Better still, the Fed could issue such a security and then target it's price to rise at 1+ its preferred inflation rate times 1+it's estimate of maximum real income growth. BTW the Treasury ought to be issuing more TIPS at other intervals 6 mo, 1,2,3,4 year intervals
The article you provided doesn't change the core problem with futarchy.
The article discusses GDP-linked bonds, which are a financial instrument tied to a country's economic growth. The author argues that these bonds could be used to create prediction markets for GDP, which could then be used to inform policy decisions (similar to futarchy).
However, the problem you identified with futarchy still applies:
Traders are incentivized to predict market sentiment, not actual outcomes.
Even with GDP-linked bonds, traders would likely focus on what other traders believe GDP growth will be, rather than what it actually will be. This could still lead to policies that are not optimal for human welfare.
Here's how the article supports your point:
The author mentions the success of prediction markets in some areas (like predicting election outcomes). However, these successes often rely on clear metrics and readily available information. Predicting GDP growth, especially in the short term, can be more complex and subject to various economic factors.
Key takeaways:
GDP-linked bonds are an interesting financial instrument, but they don't necessarily solve the core problem with futarchy.
Traders in a GDP prediction market would still be incentivized to predict market sentiment, potentially leading to suboptimal policy choices.
Overall, the article strengthens your argument about the limitations of futarchy due to the inherent incentive structures within prediction markets.
These arguments seem to apply just as much to bonds linked to real GDP. So why is it better to make a futarcy optimising nominal GDP than one optimising real GDP?
Maybe I missed this in the article, but it seems like the main problem is that gdp linked bonds are usually not exactly the market clearing price. Countries don't want to pay more interest than they have to eg Germany and USA borrow at low rates. Lenders don't want to charge less interest than they have to eg some developing countries pay more interest than a gdp linked bond would. So in order for gdp linked bonds to make sense for both borrower and lender requires an uncommon circumstance.
Better still, the Fed could issue such a security and then target it's price to rise at 1+ its preferred inflation rate times 1+it's estimate of maximum real income growth. BTW the Treasury ought to be issuing more TIPS at other intervals 6 mo, 1,2,3,4 year intervals
The article you provided doesn't change the core problem with futarchy.
The article discusses GDP-linked bonds, which are a financial instrument tied to a country's economic growth. The author argues that these bonds could be used to create prediction markets for GDP, which could then be used to inform policy decisions (similar to futarchy).
However, the problem you identified with futarchy still applies:
Traders are incentivized to predict market sentiment, not actual outcomes.
Even with GDP-linked bonds, traders would likely focus on what other traders believe GDP growth will be, rather than what it actually will be. This could still lead to policies that are not optimal for human welfare.
Here's how the article supports your point:
The author mentions the success of prediction markets in some areas (like predicting election outcomes). However, these successes often rely on clear metrics and readily available information. Predicting GDP growth, especially in the short term, can be more complex and subject to various economic factors.
Key takeaways:
GDP-linked bonds are an interesting financial instrument, but they don't necessarily solve the core problem with futarchy.
Traders in a GDP prediction market would still be incentivized to predict market sentiment, potentially leading to suboptimal policy choices.
Overall, the article strengthens your argument about the limitations of futarchy due to the inherent incentive structures within prediction markets.
These arguments seem to apply just as much to bonds linked to real GDP. So why is it better to make a futarcy optimising nominal GDP than one optimising real GDP?
I want NGDP bonds because I want the Fed to target NGDP. Plus Real GDP is much harder to calculate in real time.
"GDP minus inflation" is a much noisier signal than "GDP" alone given the fuzziness of inflation.
The late John Williamson wrote a short book in 2017 on this subject called Growth-Linked Securities.
Maybe I missed this in the article, but it seems like the main problem is that gdp linked bonds are usually not exactly the market clearing price. Countries don't want to pay more interest than they have to eg Germany and USA borrow at low rates. Lenders don't want to charge less interest than they have to eg some developing countries pay more interest than a gdp linked bond would. So in order for gdp linked bonds to make sense for both borrower and lender requires an uncommon circumstance.
what about developing countries offering GDP-linked bonds?