Democracy
Redefined (and the Macro-economy Reconstituted).....Ready for it?
Ganga
Prasad Rao
Energy-,
Environmental- and Mineral Economist
Introduction
It has been said before, but that should
not stop one from repeating it. The lay person gets used to anything - the
malaise in the social system, the polluted commons and the continuing assaults
upon it, and indeed, the endemic corruption that has subverted the
people-elected democracy. Add to this an obsolete and improperly-designed
electoral system, the corrupt politicians ‘elected’ by which sell the nation
with its nominal economy to PV-capitalists abroad, and what you have is an
unsustainable society mired in slush, unmindful of the quicksands that lie
ahead. In short, a society whose ‘democracy rainbow’ has been short-changed to
a (less than) zero-sum against its own future.
Our majoritarian democratic system, as it
exists, provides but one channel - the once in a five year ballot - to transmit
citizen preferences, their plaints, aspirations and expectations to the
political parties in the fray. The Ballot has, seemingly, little relevance for
issues beyond the equity concerns of citizens and their families. Though nominally equal citizens before
law, the existing democratic system does not formally take cognizance of the
particular expertise of its citizens - in fact a tragedy given the enormous
resources invested to develop the human resources of the nation. This lacuna is
exploited to the hilt by the domestic industry and capitalist special interests
who either exploit or bypass academics and professionals, fund elections to
exact their flesh as policy favors post the formation of the government, or,
choose the more obvious shortcut, and indulge in Corruption and Largesse
politics. While electoral reforms have been centre stage for decades, they have
largely focused on the voting system and electoral funding issues. However, the
challenges posed by the current system of governance cannot be resolved
exclusively by electoral reform. For no electoral reform will bring about a
system that integrates the nation’s intelligentia in to policy
decision-making….or, force politicians to explicitly consider the future price
of their current, politically-motivated, expedient choices.
In this blog, I propose a unique system of
governance that builds upon representative democracy and politics as we know
it, but which emphasizes active and participative decision-making by the
nation’s crusaders and the intelligentia (who constitute a ‘Judge Council’, an
evolution over the Graduate Council). The proposal is FV-focussed, forces the
Industry and Political parties to pay a price for the sustainability
‘externality’ they cause from their self-serving interests, and seeks to bring
about a compromise between equity and efficiency themes while accommodating
diverse, even polar political and financial interests in a flexible and
efficient design centered around sustainability. It is designed as a credible
supplement to election-based governance that exploits its base of human
resources and provides the much-needed platform for participative democracy.
Institutions
The proposal is frugal on the institutions
necessary beyond the existing. It envisages a Sovereign Fund Administrator
whose investing horizon spans across centuries, a Planning Commission,
entrusted with the long-term, multi-decade planning, and democratically-elected
Governments with a shorter horizon. These institutions are complemented by the
Industry Association, the body of Industry experts, Academics, Intelligentsia
and Social crusaders/leaders, as well as Environmental groups. (Bankers don't
need an introduction!) The proposal supposes the existence of a mature FV-PV
capital market as also a ‘Personal Sharia Exchange’, managed by a PSE Administrator,
who manages the personal and professional diligences of experts.
The
Stratagem
Conceive of the SGDP as the maximal FV,
long-run, inter-temporal GDP path that embodies a societal compromise – a
judicious combination of the two sustainability indices that maximizes the
nation’s FV as measured by the exchange rate of the domestic currency against
the SGDP currency, the ‘SM Yen’. The SGDP represents a set of net-sustainable,
equity- and efficiency-oriented activities (and activity levels) that yield an
optimal, long-run growth rate which preserves the economy’s options and
maximizes the nation’s FV; ie, a sustainable compromise path between the
extremes sought by the Industry and Social/Environmental organizations.
Deviations from the SGDP trend either way toward the PGDP production-intensive
economy, or the NGDP equity-oriented economy, reduces the nation’s FV and
weakens the domestic currency.
In the absence of political pressures or
expediency, the ‘SGDP Compromise Economy’, advocated by the Planning Commission
and Sovereign Fund, would guide and underwrite planned activities for the year
upon which the Government would then propose its budget. However, prudence
demands deviations from the SGDP be explicitly provided for to accommodate
political, economic and social realities. Environmentally unsustainable
deviations from the SGDP take the form of ‘excess’ industrial activity that
constitute PGDP activities, which could be thought of as positive deviations,
PGDP points, from the SGDP. Similarly, unsustainable equity and environmental
deviations such as freebidies, large subsidies, unjustifiably stringent
environmental standards, high minimum wage, lowering income-, consumption- (and
wealth-) taxes with a populist agenda, large unemployment and health benefits,
constitute activities that count toward ‘NGDP’, or negative deviation points
from the SGDP. The two are correlated inversely; while PGDP activities are
profit-seeking, capital-intensive, capital market-friendly and 'GDP- and
Environment-using', NGDP activities are social equity-oriented, (labor-using)
and 'Environment-saving'.
