A Push-Pull Model for Cooperative Markets Financed by Sovereign Spending

By J.D. Alt

I recently outlined a sovereign spending structure for making “free” pre-school care and instruction available to every American child (Opportunities of a Millennium, Part 1). After further consideration, I realize the proposal glosses over a fundamental issue posed by sovereign spending itself: Should it “push” or should it “pull” at resources to achieve a given goal?

Here is what I mean: In the case of pre-school care and instruction, it would be possible to direct the sovereign spending in basically three ways. The first way is the classic “government program” model where the federal government establishes and staffs a public bureaucracy to provide the pre-school care. This model was ruled out in deference to the Boomer-GenX generation’s legitimate objections to “big government”—and especially big government programs which waste money and fail to accomplish their goals. This leaves two options for directing the sovereign spending.

First, the new fiat dollars could be deposited in “controlled” accounts of locally created and managed cooperative groups which would then spend the dollars to rent/outfit facilities and hire care providers/instructors to provide the pre-school services to local children for “free”. This, essentially, was my initial proposal. Instead of creating a bureaucracy, the federal government creates a management platform (integrated, on-line software) which participating local co-op groups are required to use to manage their care programs. The platform implicitly accomplishes three objectives:

  1. It establishes the minimum standards of care and instruction which the pre-school program must provide.
  2. It establishes the payment-for-services structure which the sovereign spending agrees to cover with deposits of new fiat dollars.
  3. It establishes an “open-book” transparency enabling parents (or anyone else) to monitor the billing, payments, and expenditures of the local coop.

In my mind this is a “pull” scenario, where the spending creates the free services first which then “pull” in the customers needing the service (in this case, the children).

A second option would be for the children, themselves, to be allocated new fiat dollars with which to purchase pre-school care and instruction in their local community. Similar to the “voucher” system used in some current federal programs, I see this as a “push” scenario: motivated by the existence of customers with dollars to spend for pre-school services, some group or another in the local community would create the pre-school program in order to earn the available dollars.

The question is which of these approaches produces the best outcome?

The “pull” option offers the advantage of giving the collective interest (the federal government) the opportunity to establish minimum standards for the care/instruction it is paying for. On the other hand, it has the disadvantage of eliminating the dynamic of market competition and consumer choice from the equation that develops the final care/instruction product. The children (actually their parents) are left with only one “free” local pre-school service to choose from—and it’s a service motivated to meet only minimum standards. There is the additional dilemma that the collective interest must somehow choose among the cooperative groups competing to be the designated local “free” care provider. This is a choice that may be delegated to local government, but in any case the outcome is the same: the chosen pre-school care and instruction provider is motivated to please the government pay-master rather than the children-customers.

The “push” option flips these advantages and disadvantages. The children now have the dollars in their pockets, so to speak, and the care providers—however many of them there may be in a given local market—must compete amongst themselves to earn those dollars. Presumably this would lead them to winnow themselves into the most innovative and effective care/instruction service groups within each local market—exceeding, up to a reasonable point, what the minimum standards would have been under the “pull” scenario. Most important, this higher quality of service would reflect the choices (i.e. the needs) of the children themselves. The disadvantage lies in the word “presumably”. The collective interest (the federal government) now has no control over minimum standards for the pre-school care and instruction (other than some kind of licensing regime, which simply adds a messy layer of bureaucracy to the program—precisely the kind of layer we’re trying to avoid.)

It may be that best outcome can be achieved by dovetailing these two scenarios together. In a nutshell: the daily “cost” of pre-school care and instruction is calculated to be X dollars; X/2 dollars are then put in the pockets of the children to spend on pre-school care as they choose—and X/2 dollars are put in the accounts of cooperative care-providers who agree to meet the minimum standards established by the collective benefit (e.g. agree to utilize the management platform created by the federal government.) In this “push-pull” model the only “free” pre-school care and instruction providers in any given local market will thus be ones which meet the minimum standards established by the collective interest—and which also have been chosen by the children (actually their parents) as offering the best services in their local market: X/2+X/2=X.

