The mechanism, in a nutshell:
- We vote democratically on some aggregate measure of social welfare, which Hanson calls GDP+. Take GDP and whatever else you think it part of "good stuff", assign all components a weight by democratic voting, and voila! You have an aggregate measure of whatever we're trying to maximize. Scale it to some sensible interval.
- Open sets of futures markets that pay out based on the value of GDP+ at future dates stretching far into the future.
- Open sets of policy markets that pay out based on whether particular policies are implemented. Anyone can propose a policy, though there'd be a charge for proposing a policy as setting up the sets of markets isn't free.
- Open sets of contingent contracts for future prices on GDP+ conditional on the policy being implemented or not being implemented.
- If a particular policy improves GDP+, as measured by price differences across enough of the futures markets for a long enough period of time, then that policy is implemented.
My main worry about futarchy has been the definition of GDP+. Right now, politicians can dissemble relatively easily about the amount of weight they put on various objectives. Many of these objectives are important political symbols to a lot of folks, but they only really want their symbols to be shown respect and attention; they pay little attention to whether effective policies are actually implemented. So protectionists and trade unionists can be bought off with a "Buy New Zealand Made" advertising campaign that's utterly ineffectual in doing anything but showing those groups that the government cares about them and values their views. If politicians don't want to completely kill the economy (and thereby reduce tax revenues), they're well advised to offer up cheap symbolic policies in lieu of growth-killers.
By contrast, GDP+ is completely transparent. There's no reason to expect that the same biases that plague regular voting wouldn't also plague voting on constitutional matters like the definition of GDP+. But it could well be worse because politicians would have far less slack to work around silly definitions of GDP+ than they have to work around silly pandering election promises.
That worry aside, I like Futarchy and I love the idea of contingent markets on the effects of policies as a useful input for policy evaluation.
Paul Hewitt is less keen. He winds up, in the comments, asking Robin three questions.
First and second are whether it's possible for long term markets to be accurate and whether traders would be able to understand GDP+, given that economists have a hard time forecasting simple GDP for medium horizons. I'll expect Robin to answer that so long as whatever inaccuracies there are in such forecasting are constant across the sets of markets for any period of time, then the price differences across such markets are going to be meaningful, and it's the price differences across markets that really matter. Suppose that we have a market on what the value of GDP will be in 20 years time. I have no clue what that number will be; at best I'd take the current value and assume a 2% real growth rate. But that doesn't matter. If there's one market that pays out on GDP in 20 years conditional on no change in policy and the other pays out conditional on adopting a $50/hr minimum wage, I'd short the latter if its price were high relative to the former.
Third, he asks whether the high market listing fee isn't anti-democratic. I'll here expect Robin to reply "relative to what?" I have a very very hard time imagining that it would ever be more expensive to get a policy listed on Hanson markets than it is under the current system to get a policy considered by Parliament.
I'll look forward to seeing Hanson's debate with Moldbug later this month on Futarchy...I trust there'll eventually be a webcast....
Update: Hanson discusses here.