Next, conceive of the Sovereign Fund and
the Planning Commission issuing, respectively, Social Sustainability Bonds and
Environmental Sustainability Bonds – multi-tiered, objectively and
quantitatively-measured and index-driven, zero-coupon, non-tradable, rolling
tranches of multi-decade long bonds that seek to achieve exacting benchmarks of
social-, and environmental sustainability, and which cover and insure for the
unsustainabilities inherent in the PGDP and NGDP activities. Exploiting their
‘Cause-cum-Debt’ characteristics, and to avoid a conflict of interest, the two
entities cross-issue upon them tradable Eqcoins and Envcoins – currencies that
price the expected terminal value of the two bonds, which in turn reflect the probability
of achieving the respective ‘Causes’. EqCoins appreciate when ‘EqInvestors’
expect the Government to fast-forward equity programs (by boosting NGDP
policies and activities). Envcoins appreciate with the projected FV gains from
index-enlarging environmental enhancements. These social-equity and
environmental sustainability currencies are the price the politicians and the
industry pay to fast-forward and/or reduce sustainable FV possibilities in to (expedient)
PV programs directed at improving the lot of the poor or enriching the
capitalists. Both EqCoins and Envcoins are tradable in the FV-PV market where
the exchanges reveal the trade-offs between anticipated equity/efficiency
deviations and the impact upon ‘PV-Lifestyle’ or ‘FV-Sustainability’. The
absolute and relative values of Eqcoin and Envcoin prices across markets guides
policy-makers toward a social-, environmental- and economic compromise that
retains its long-run focus on achieving the SGDP path.
Deriving from Cause-bonds issued by legal
authorities, EqCoins and Envcoins imbue assignees the explicit authority to
judge formal and legal, socially-weighty, inter-temporal issues that determine
the future of the masses. Their initial assignment is critical to the success
of the strategy. To conform with existing norms of democratic representation,
and yet provide for an alternative mechanism for decision-making and
governance, consider a simple rule for apportioning the Eqcoins and Envcoins.
The coin-issuers, hold back a ‘free-float’ of the coins for facilitating
trading on the FV-PV Exchange, and divide the rest proportionately between, on
one hand, political parties, and on the other, the PSE Administrator, depending
on the Voter turnout (and the number of NOTA and invalid votes). In a
NOTA-free, 100% turn-out election, all coins would be deposited with political
parties in line with their vote share. Political parties would then be free to
assign them within and without their organization. Should the voter turnout
fall, or the number of NOTA and invalid votes enlarge, the same results in more
of the Eq/Envcoins being assigned to the PSE Administrator, who in turn, uses a
quantitative and public formula to assign them to PSB-bonded Judge-Experts. EqCoins
are assigned to social activists, social-crusaders, journalists, political
leaders, and other socially prominent persona. Envcoins are distributed broadly
among economic, financial and environmental/scientific/technical experts in the
academia and beyond. The NOTA option and the coin-assignment rule-of-thumb offer
citizens a credible alternative to traditional voting - a choice between
placing their trust either with one (or more) political parties, or the body of
Judge-Experts.
The question, at this juncture, is the
criterion by which these EqCoins and Envcoins could be distributed amongst the
body of experts of various affiliations. In the context of the weight attached
to the decisions made by Judges – decisions concerning potentially irreversible
judgments on the future of the society, it’d be appropriate to ensure assignees
are personally and professionally diligent, beyond being academically and/or
socially worthy.
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Consider, toward that end, ‘Personal
Sharia Bonds’, PSBs. These very low, but rising interest rate personal debt
bonds represent the PV monetary equivalent of the bonded’s (Sustainability
Judge Candidates) past and present life deeds and wage-uncompensated
professional FV contributions as also their social Achievements, Status and
Diligences. The PSBs are issued by a ‘PSB triad’ consisting of a family banker,
religious authority, and a legal entity, to ‘Sharia
Net-Protectors-Participants’ Judges (SNPP Judges) who monetize and hold as debt
the unforgiven past life sins and crimes in the issued value of the PSB. They
also hold the bonds for the ‘good keys’ of the bonded (as revealed in ‘Birth
rounds’. See GP Evernote 'Birthday KeysKiss') until he pays away the
outstanding sin-debt. The Bonded may, at all times, trade away their ‘good
keys’ held by the SNPP Judges to pay off the outstanding sin-debt. The proceeds
from the initial issue of PSBs funds a compensation pot to pay away those
wronged by the bonded, and the residual, if any, strategically offered as a
‘prize-payout’ to the Bonded’s First Enemy. PSBs are held and traded within the
SNPP judge group, who may exploit the good keys of the bonded until they seek
employment, at which point those keys are returned.
PSB coins, are person-specific ‘debt/sin
currency’ issued on PSBs. These are issued just before the bonded seeks
employment; the issual being facilitated by benchmarking PSB NAVs and freezing
PSB trades thereafter. The NAV of
freely-traded PSB coins represent the PV of
the expected terminal value of PSBs, which, beyond measuring diligences,
also covers the probability of ‘default’ (defined as the Bonded ‘giving up’ on
his attempts to pay away his sin-debt), and the expectation of FV contributions
by the Bonded that raise the terminal value of PSBs issued upon him. Should
default occur, it causes the Sharia Protectors to terminate the bonds and
cocoon the bonded’s PSB debt and his good keys for another life; the bonded
being offered a ‘Bench’ or a ‘Pyrrhic Satisfice kar’ for the life. Post the redux
of the sin-debt, the value of PSB Coins is determined by uncompensated
FV-creating professional achievements and social contributions. Rising in NAV
and turning in to ‘Judge Asset Coins’ (JudgeCoins) when positive FV achievements
overtake the sin-debt, they fit the bill, so to say, for serving as the
criterion by which EqCoins and Envcoins could be assigned among members of the
Sustainability Judge Council who volunteer (or, are ‘involunteered’) in to the
Sharia net as part of their status and diligence requirements.
