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.

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