unconstitutional
Why should I take your legal claims more seriously than something that can pass the bar exam, when you’re unable to? If you still don’t like that source, you could have googled my claim and found that you’re incorrect:
https://www.google.com/search?q=U.S.+judges+cannot+overturn+laws+unless+they+are+unconstitutional
Okay if this is not written by ChatGPT, then I would recommend you to actually review records of the court, since they are publicly accessible online. The opinions are mostly written in normal college level English so you should be fine in comprehension with some focused effort.
Or you can read some well respected analysis for non-experts, such as SCOTUSblog: https://www.scotusblog.com/
This will probably resolve your confusion.
If you are using ChatGPT in comments then the LW norm is to explicitly state it. And definitely don't take recommendations from it to the extent of using simple google queries as 'proof' of some kind. It's really detrimental to your account's credibility.
Hey, thanks a lot for bringing up the topic, I think it deserves more attention in general and I don't get some of the objections raised in the comments.
I'm not sure I understood how investors would value the perpetuity/annuity.
What I mean is that the least they can expect is to receive the annuity for a minimum of 50 years (following the example), so they would probably go with a valuation of this sort so to already discount the case in which the state reneges on its pledge. When this happens (because of MPs or justices) there's no one left to actually care about the law being passed, and no financial consequences for the state since investors had already discounted the possibility of reneging.
Another point is targeted default not affecting the credibility of a country, given the nature of the debt, but I won't go into that since it has already been argued in the comments.
An issue I see is that policy makers are not that committed to reducing public debt, since it doesn't affect them personally and can always kick the can down the road/pass the buck/blame it on past legislatures.
This very much depends on the nature of the reform and basic cost-benefits, but I believe that lack of incentive and the targeted default not being seen as catastrophic weaken the enforcement mechanism.
I think you should write a longer piece explaining more in detail your proposal in light of the comments, I'd personally be happy to read more on this.
I appreciate it. If I do write a longer version, it won't be on here, because I have no tools to moderate the comment section.
How would the enforcement perpetuity be valued? I agree, it would not be worth $1T at the moment before default because the market would assign some probability that the legislators would follow through the land value tax. Now, the important question is, “Does that matter?” I say no, it doesn't, and my reasoning is as follows.
If you bought a $100M lottery ticket, what's it worth before the numbers come out? Basically zero. But what if the numbers come up and they match your ticket? You've won the jackpot, literally. Now what if that happens, but the lottery owners don't pay? Are you going to be okay with that? Are you going to say, “The ticket was never worth much anyway, so it doesn’t matter”? No, that's a huuuuge breach of contract! You don't just get to not pay $100M dollars and have no impact on your financial credibility. That's crazy talk. If they didn't pay, you’d be very upset, and rightfully so.
I don't think that because “It's a one-off, not a repeat lottery business” is a meaningful distinction here. The government issuing debt is a repeat business.
My actual work is at an investment fund. If I saw a government being like “Nah, we're not paying that $1T perpetuity because it's a weird security”, I am selling every regular bond of theirs that we own as fast as I reasonably can. If they can just not pay that $1T contract, what else are they capable of? I am significantly increasing my probability of them defaulting.
People like me would sell the government's regular bonds ASAP, which drops the bond's prices, thereby increasing the rate of interest that the government has to pay on new debt. The fund managers who didn't do this are having to explain to their investors why they didn't sell before the prices dropped. The government just defaulted on a major debt, and their reaction was to do nothing. That's not a good career move. Fund managers don't want to be in that position, so even if they personally don't think it's a huge risk, they know that other fund managers do, so they're forced to sell as well.
An issue I see is that policy makers are not that committed to reducing public debt, since it doesn't affect them personally and can always kick the can down the road/pass the buck/blame it on past legislatures.
You're right, but you're not fully thinking a selfish policymaker. If I were a selfish policymaker, I would implement the land value tax regardless of what I think of it, so now the government now doesn't have to pay $1T of debt. So now I create $1T worth of new debt, and spend it on public services that will buy me more votes. Governments do not have access to infinite debt, despite what some crackpots say. (If government did have access to infinite debt, most of our problems are solved.)
I don't know if I'll respond to your next message. I'll send you a private message on where I'll be writing in future.
All we do is issue “enforcement perpetuities” instead of issue regular debt, whenever today’s government needs liquidity.
Who will be issuing these for the example of the US, assuming that's where you have experience?
I'm not from the U.S., but if I recall correctly, it's the Department of the Treasury who issues new government debt (which is probably why those bonds are called “treasuries”), and I'd keep that responsibility with them. I don't think who issues these securities affects much, as long as they have the same oversight mechanisms as that of the issuance of typical government bonds.
(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.
On silliness
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.