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Essentially, only those who have achieved
academically and professionally, have contributed to societal FV, who are
diligent and in appropriate status, may stake their Judge keys and seek EqCoins
and Envcoins that endow them with the right to judge issues. Given a ranked PSB
JudgeCoin list, the PSB Administrator assigns EqCoins and EnvCoins to
contenders by their rank – disproportionately favoring those high on the list.
These assignees, representing a diverse
assemblage of advisors, experts, academics, activists and crusaders (even
witnesses and victims) from across the society are favored with EqCoins and Envcoins,
and, may either attach them
to their opinions and proposals, or adopt one
of the several below-indicated alternatives available to them.
Those not in the favoured list of
JudgeCoin assignees may yet aggregate together in to a ‘Rest of the Group, ROG’
and publicly critique opinions and decisions of-, and submissions by the Judge
Council. To cover the indiscretions and lack of diligences of
its members, the ROG volunteers a 'Group E 2' with its opinions. The ROG is
also active in the Judgecoin market to buy in to Judgecoins that permit it to
monitor the performance of the various Judge-Experts. Seeking at all times to
hoard the JudgeCoins of those significant achievers among Judge Experts and
dump non-achievers, the ROG, offers in, deserving cases, a ‘Judge Retire’
key, funded by its surrender of the Judgecoins issued upon him. His or her
vacation creates space at the bottom of the Judge Council pyramid which members
of the ROG seek to fill.
The assignees
favored by the Sovereign Fund and the Planning Commission with EqCoins and Envcoins,
representing a diverse assemblage of experts and crusaders from across the
society, and who happen to constitute the higher percentiles in the PSB Judge
Coin worth-ranked list, may either attach
them to their comments, suggestions, opinions
and proposals (the ‘Submit-Cooperate’ option),
nullify them to ‘enforce’
their judgements appropriate to their expertise, status and
diligences (‘Challenge-Enforce-Difference’),
return them (‘Abdicate-Turn in-Yield’), aggregate them with the like-minded
equals and superiors (‘Group – Agglomerate - Aggregate’),
or sell them in the FV-PV exchange for a Judge Stepdown (the ‘Stepdown-Quit’
option). In cases where the coins are attached to judgments,
their value is symbolic of and indicative of the weight attached to the Judge’s
opinion. Thus, and for example, an expert whose Judgecoins are priced high, and
who has been favoured by many lesser experts with their Envcoins, might choose
to ‘discharge’ all those Envcoins to force her opinions on the decision-making
entity. Eqcoins and Envcoins may also be PV-monetized with
diligences through a Commercial Service Provider/ ’Ombudsman Corporate KG’. Together
these options provide adequate choice to Sustainability Judges so they may
choose a strategy appropriate to their professional perspective and the gravity
of each issue.
GDP Deviation Points
Economists are familiar with the concept
of auctioning incremental economic activity to the highest bidder (‘PGDP
Auctions’ would not be a misnomer). Now, the incoming government, at the start
of its term, seeks to further its electoral agenda by auctioning ‘deviations
from SGDP’-gross PGDP and NGDP points to potential domestic and foreign entities
in exchange for Eqcoins and Envcoins. The domestic Industry roots for growth
and seeks ’PGDP Efficiency points’ beyond the sustainable economic compromise.
In its opposite, social organizations and NGOs seek 'NGDP Equity Points' – gross
‘negative’ deviations from the Sustainable GDP path,
consistent with their view equity diversions in the present could prove
beneficial to the long future of the nation. PGDP points represent
production-oriented, high-discount rate, PV-emphasizing economic activities
that ensure economic growth albeit at the cost of environmental sustainability.
In contrast, NGDP points represent equity-oriented, low-discount rate,
FV-emphasizing programs that further social (and environmental) sustainability
albeit suppressing nominal GDP growth. Bear-fund
managers, carbon-permit traders, social organizations (and environmentalists)
participate in the NGDP point auctions. Bankers, who bid on behalf domestic
clients, hedge industry potential macro-economic fluctuations and sectoral
competition strategy in both auctions. Both, PGDP- and NGDP points deduct from
the maximal value that the SGDP could attain.
The Size,
the size !
The magnitude of the two Sustainability
bonds matters crucially for it impacts upon the issue of Eqcoins and Envcoins, their
prices at the auctions, and indeed, the future direction of the society. It'd therefore
be straightforward to require all deviations beyond the uninsured, but
sustainable core of the economy be covered with Sustainability bonds and priced
in EqCoins and Envcoins. In other words, all incremental and potentially
unsustainable economic activity must be insured with bonds. Thus, the task
reduces to determine what fraction of the current economy is sustainable, and
issuing bonds for the rest. This is not unlike carving out a smaller
sustainable moon from a larger unsustainable one; the residual representing the
sustainability insurance that the nation must buy in sustainability bonds. In
turn, this boils down to the Sustainability criterion, which could be framed
many ways.
