Dedomenocratic Party: addressing entitlement unfunded liabilities

I invented a conceptual Dedomenocratic party to compete democratically with the Democratic and Republican party in national politics.   I’m mostly using this as a thought experiment to challenge ideas from my imagined dedomenocracy (alternative to democracy) with present day problems.  Unlike a dedomenocracy that has authoritarian powers that can enact any rule at any time (justified by being based on data), the Dedomenocratic Party must work within the real political environment of democratic debate.   This party does not exist and certainly has no power to advance legislation, so instead I imagine a party platform based on dedomenocracy concepts of high frequency of short-term rules but with the complication that the Dedomenocratic Party has to work within a body of eternal (often obsolete) laws.

In my earlier posts, I described Dedomenocratic answers to new initiatives.  The counter-proposal to free community college is to shift compulsory education to end at the 8th instead of the 12th grade to make high school like community college where participation is voluntary.  The counter-proposal to raising the minimum wage is to temporarily suspend it in order to get a new benchmark of what the market will do without wage price fixing.   Before conceiving of a Dedomenocratic Party, I wrote a counter-proposal for government reform to instead focus on gathering extensive activity data of bureaucrats working through their duty hours.

This exercise applies dedomenocracy concepts to sketch out a possible persuasive platform for a political party.  I find this exercise useful to illustrate the agile and ultimately libertarian tendencies of government by data.   I intend to write future posts of similar responses to proposals.   These are difficult proposals would face extreme difficulties in persuading the public to the point of winning new legislation.   Despite that difficulty, these are actually pretty simple problems concerning the larger issues facing the country.

The point of the Dedomenocratic Party is to illustrate how dedomenocracy can operate.   My discussion of dedomenocracy frequently presents a fantasy that every rule can be short-lived without any commitment for consistency or having any rational explanation.   In order to work, such a government would have to operate a very different world where everyone else is operating using similar techniques.   In effect, the concept of dedomenocracy scales up market-analytics (involving programmed decision making) and apply it to government.   The discussion of a dedomenocracy assumes all competing governments were similar to competing commercial businesses.

The challenge for this thinking is whether it can address present day political challenges, especially the most difficult ones.  That’s my point of introducing the Dedomenocratic Party.   I need to apply the concepts to modern world.

One very difficult problem facing the current government is the growing debt due to a budget that is increasingly dedicated to entitlement spending and servicing old debt.   Both of these are promises the government has made, but they promises that the government can not afford to keep.   A challenge to the Dedomenocratic Party is to address these issues that can not involve short-lived rule making, and certainly not some gimmick such as a temporary suspension of paying off these obligations.

Currently the two issues of growing debt and growing entitlement spending are linked because we are incurring a debt to pay off the obligations.   I mentioned before my preference that entitlement spending should be debt-neutral.  In my opinion, all entitlement spending should come from current tax revenues.   There should be a natural limit to our commitments where that limit is affordability.  In a recent post, I noted that our aging voting population opposes reform that restricts benefits to what is affordable on current tax income.

For example, a possible model of reform is the Dutch defined ambition model (as opposed to US defined contribution or defined benefit models).   Adopting that model will require eliminating the defined benefit approach that scales with inflation and replace it with a benefit that remains a constant portion of current-year tax receipts.  This approach seems to be a natural fit for a dedomenocracy.  The benefits of the entitles are computed against a hard constraint of tax receipts.  This is strictly a problem of computation from data.   Also, a dedomenocracy is authoritarian and can simply issue the rule without regard to past commitments.

The real world political problem is very different.   There are commitments to provide a specific benefit adjusted for inflation and unrelated to ability to pay.   This is characteristic of many big issues of government where the reform is needed in areas with binding commitments.

There are two options available to the democracy.

  • The first is to reform the future commitments while maintaining the old ones.  This option imposes higher costs on new members while given them lower expectations for benefits.
  • The second is to increase tax revenues to keep up with the rising costs.   This option requires that the economy continues to grow fast enough to produce tax revenues that can match the growth in benefits.

Neither of these options are likely to be successful in the long term.   The transfer of wealth from young to old is unfair if a similar transfer is denied when the young become old.   The growth in benefits will almost certainly exceed the growth of tax income.

Entitlement commitments are setting up democracy for a debt crisis.   The debt crisis hasn’t happened yet and no one has a convincing case for when the crisis will occur.   Like the financial disruption of 2008, the crisis will come suddenly and surprise everyone (despite the multitude of claims to the contrary that will appear after the fact).

To be relevant for this modern issue facing our democracy, the Dedomenocratic Party platform needs to address sustainable financing of entitlements.   Ideally, it would offer something innovative to set itself apart from the other two parties and at the same time demonstrate the advantage of data-centered thinking for government.  The following idea occurs to me as being potentially helpful.

