Peer-to-Peer Taxation
Pages: 1, 2, 3, 4
Peer-to-peer government?
So, ask yourself this question.
What would have happened if information technology had made it possible to create a system like socialism, but one that instead of relying on the government as a central decision-maker, was based on a peer-to-peer decision-making process. For the sake of this thought experiment, let's call this system peer-to-peer taxation or peer-to-peer government.
At its core, it would be a straightforward system. Just as we do today, we'd all be compelled to pay taxes, thereby creating a shared resource that can be allocated according to need. But instead of sending all of their money to the government in a lump sum, taxpayers would have a different option. They would be able to allocate their funds, or some percentage of them, to a combination of public and private agencies. Citizens would then have a direct say in how their taxes were converted into public services.
The goal is to take free market's decision-making process and tweak it so that it is rigged to produce societal benefits.
The social services market
This is a simple enough idea, but it would give rise to a sophisticated system for converting public wealth (taxes) into public services. In effect, it would create a free market for public services. Like other free markets, this one would reward the organizations that perform well, and would also reward entrepreneurs.
The reward/punishment feedback loop will work a bit differently than it does in a market such as the stock market. Investors usually price stocks based on the financial performance of the underlying companies. A company with growing profits is typically worth more than a company with anemic earnings. The linkage between earnings and the stock price creates a powerful incentive for managers to produce predictable and improving financial performance, and for investors to pick companies that are well-managed.
In this market for public services, the feedback loop works differently. Every year, citizens will be compelled to feed taxes into this market. The taxpayer's goal, instead of maximizing investment gains, is to minimize waste. This can be demonstrated with a simple example.
Let's assume your annual tax bill is a round number, say $10,000. This money represents three months of hard work, so you don't want to throw it away. This creates an incentive for you to do some homework in deciding how you want your money put to use. You would be likely to send it to the public and private agencies whose priorities match yours and who have a reputation for good performance. Your bias is to maximize the productivity of your money that you are compelled to hand over every April 15th.
On the flip side, the public and private agencies participating in this system, including the government itself, will have to compete for funds. Taxpayers will be biased in favor of the agencies whose goals best match theirs, and those that are most efficient in converting funds into services. Conversely, taxpayers will be less likely to fund agencies that have a reputation for waste or mismanagement. This competition means that agencies will not be able to take their budgets for granted. Like private businesses, they will have to earn their revenue while keeping their costs under control.
Aggregators
If the idea of micro-managing the use of your taxes gives you a headache, don't despair. Free markets also spawn aggregators, organizations that pool resources from many participants to make bulk buy/sell decisions. Just as most investors participate in the stock market largely via professionally managed retirement plans and mutual funds, it is likely that the participants in a peer-to-peer taxation system will also rely on aggregators to make funding decisions on their behalf.
The market will create an opportunity for entrepreneurs to create agencies that act as proxies for individual taxpayers. Just as there are thousands of mutual funds that cater to different types of investors, this market will prompt the creation of myriad agencies that cater to different types of voters.
Like different types of mutual funds, these agencies would differentiate themselves from each other by focusing on different types of services (education, public transit, etc), geographical focus (local versus regional), and by political orientation. These agencies would also be rated by third parties based on their performance, providing yet another feedback mechanism to reward innovation and above-average performance.
This adds yet another layer of competition to the system. These organizations will compete with each other based on the quality of the decisions they make, while the agencies they fund will compete based on the quality of the services they deliver.
In a sense, this type of aggregator already exists in the form of the government treasury. You send all of your taxes to the government, which then decides how to allocate its funds to subordinate departments and agencies. The difference in a peer-to-peer tax system is that the government will no longer have a monopoly in this primary decision-making role.
One particularly interesting aspect of this system is the creation of a new mechanism for representing voter intentions in the budgeting process. Voters could pick and choose among a large variety of funds based on their interests and priorities. These funds, in turn, represent the voters in funding public and private programs.
What is important is that third-party views are not pushed out of the budgeting process. Where today's system forces voters to make simplistic yes/no (Democrat/Republican) decisions, and effectively blocks third-party representation, this system would allow many different organizations to participate in the process. Funding for a set of priorities would be proportional to the number of people that support them.
The difference between the old and new systems is easy to visualize with a diagram. Economies are like networks, so by displaying the systems like networks, it is easy to see the structural differences between them. The diagrams depict the flow of money through the system. Funds flow from the bottom of the diagram (taxpayers) to nodes at the top (recipient agencies).
In the current system, all taxes flow through the government treasury prior to being disbursed to subordinate agencies. This creates a decision-making bottleneck because there is only one path for funds to follow through the system.
This is analogous to a network that is dependent on a single component or computer. If that component fails, the entire network fails with it. In a peer-to-peer tax system, funds can follow many different routes between taxpayers and agencies. Money can still flow through the government treasury, but it can also go directly from a taxpayer to a specific agency, or to an aggregator that funds many other agencies.
The multiplicity of routes means that no single agency, including the government, has a monopoly on how budgeting decisions are made. The result is a system that can adapt to changes quickly, and that does a better job of matching available resources against the agencies that need them. This type of network, which is similar to the architecture of the Internet, is also better at repairing itself. If one route fails, information can be sent via another path to its destination. In this system, money, like information in a network, will avoid bottlenecks to follow the path of least resistance to its destination.
Next:
- The press: The market's feedback loop
- Creative destruction
- Defection from within
- The bottom line
- Building the network