Perhaps the easiest involves an
arbitrarily-chosen Sustainability Index threshold value reducing the economy to
which returns it to sustainability. Alternatively, one could seek to maximize
the nation’s exchange rate against the Yen, known to be the currency that
represents Sustainability. Toward this goal, issue Scaled-, Mirror Yen currency,
‘SM Yens’, to cover the size-uncertain SGDP portion of the economy and vary it concomitantly
with the issue of the two sustainability bonds until the equalization of
exchange rate between EqCoin and Yen on one hand, and Envcoins and the Yen on
the other, which, in turn, imply the equality of marginal unsustainability both
ways. The resulting magnitude of the two bonds issued, and the Yen-economy represent
defensible estimates of the extent of inequity and inefficiency-related
unsustainability in the economy (the quantum of the Social- and Environmental
Sustainability Bonds to be issued) and the sustainable SGDP Core. The
hypothetical Sustainability enhancements so obtained also imply a fall
in gold prices (or, lesser gold holdings)/attenuated appreciation in prospective
gold prices, and a strengthening of the domestic currency
vis-a-vis the SM Yen.
With issual of bonds behind us, it is now imperative
to examine the expectations that underlie, and the mechanics of designing PGDP
and NGDP activities for bidding at the auctions.
Votes :
ESH-, Social Equity- and Lifestyle Expectations
In a representative democracy, the political
parties need a means to monitor and obtain information about the issues that
concern the masses - their aspirations and apprehensions prospectively. While
the primary purpose of ballots is to obtain the peoples’ vote for a
representative democracy, one could so suggest to the masses, and thus so
claim, that the votes are a medium for them to register their private and
public expectations and plaints, sympathies and fears as well. Such votes then
turn valuable to various entities. Political parties may lease the Votes polled
with them both to NGOs and the Industry in return for Eqcoins/Envcoins as
negotiated privately. The parties employ those coins either in Administration
or to 'force the issue' in legislative proceedings.
NGOs that address the non-material, equity
needs, fears, sympathies and aspirations of the public with government-funded
social equity programs, seek and leverage votes from political parties for the ’Serve
2 PV Monetize’ opportunities embedded in them. The Industry, on the other hand,
scans votes for information on material expectations that they could fulfill by
expanding scale, or employing new technology, possibly with new resources.
In the above context, consider the
‘information content’ of votes. One could conceive of 'Private Lifestyle Expect
keys’ and 'Public Social Equity Expect Keys'. The Private Lifestyle Expect keys
in the votes represent material aspirations of citizens; aspirations that imply
an impatience and a willingness to discount the future for lifestyle
fulfillment in the present. It is convenient to partition the Lifestyle Equity
Expect key into Durables-expect keys and Consumable-needs. Similarly, one could
partition the Social Equity Expect keys into Public ESH-values and Social
Equity-fears and sympathies. The former captures values for the Commons as well
as risk-tolerance involving public-environment, -safety and –health; the latter
peoples’ fears, sympathies, wishes and values for social justice, equal
opportunity, family dignity, as well as expectations concerning public
administration and governance, creation and maintenance of public
infrastructure, and indeed, community resources and facilities. For Political
parties and the Industry, these ‘Group’ Expect keys and Values embody the ‘raw
material’ upon which to design their PGDP production strategies and NGDP social
policies to create a ‘pareto-economic gameplan’ that enriches them and their
constituencies without unduly reducing sustainability. It is to the mode of
elicitation of these non-material and material preferences that I turn to next.
An expansionary society and a growth
economy are best sourced from citizens who seek a life free of constraints. In
order these values, expectations, fears, sympathies and needs are fully
expressed, and so they may represent income-unconstrained WTPs and WTAs, it is
necessary to design a framework within which Voters may register their will
free of income worries (but wary of disturbing aggregate economic monetary
balances and personal/family risk exacerbations). Put another way, an
information-rich data set of (income-unconstrained) expectations, sympathies
and fears is potentially available in electoral votes, should they be elicited
with appropriately-designed instruments.
Toward such a design, first consider
Social Expect keys. It is important to understand that the Equity expect keys -
both ESH and Social Equity - imply a willingness to pay to achieve outcomes or
negate risks common to the environment and the society. Given ESH is a Public
FV Cause, it could be paired to Lifestyle Expect keys and tied to a ZS funding
scheme. To ensure 'income/money-neutrality', one could claim to issue liquidity
in an Intertemporal zero-sum involving the issue of FV ESH Bonds against fresh-liquidity-based
'Now money' offered to finance Durables at zero-percent loans. The index-driven
ESH Bonds, which increase in NAV with the increased penetration of
energy-efficient new durables (post the promulgation of tighter ESH standards) and
fall with more consumption from intensive use of those durables, are issued ‘free’
to financiers of 0% Durable loans without issue of fresh liquidity. Financiers
exploit the associated ESH bond volatility as the return for their zero-percent
financing of durables. The bonds earn their 'face-value - principal' as a 100% NAV
gain ~ equivalently the incremental liquidity for the bond issue ~ over a decade
or two.
Next, consider a ‘Consumption-tax reduction–cum-
Subsidy expansion’ policy as the perceived-income-enlarging strategy to induce
voter expectations concerning consumables. The apparent income-expansion is
funded by the rise in the NAV of the hypothetical ESH bonds consequent to an
improvement in the index driving it. Citizens indicate their consumption
preferences within this framework of a perceived income enlargement due the
shifting out of the budget constraint.