This proposal is a variation of my earlier post that offers an indirect path to government reform by requiring new measurements of federal workforce using frequent and specific activity tracking during the duty period.   The detailed tracking of activities may help with reform because they know each period of their duty day is being measured.   However, the larger advantage comes from making this activity data available for data analysis to compare different activities to see that they get appropriate and timely attention by the appropriate people.    The data can provide evidence to support specific reforms later on.

As similar opportunity occurs within the entitlement problem, but this involves more explicit allocation of debt to the program that is incurring it.   The model I have in mind is my local government’s issuing of municipal bonds that need voter approval before new debt is added.   These bonds are very specific about the amount, the specific purpose, and the duration of the debt.    The bonds are put up for vote.  They almost always pass because as long as the intention sounds good, the dollar figure doesn’t really matter to local voters.    However, we still see specific referendums on ballots that spell out the terms of the specific bonds and typically we have a handful of separate bonds to approve on the same ballot.

Currently, at the federal level the closest we have to a bond referendum is the almost comical exercise of raising the federal debt limit.   This is a single number, a very large one, that covers the entirety of the debt for all federal government.   The debt-limit increase does not approve anything specific but merely allows the government to continue to borrow money to make up for the deficits.

The Dedomenocratic Party suggestion could be to replace this debt limit with individual bonds for financing each part of the government.    There would need to be an initial allocation of debts to the various programs and agencies.  When more debt is needed, then there would be specific bond that specifies what program or agency needs that debt financing.

Currently, many agencies are in debt to the social security agency.  They borrowed this money to pay their operational expenses when the social security contributions exceeded the benefits.   Under the Dedomenocratic Party plan, these debts will show up explicitly for each agency when it attempts to request additional debts to fund their mission.   This will provide an incentive for the individual programs and agencies to clean up their balance sheets so that any debt assigned to them will be specific to their mission.

Again, instead of having a single act to raise a consolidated debt-limit, there will be separate acts to grant permission to each agency and department to incur more debt based on individual justifications that includes what the new money will buy and how much debt the agency already has in relation to its annual operating expenses.   In particular, there would be separate approvals for each of the individual entitlement programs, if those programs need debt to pay their obligations.

We are assured that the social security fund has a surplus but this surplus is loaned out to various other agencies parts of the government.   The Dedomenocratic Party proposal would make these inter-agency loans explicit so that the public can see the debts of running those agencies.    If it is true that the social security fund is still in surplus, then it will not need any new debts to finance its obligations.

However, this will draw attention to excessive debts for operating the other agencies and this may make it difficult for those agencies to identify new initiatives to justify incurring new debt to finance their operation.    The public will observe that the agency’s services are small in relation to the existing debt allocated to support it.    In order to survive, each agency will have to address its own debt by demanding more direct funding from tax revenues instead of borrowing the money from the social security trust fund.

Most of the other entitlements are underfunded, or even unfunded at all such as the medicare drug benefit (Medicare part D).  To fund these entitlements under the Dedomenocratic Party proposal, each of these programs will need to periodic approval to incur new debt to pay for these benefits.   Now that social security is paying more benefits than the tax revenue received, eventually it too will join this group.

The important feature of this plan is that each program has its own debt and will need separate approval for increasing its debt needed to pay off its obligations.   The Dedomenocratic Party solution does not directly change the fact that the debt will necessarily increase.   Instead is draws attention to the fact that we are growing the debt to pay for something that will not provide a future benefit or return.   Most of the entitlements will not result for the country future benefits such as new services or future economic return.   The request for approval of debt specifically assigned to funding entitlements is a request for debt for money that will never be returned.

While this proposal would not directly change the current problem of growing deficits to pay for these services, the proposal does provide a new source of data that unambiguously identifies where services are being funded by new debt.   The approval of new debt to sustain entitlements will require convincing the population that this is good debt.   At least in my mind, this is not good debt.  It will not return any value in the future.

This new data explicitly identifies what the new debt is funding.  This data can help make politically hard choices because people will see that the debt will have a very poor (if any) return.   Having the debt explicitly assigned to specific programs will make it harder for the population to ignore the fact that we are paying for current entitlements with future obligations.   We are transferring wealth from the future to pay for benefits today.   Alternatively, we are paying for present benefits with money that the current young generation will ultimately have to pay back.   The young people will be paying for historic benefits instead of paying into their own benefit plans.

This example also illustrates a category of contribution that the Dedomenocratic Party can offer democracy.  This category is to identify and build new forms of measurements so that we can accumulate more relevant data that will make it easier to debate the core issues for funding the currently hard problems.    With these measurements, future politicians will be able to focus on the actual balance sheet for each program.   This is also consistent with dedomenocracy that will demand such explicit measurements to identify optimal rules.

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One thought on “Dedomenocratic Party: addressing entitlement unfunded liabilities

  1. Pingback: Dedomenocratic Party in a democracy facing external enemies | kenneumeister

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