A Few Details

On the “push” side of the equation, the main issue to overcome is ensuring that the sovereign dollars that are “put in the pockets” of the children actually get spent for the intended pre-school care and instruction services—and not spent by parents for other things instead. This could be accomplished with an electronic payment account issued to each American child as a birth-right, associated with their social security number. The U.S. Treasury can deposit new fiat dollars into these payment accounts and monitor them (in synchronization with the management platform used by the pre-school providers) to ensure the dollars are only spent for pre-school services provided by the participating co-ops. Thus the children can control how the dollars are spent—by choosing which pre-school provider to enroll with—while the opportunity to spend the dollars for some other purpose is entirely removed.

General Applicability

It seems possible this “push-pull” model of allocating new fiat dollars to specific collective purposes, as described above, could be generally applicable to a diversity of sovereign spending situations. It has the following virtues:

  • It minimizes bureaucracy while allowing the collective interest to establish basic standards to be achieved (as well as payment security);
  • places decision-making and management in the hands of local cooperative groups;
  • makes oversight of sovereign spending easily and transparently available to the public;
  • establishes, where appropriate and useful (as in the case of our present example), a market where providers optimize their goods and services to compete for the business of customers.

0 Responses to A Push-Pull Model for Cooperative Markets Financed by Sovereign Spending

  1. Steven Greenberg

    Why in the first option do you assume that there could/would only be one option for parents? Why must the government choose a franchisee to give exclusive control to? Why couldn’t the government allow as many as qualify to set themselves up. The government would only pay for students that actually enrolled? Isn’t this the way Medicare works with doctors? This is the way that Medicare Advantage works insurance companies.

    The first option does not preclude competition.

    • If the federal government agrees to fund the control accounts of any local co-op which agrees to set up pre-school care services using the govt’s management platform, a given community might have, say, three services that get set up. They would then notify local parents their services are available. The parents would then choose which of the three services they wanted to use. And the three services would compete with each other to provide something special the others did not because they get paid/child….Yes, that would work! Not sure why I didn’t see that. It seems obvious now. So the original system I proposed is, in fact, the logical one. I much appreciate your helping me to see this! Thanks.

  2. What if the people had sufficient incomes to afford these things for themselves?

    • I imagine there would also be pre-school services that were for-profit, offered special perks, and that wealthier parents would be willing to pay for….

  3. There is one over-arching problem involved with this analysis. The people involved in this activity are the American people. They are ignorant to a degree which makes me want to cry whenever I have got involved with community based efforts.
    I have actually heard it said at a meeting which had the purpose of solving the solid waste disposal problem in the county in which I live. The appointed leader of the effort said that he was not interested qualifications of the members of a key committee, but only their enthusiasm!
    As it happens, I was an investment banker and mutual fund portfolio manager back in the late sixties and early 1970’s, who was involved in the initial financing of Browning, Ferris Industries, (BFI) a very successful, initially, waste management company that went public in the early 1970’s, and another company, Devco Management Company, Inc, a company that never got off the ground. Now I am an economist with an excellent educational background in the sciences, and some significant involvement in engineering projects. I offered my services free and was rebuffed. My wife, a PhD. geologist and former professor of environmental sciences in a civil engineering department in a college in Virginia, did go on a committee as a volunteer.
    Loud mouth, right wing ignoramuses got control of the effort and the result was a disaster. My wife resigned after having been told that she was too old and could not possibly have anything useful to contribute. She came home in tears from a final meeting and thus ended a long period of useful contributions to the community.
    No, our problems are not going to be solved, and this is because the people at the base are terminally ignorant. Not stupid, nor lacking in brains, just terminally ignorant. The people are being asked to grab themselves by the back of their necks and hold themselves at arms length! Tough job!