Finally, conceive of Social equity and
welfare programs, funded by a Transactions tax that is offered to the indigent
public from the munificence of the better-off. This policy, too, returns a net
monetary zero due the savings in Inflation - the Inflation Bakey harvested
through inflation bonds – from the imposition of the transactions tax. The
voter-chosen Social programs, directed at the indigent, turn the society more
sustainable and offer cost-savings to Insurance firms from lower anticipated societal
risks, who, in return, favor NGOs with a ‘Serve 2 Monetize’ key.
With these three ‘ZS-baits’ that expand
perceived income while holding hypothetical (aggregate) monetary balances
constant despite the issue of FV ESH bonds, and thus limit monetary impacts of
expectations, the Voter may justifiably express his or her Lifestyle-, ESH-, and
Societal expectations and values at the Ballot box (actually online, and prior
to the voting) unmindful of personal income-constraints. These personal and
group expectations are credible until they trigger ESH unsustainability from an
expansion of hypothetical aggregate demand. Should voters ‘group-expect’
irrationally, the increase in economic activity, and the fall in sustainability
index and bond NAV reduces the funding available to Consumables sector and
triggers a potential price hike. Simultaneously, the resulting ESH
unsustainability from an expectations-stoked, over-extended economy increases Group
ESH risks to family and trips an individual/family-specific risk threshold.
Together, the two factors force voters to scale back their expectations
appropriate to their lifestyle and lifestyle-related risk-exposure. This
negative feedback loop works to limit irrationality in aggregate voter
expectations.
Having offered voters an ‘expect-until-you-hurt’
economic-monetary framework to elicit a modified-Engel curve, it is expedient
to offer a means to express them. Toward this goal, consider an extension of
the online assignment of Futcoins as envisaged in 'Futcoin Democracy' (http://gprasadrao.blogspot.in/2013/10/futcoin-democracy.html).
Voters, beyond registering their FV Futcoin assignments with various favored
entities, also record their Lifestyle expectations and Social equity
preferences through an 'Expect Radial' on a graphical software - a circle with
4 quadrants and radials in each quadrant; the four quadrants represent ESH and
Social programs in one half, and Durable Goods and Consumables in the other. The
quadrant-specific rays represent personal issue salience within those
quadrants, and the distance from origin the appropriate ‘expect statistic’
along the length of the ray (over a self-assessed baseline). Citizens may use a
pre-coded sheet with multi-level, nested issues to choose broad or specific
issues of their personal and family interest in each quadrant, thus revealing
their issue salience. They rate themselves at what they perceive to be their
initial percentile standing/consumption rank in the society, then and on each chosen
issue-ray, register their Lifestyle Expect keys (or, in the case of Social
Expectations, current and optimal resource allocation to ESH and Social
issues). The resulting 'expect fractals' are processed digitally along with voter
socio-economic data to obtain aggregate expectations, preferences, fears,
sympathies and choices as regards various categories of goods, services,
environmental priorities, as well as societal issues, which upon further
processing yield information that facilitate the design of PGDP and NGDP
activities.
Designing
the PGDP/NGDP Activities
Simultaneous with the elicitation of
citizen aspirations at the ballot box, the Industry too seeks economic
opportunities to leverage its existing and prospective technological
innovations, both to fulfill the lifestyle aspirations of the various
socio-economic groups, and to develop appropriate public infrastructure. Given
a socio-economically-partitioned set of voter expectations and given increments
to resource endowments, the Technology Consulting/IPO sector in the PV capital
market anticipates technological innovations and a larger production
possibility frontier for the society that help reveal market growth
opportunities. The vetting of the Lifestyle (and Equity) Expect keys in the
capital market obtains an information set that reveals what they imply for the
demands for final consumer products and services (and by induction, the demand
for intermediate products and primary raw materials as well as incremental capital
investments).
Since the various political parties stake
different niches in the socio-political spectrum, the votes polled with them
are attractive to industrial sectors and businesses serving different
socio-economic strata. This strategy stresses the partitioning of the Voter
space in to socio-economic niches occupied by political parties of various
hues, and opens opportunities for businesses to target those niches in
developing their economic strategies at the start of a new term. Political
parties too have an incentive to sharply differentiate themselves by
socio-economic niche that addresses a certain equity-efficiency space in the
economy. Industry sectors seek such information for different voter groups
toward formulating their production strategies and hence approach particular political
parties that represent those voter interests and who are the repository of
their Expect keys. The information on income-unconstrained potential demand facilitates
Industry associations to design PGDP activities toward a pareto macro-policy
strategy that enlarges industry profits, improves the lifestyles of the masses,
and helps determine the budgetary resource allocations of the new government. In
the case of ESH and Social Equity quadrants, Voters register their salience by
choosing the issue radials from the coded sheet, and indicate their perception
of resource allocations – where they are today, and where they should be. This
logic permits NGOs to recover societal preferences, and stake remedial NGDP policies
and programs that are financed by the Government and supported by Insurance
firms in the capital markets.
