Legislative Performance Futures — Incentivize Good Laws by Monetizing the Verdict of History

There are net-positive legislative policies which legislators won’t enact, because they only help people in the medium to far future.  For example:

• Climate change policy
• Infrastructure investments and mass-transit projects
• Debt control and social security reform
• Child tax credits

The (infrequent) times reforms on these issues are legislated — which happens rarely compared to their future value — they are passed not because of the value provided to future generations, but because of the immediate benefit to voters today:

• Infrastructure investment goes to “shovel ready” projects, with an emphasis on short-term job creation, even when the prime benefit is to future GDP.  For example, Dams constructed in the 1930s (the Hoover Dam, the TVA) provide immense value today, but the projects only happened in order to create tens of thousands of jobs.

• Climate change legislation is usually weakly directed.  Instead of policies which incur significant long-term benefits but short-term costs (ie, carbon taxes), “green legislation” aims to create green jobs and incentivize rooftop solar (reducing power bills today).

• (small) child tax credits are passed to help parents today, even though the vastly larger benefit is incurred by children who exist because the marginal extra cash helped their parents afford an extra child.

On the other hand, reforms which provide no benefit to today’s voter do not happen; this is why the upcoming Social Security Trust Fund shortfall will likely not be fixed until benefits are reduced and voters are directly impacted.

The issue is that while the future reaps the benefits or failures of today’s laws, people of the future cannot vote in today’s elections.  In fact, in almost no circumstances does the future have any ability to meaningfully reward or punish past lawmakers; there are debates today about whether to remove statues and rename buildings dedicated to those on the wrong side of history, actions which even proponents acknowledge as entirely symbolic.

But while the future cannot vote today, financial instruments exist to reward those who made wise choices yesterday — stocks. 

Legislative Performance Futures

Those who bet in 1990 that Apple would be a winner have been massively rewarded.  But politicians who bet in 1920 that segregation is Very Bad, or in the 1950s that the Red Scare was Very Bad, or in the 1980s that nuclear proliferation is Very Bad, suffered electorally for their stances, and in recompense get only faint praise from history professors.

Though we cannot electorally incentivize forward-thinking politicians, we can monetarily incentivize them.  Specifically, by monetizing the future public opinion of today’s legislators, we can provide lawmakers with an incentive to pass laws for which history judges them kindly.  

We can call this instrument a Legislative Performance Future (LPF) and it would work something like this:

• In lieu of direct compensation, legislators receive LPFs, or shares, on their future job evaluations, which will be paid out 40 years from the date of issue.  For example, a 2020 Arkansas congressman on entering office will be granted 100 LPFs, in his or her name, maturing in 2070.

• Each year, voters, in addition to electing current representation, “vote” among the representatives who served exactly 40 years ago.

• A fixed fraction of GDP, in aggregate corresponding to very generous salaries — .01% of GDP or so — is paid out proportional to the above retrospective votes, to the holders of the corresponding LPFs.

• LPFs are fully fungible, and can be inherited or sold like any other financial or physical asset.  Because legislators need money to live their lives, it is expected that they will immediately liquidate many (or most) of their shares into cash.

In simple terms, those who enacted legislation for which history thanks them (such as establishing the EPA) are rewarded.  Those who passed laws which history scorns — Jim Crow laws, internment caps — are not.

This system might work as-is, with legislators blinding voting their consciences and hoping that history someday rewards them.  But this feedback loop is long.  Luckily, by making LPFs tradable assets, we can do much better.

Markets Predict

Because legislators need money to live (those who don’t get book deals), and LPFs are monetized commodities, we expect that most legislators will sell (most of) their LPFs at market value.

But what’s the market value of an LPF?

The value of an LPF today is set not by the future, but by the markets of today predicting what the future will think.  It is not a leap to believe that markets will align the value of LPFs to future sentiment more accurately than legislators today do to their future reputation.

Today, when a legislator proposes major legislation, their staff closely monitors public opinion polls to gauge public sentiment.  The polls move up and down almost immediately (but in a manner only loosely correlated with likely future sentiments, because the voters of today vote primarily with their wallets and emotions).

But the buyers and sellers of LPFs are incentivized only to be correct.  They may hold personal stances on the issues, but have every reason to set those stances aside and let homo economicus perform brokerage transactions.  This produces good predictions. 

(a personal example: I am not a vegetarian.  I enjoy eating meat, and would not vote to outlaw meat.  But I recognize that the tides of history are clearly against animal farming and consumption, and history will consider me in the wrong.  So if a legislator in my district proposed banning pig farming, I would vote against them — but I would immediately buy into their LPF.)

Thus, LPFs change this dynamic.  Because a legislator’s LPFs trade on the open market, their value will move immediately when new legislation is proposed — legislators don’t have to wait to reap the verdict of history; they can immediately reap the verdict of projected history by proposing (and passing) laws which are primarily good only for the next generation, and then selling their LPFs at a now-higher price.

LPFs will not help politicians win elections.  But to the extent that politicians are corrupt and money-grubbing humans, LPFs will align that greed with the desire to pass good, forward-thinking, laws.

Implementation Questions

How will voters even know what politicians of 40-years-ago stood for (without extensive research)?

Easy — we just re-print the voter information guides they used in their own elections.  LPFs incentivize politicians to be very explicit about their policy positions in their candidate statements, in order to stand out during the LPF value-evaluation vote. 

Will voters even bother voting in LPF evaluations?

Many won’t.  But unlike in elections today (where the stakes are actually pretty high, even in “minor” races) there’s relatively little impact if only high-information voters bother to cast votes.  Money is redistributed, but the only way the system breaks is if voting is so random that politicians today lose faith in the connection between performance and payouts.

Likewise, there is (almost) no incentive for voters to ever vote tactically or against their own beliefs, because money is parcelled out proportional to votes (not winner-take-all).  There’s simply no reason for voters to be dishonest.

How do we actually start trading LPFs?

Practically, there’s a bootstrapping problem.  If legislators today (2021) were paid in 40-year-maturity LPFs, 40 years of LPFs would be bought and traded before a dollar was paid out.  The uncertainty of that process (confidence that investments would really pay out) is likely to depress prices.  We can instead bootstrap the process by gradually extending the LPF maturity dates:

• In 2021, legislators are paid in LPFs which mature in 2023
• In 2022, legislators are paid in LPFs which mature in 2025
• In 2023, legislators are paid in LPFs which mature in 2027
• … and so on, up to the final generational maturity window of 40 years.  

This way, the system will pay dividends as soon as 2 years from inauguration, to build confidence, but within half a generation (20 years) will become the long-term instrument we’ve intended.

What laws do I think LPFs will incentivize?

With the caveat that these are the stances I see history judging, not a function of personal opinion, I would personally invest in a LPF portfolio built around:

• Carbon taxation
• YIMBY policies which depress housing prices
• Cuts to social security and medicare benefits
• Child tax credits and maternity leave
• Banning or restricting factory farming

(and if I’m wrong, the great thing about LPFs is that my money is where my mouth is)

Summary

LPFs will not fix all our problems of a broken lawmaking process.  Most fundamentally, they cannot get politicians re-elected.  But they may at the margin nudge politicians into politically unpopular stances which they believe will be looked upon favorably.

Possibly more importantly than the financial payout, at least for legislators truly interested in “doing the right thing”, is that in moments of doubt they can literally consult an “opinion poll from the future”  (or at least, our best guess at one).

Last but not least, by asking voters to cast their own retrospective votes, it will nudge them to view their own present-day votes by the light that their children’s children will judge them.  

In this at least, it is hard to see any downside.