    • Mr. Savage, I am in total sympathy with your comment. What you describe is a completely new layer of issues and difficulties which somehow have to be addressed. I, like you, am not even sure they ever can be. But there is no point in even trying if we cannot first get over the fundamental issue of whether we, as a society, can afford to pay ourselves fiat dollars to create collective goods and services. I may be completely wrong, but it’s possible that some of the acrimony you describe in public groups (which I have observed and experienced myself as an architect) derives from the fact people believe they are spending tax dollars, and are angy (a) that they’re being spent at all, or (b) they’re being spent to benefit someone who doesn’t deserve to be benefited at their (the taxpayer’s) expense. Also, I’m hopeful the upcoming millennial generation will be better behaved and more effective in what are supposed to be cooperative meetings.

  4. A secondary issue with the push side is to ensure that when children spend their education dollars, the product that they receive is actually education. See the criticism of for-profit universities and their use of demand push through student loans.

  5. financial matters

    ” This model was ruled out in deference to the Boomer-GenX generation’s legitimate objections to “big government”—and especially big government programs which waste money and fail to accomplish their goals.”

    I think this is true and to a large extent reflects the messaging they get that the govt is running out of money and things like social security won’t be there for them. The govt could easily change this messaging and explain that they can afford to fund retirement security as well as help much more with medical care and education. This would give them more credibility than just coming up with massive funding for banks etc.

    We have Stephanie Kelton now as a Congressional economist to help get across this message as well as an excellent set of recent posts by Joe Firestone on sectoral balances.

  6. Interesting piece. I think Push is the only politically viable option. I wrote a piece here recently that proposed looking for the overlap of popular and epistemic solutions where spending out of seignorage would not “hurt” small businesses but instead support them. On first blush it is difficult to see who would suffer increased product costs or shortages of labor. In fact, wider availability of preschool services may allow more people to renter the workforce.

  7. The combination of the push-pull model just sounds like public school vs private school funding to me so I’d rule it out immediately.

    I agree with Steven Greenberg – why assume just one option and it does not preclude competition. I also agree with James P Savage III to an extent – that is once the ignorant get hold of an idea, it can preclude services from being effective and useful.

    I do find the way you’ve outlined the “pull” option to be an appropriate way to run a Job Guarantee program though. It reminds me of the way some community services are ran under a Grant system

  8. J.D….your “hybrid” model is intriguing. It provides a “public option” supply/push-focused approach in the form of a “free if meets minimum standards” model, and also encourages innovation geared toward exceeding the minimum standard and/or providing services desired by certain sub-populations in the form of the “demand-pull” targeted electronic payment system you describe.

    One thing that strikes me as important is that (if I’m understanding you correctly) even the “demand pull” providers would be organized as cooperatives (or do you envision other more profit-focused models to be included as well?). I see co-ops (would these be “parent co-ops?) as more likely to focus directly on maximizing the quality of service for the allotted amount of fiat dollars than would a profit-maximizing corporation. Profit-maximizing goals can lead to maximizing service quality in some healthy market conditions, but this connection is indirect and, in particularly dysfunctional market, can be in conflict (the financial sector being a notable example of the latter).

    Would the pull model allow for wealthier households to add their own dollars to their payment, to support a more expensive tier of service providers (e.g., wealthy neighborhoods might form co-ops that spend more than the fiat-dollar allocation per child)?

    It also seems important to make sure that the per-capita allocation of fiat dollars is the same for both the push and pull sides of the model.

    Your thinking here strikes me as relevant to the goals of the recently announced Next System Project.
    http://thenextsystem.org/

  9. What is the nature of the customer who buys education? Does that customer believe the product to be a necessary prestige item that is only worthwhile when it is”the best” while considering anything short of that to be beneath him/herself or is that customer merely interested in purchasing a functional non-prestige product? If the customer is the former, gov’t checks to be used by the customer will never be sufficient since providers of the product will always develop ways to “enhance” their services and will compete with each other on that basis rather than on cost. The ONLY way to provide the necessary portion of such a product to the general population in a cost effective manner is to remove any choice that population has as to the product itself through a rigorous top-down bureaucracy and a message to that population that it can go **** itself if it insists on “more”.