To elucidate the concept, consider a
business strategist who, on behalf an industry sector, offers ‘EqCoins/Envcoins’
to lease the block of votes polled with a Communist party. Carrying the votes
to the IPO/Technology Consulting/Growth sections of the capital market, he asks
how the income-unconstrained aspirations embodied in the Expect-Radials could
be fulfilled by new technology. The Technology Consultant leverages the aggregate
information on income-unconstrained Lifestyle demands gleaned from the Expect
Radials through the resource-industry, technology- and capital markets and evaluates
them on techno-economic grounds to indicate a set of feasible household demands
given certain resource endowments, technology increments, policy changes and wage/income-growth
opportunities. With this information, the Consultant designs and proposes
appropriate NGDP and/or PGDP activities that could be bought in to the budget
at the PGDP-NGDP auctions to obtain new business opportunities for his clients
in a 3-way pareto strategy that increases household incomes, stimulates
consumption demand and induces incremental industrial activity, while
furthering the party’s image among households and businesses.
Why the
Auctions?
These NGDP and PGDP deviation points that
the Government auctions to the Industry, Banks, and NGOs in return for Eq- and
Envcoins, serve several purposes. They reveal to the short-sighted Government
and the ‘long-vision’ Sovereign Fund the marginal economic, environmental and
social cost of exceeding or under-performing the sustainable GDP trend. These
coins, because they link FV and PV markets and are exchanged in PGDP and NGDP
auctions provide invaluable information regarding the shadow value of those
competing alternatives. By providing an avenue for stakeholders to indicate
their interests and inclinations, these auctions permit the Government the
flexibility to re-arrange economic activity cross-sectionally across economic
sectors, and temporally over political regimes, and thus obtain a second-best
compromise around the path to long-run sustainability.
PGDP/NGDP
Auctions
Due the interdependence of gross PGDP and
NGDP deviation point bids, the auctions are conducted in simultaneous, but
divided chambers with free flow of (non-confidential) information between. The
auction involves the sale of PGDP and NGDP Deviation points to the various
stakeholders in return for Eq- and Envcoins bundled with project proposals. The
marginal auction price of Deviation (from SGDP) points across the two chambers
reflects the magnitude of sustainability losses that partisan stakeholders are
willing to impose upon the broader society to advance their short-run
capitalist/societal/political stakes. Thus, PGDP bids reflect the rents
perceived by industries, investors and bankers to be associated with
alternative incremental sectoral economic activity, or returns to hedges, options
and strategies. Beyond the hedges, options and strategies, the NGDP bids reflect
the political mileage to be gained with equity-oriented programs. Due
the simultaneity of the auctions, coin prices adjust in both markets and reveal
the marginal sustainability price to be paid for buying incremental (or,
decrement to) economic activity.
Auctions
and Coin Prices
Though index-linked, Eq- and Envcoin
prices could rise to reflect speculatory, or extra-market demand, as for
example, demand from PGDP and NGDP auctions or to
facilitate the leasing of votes. In such cases, the intrinsic Coin value may
differ from the trading price reflecting a dis-equilibrium in the state and
valuation of Sustainability. Consider Envcoins bid up for the PGDP
auctions. The rise in price has more to do with the expected rents from
unsustainable activities listed in the PGDP auctions than with any
sustainability enhancements. Similarly, a rise in EqCoin prices due demand from
NGDP auction participants who seek to cover social unsustainability reflects a
demand for remedial equity solutions. In both cases, the auctions involve
unsustainable or less-sustainable activities. Thus, the
valuation wedge is indicative of immediate opportunity to scale up activities
that add to sustainability.
Coin
Prices and GDP Points
Post the determination of the size, the
issue of Sustainability Bonds, and the creation and trading of Eqcoins and
Envcoins, the issue arises as to how many GDP Deviation points - whether PGDP
or NGDP - be issued. Intuitively though, the Planning Commission and the
Sovereign Fund could adopt a Supply curve for aggregate Auction points related directly
to the price of the two coins. Should the Sustainability Bond index appreciate,
Eqcoins and Envcoin prices increase expecting an increase in terminal Bond NAV.
This is suggestive of the Society being better prepared to handle some
prospective unsustainability, which is then accommodated with more GDP Auction
points at the PGDP and NGDP auctions. This suggests a supply curve for Auction
points that slopes upward in Coin prices.
The coin prices are also crucial in
another, real-world sense. Given that Bonds were issued until the marginal
sustainability condition was fulfilled, the Coin priced lower at any future
point in time would indicate the direction of sustainability shortfall, and
indeed, the opportunistic direction of the economy. Should the Sustainability
agenda drive public sentiment, that would imply different political niches are advantaged
and expedient at different time points.
Post use in decision-making, coins are
discharged and the same informed the coin market which absorbs the information
to adjust the NAV of the outstanding coin inventory. Should the coins be
discharged to enforce judgements, they turn scarcer and increase in price over
their ‘fair index-driven value’ and induce, depending upon the Judge-Expert’s
opinion, either a fall to the fair price implying static sustainability index
value, or a compensating increase in the respective sustainability index
implying a fast-forwarding of sustainability.
Net ‘em
out !
Post the auctions, the Government, now empowered
with Eq- and Envcoins to decide upon the PGDP and NGDP projects proposals from the
auctions, consults with the SFA, and the Planning Commission to decide upon
them. The task before them involves ranking the proposals, then vetting,
netting and collating them in a way that obtains the largest GDP increment for
the smallest environmental and social impact. To facilitate the netting, the
Government computes for each proposed PGDP activity, it’s GDP Multiplier and
its impact on the relevant Sustainability index, and ranks them by a simple
‘net benefits criterion’. Projects with large GDP Multipliers, ie, a large GDP
contribution relative to the Sustainability decrements they cause, are ranked
ahead of those with smaller multipliers. It then retains those PGDP activities that
obtain the largest GDP boost net of the impact on Sustainability, and delete
those at the bottom of that ranked list. The logic reverses in the case of NGDP
activities; activities that obtain the largest equity increments for the
smallest GDP loss being preferred over lesser alternatives. In the final step, the
Government combines the two ranked lists in order of decreasing net benefits, effectively
interspersing PGDP activities with NGDP proposals. (A superior net benefit
criterion would exploit the marginal impact of sustainability index changes on
the price of Envcoins). The netting out of NGDP points from PGDP points
effectively translates to shelving projects with low multipliers and relatively
large environmental impacts.
Sharing the pie: Learning by Example
The apportionment of the realized PGDP and
NGDP returns follows a logical criterion based upon politico-economic and
market rationale, to which we turn next. Consider a $10B
'Full potential' economy, the SGDP portion of which comprises $9.5B
and the slated PGDP and NGDP activities,
respectively, $300M and $200M in fresh liquidity-financed social- and
environmental-sustainability bonds. The SGDP is largely staked
by investors and assumed fully realized
in the capital markets. However, the incrementally-auctioned PGDP and NGDP activities
are only partly achieved, for various reasons including Eqcoin- and Envcoin
prices, leaving behind $100M each of unrealized PGDP and NGDP 'bakeys', thus
obtaining a $9.8B economy. More generally though, it is necessary to conceive
of a scheme that apportions the various shares of the PGDP and NGDP across the economic,
financial, equity and environmental stakeholder-participants.
Consider the five test-criteria of a
market economy: Innovation, Sustainability, Efficiency, Inflation, and
Corruption. By associating them with different, albeit variably-spaced stages
of the economy, one could determine when to partition the various shares within
the PGDP and NGDP pies, which in turn facilitates deal-making and hedging
strategies among stakeholders. The pace of innovation in sustainability and
efficiency is, perhaps, best measured by the IPO market. Should the innovations
be prospectively productive, the IPO market takes off first from the economic
trough ahead of the equities. The point in time at which the IPO market levels
off separates the 'PGDP I' from the 'PGDP O'. Next, and in
the follow of the IPO market, consider Gold prices at the trigger point
of an equity boom. Normally, Gold would fall with bonds as equities rise to
signal the boom. However, should the boom be supported by inadequately-trained
workforce, inefficient policies, or obsolete technology,
the fall in Gold reverses early in the boom to anticipate incipient unsustainability,
signals the end of the 'PGDP O', and the
start of the 'PGDP A'. A similar logic holds in the separation of the 'PGDP A'
from 'PGDP B'. Copper, an essential for industrial expansion, rises in the
Commodity markets with the onset of the boom. It's rise, however, is attenuated
and extended should the economy be operating at maximal energy-efficiency. This
extended attenuation in Copper prices implies a large 'PGDP A' share. However,
should the economy be inefficient, Copper prices rise sharply with economic
boom, signalling the end of the 'PGDP A' and the onset of the 'PGDP B'. A
similar logic that leverages Inflation, helps partition the 'PGDP E' from 'PGDP
B', signalling the conclusion of the macro boom.
Having determined the criteria to allocate
gains from 'incremental to SGDP' PGDP and NGDP economic
activities, we move to the political stakes and hedges
necessary to set the ball rolling.
The
Political Hedges
Politicians, ever careful of the fickle
public, hedge their fortunes between the booms and the
busts of the economic cycle. By dividing their bets between the
Efficiency-oriented PGDP and
Equity-oriented NGDP economies, and staking appropriate
positions for contingent electoral outcomes,
the parties ensure they
are always 'in the action' regardless of the
political mood of the masses, or for that matter, the planned or unanticipated
gyrations of the macro-economy. It would be interesting to
examine what those positions and stakes are likely to be in the context of the
GDP Deviation point auctions and the pricing of deviations from the SGDP.
Provide first for three political
alignments: Left, Center and Right. Complementing the above, provide for three
entities, the Industry, the Households, and the Environmentalists who
negotiate, vote, deal or hedge with/against political parties their share of
the returns should the economy boom as planned ('Key Boons'), or surprise and
fail ('Hedge Moons'). While the specifics are
many, the general strategy is even predictable. The Industry and business
households orient with the political parties of the Right and stake an
efficiency-motivated, PV-seeking, PGDP economy. Environmentalists partner
Social activists in furthering an equity-oriented NGDP economy and an Environmentally-green
NGDP FV economy. Households, with stakes in economic survival, lifestyle
aspirations, family health, social peace and environmental sustainability
choose a centrist path that would follow the tenets of the SGDP economy - an
economy that seeks to maximize a judicious mix of PV and FV activities.
The attached table presents, as a 2-way
3x3 matrix, one of the innumerable apportionments that are possible. The matrix
indicates how the economic, social and environmental stakeholders hedge
themselves for various combinations of electoral and economic outcomes. These
hedges ensure they are compensated for electoral flip-flops and economic
surprises albeit at the cost of accepting an occasional lesson, waiving a
share, or even suffering a loss. More importantly, the hedges permit a more
stable socio-economic polity that makes judicious compromises to secure an
expectations-based PV society while furthering an FV agenda.
The
Budget
Now, the Planning Commission, the
storehouse of all sustainable, FV-endowing economic and social/environmental
programs, funds their implementation with the goal to expand societal FV. This
funding takes the form of cause/program-specific 'lines' that are
differentiated by their social contribution and term. Long equity-oriented
causes such as democracy, women’s health, education, social and military peace,
that are fundamental to the existence of the nation and the expansion of the
society, must be addressed by funding specific multi-decadal programs that
secure the outcome. For example, the Sovereign fund may, as part of its Vision
2100 plan, fund a 100 year program to educate citizens about population control
and provide for the same with a family planning budget line that forms the
bottom layer of the budget. The Planning Commission may fund a 50-year MDG
gender equality program in higher education. This line would run across
governments and constitute the second layer of the SGDP budget. Similar lines
addressing other societal causes and those that address FV-enhancing, perpetual
societal needs sustainably, add up to a substantial portion of the budget. The
budget, however, is a statement of all planned activities beyond these
long-term and sustainable programs. It is in the context of populating the
incremental, discretionary, medium and short-term activities in the budget that
the PGDP and NGDP auctions are best motivated.
Thus, while the Government, contingent
upon its politico-economic outlook, may be eager to fast-forward
environmentally unsustainable PGDP programs that nonetheless create jobs and
'PV-enriching growth' in the redux of the FV society, Environmental groups
partner Banks and Hedge funds might seek an attenuated economic strategy that
emphasises an equity-oriented NGDP economy that takes a breather to rejuvenate
itself back to environmental sustainability. What survives in the budget
constitutes the net of these opposing perspectives and comprises the
non-permanent portion of the annual budget. The magnitude and the constitution
of this portion of the budget is as much related to the state of the
environment and social sensitivities as it is to the GDP Multiplier and the environmental/equity
contribution or impact of the projects. These factors are summarized in the
price of Eqcoins and Envcoins in the two auctions. In periods characterized by high
and/or rising coin prices that signify adequate progress toward sustainability,
the stakeholders may seek to expand the economy at the margin by funding
short-term strategic efficiency and equity programs. Falling coin prices,
however, are symptomatic of sustainability deficits, and imply the Government
mainstream its activities by excluding the more coin-intensive PGDP and NGDP
activities. The implication is that budgets framed in such periods have a
larger PGDP+NGDP component than budgets in periods of ‘low’ coin prices.
A Recap
The proposal above offers a
credible alternative to a failed, inefficient, corrupt democracy
of the people, by the masses, for the few. By providing for a choice at the
ballot box, it offers citizens the right to exercise their vote either with the
political system, or with the Judge-Expert group. This ‘credible market-based alternative’
reduces the potential role of politicians in governance, and thus reduces the
politicization of issues. It formalises regulatory, even legislative
decision-making and reduces the role of corrupt politicians by creating an
electorally-consistent parallel decision-making structure that distributes the power
to judge regulatory and legislative issues among crusaders
and activists, experts, professional, academics and the intelligentia
who compete for, and are assigned that right, embodied in
Eqcoins and Envcoins vested with them, by virtue of their achievements, status and
diligences. In turn, this forces parties to adopt more ethical and transparent
party-politics even as it fosters a community of Judge-Experts and sustains
healthy competition amongst them to the benefit of democracy and an FV-society.
A distinguishing feature of this proposal
is how it negates the unfair advantage that accrues to powerful interests in
conventional decision-making due their wealth and position. Unlike other
proposals that permit and gloss over an unequal playing field, this proposal
enforces a near level-playing field by distributing the Eqcoins and Envcoins, imbued
with the power to judge the nation’s future, within a worthy and virtuous Judge-Expert
group. Since Eq- and Envcoins are distributed by the PSE Administrator with a
non-partisan, just and defensible market-worth criterion, the coin-based
PGPD/NGDP auctions are less susceptible to the wealth-effect that would
otherwise swamp them and reduce the auctions to an oligopolistic duel between
the Rich and the richer. A level-playing field ensures that the power of
ill-gotten 'wealth' from the exploitation of the commons, the natural resources
and generations of labor, is not leveraged further to exacerbate the existing
societal inequity. This is a crucial ‘plus’ in societies overtaken by the corrupt
and nefarious nexus between politicians and industry, and bodes well for the
future of the society.
The issue of bonds upon, and the hedging
permitted in the auctions insure the unsustainable activities and facilitate
an inclusive society that accommodates stakeholders of all hues.
Tangentially, the Government/permitted stakeholders may post-process the
PGDP (and NGDP) bids, the prevailing marginal coin prices (and their
movements), to learn of capacity constraints, utilisation, and
investment plans, as well as technology- and innovation rents, and the shadow
value of economic and political options and hedges. The PGDP
and NGDP activities, when implemented by the government in the opposite of the SGDP,
fast-forward some projects and hold back others, thus permitting invaluable short-term
economic (and political) maneuverability while maintaining the focus upon long-run
Sustainability.
As explained above, the system is sufficiently robust
to be leveraged in decisions concerning the constitution and size of budgets.
By accommodating short-run deviations from Sustainability, it lends itself to
adoption by political regimes to further their niche, albeit term-limited
strategies. The proposal is both broad and sufficiently grand to accommodate
the stakes of various political parties, lobby and interest groups representing
the multifarious contexts, and yet obtain a quasi-efficient and equitable path
to a long-run sustainable and Pareto-superior society.
