- "Futarchy" is an as yet untried form of government intended to address such problems. In futarchy, democracy would continue to say what we want, but betting markets would now say how to get it. That is, elected representatives would formally define and manage an after-the-fact measurement of national welfare, while market speculators would say which policies they expect to raise national welfare. The basic rule of government would be:*
When a betting market clearly estimates that a proposed policy would increase expected national welfare, that proposal becomes law. Futarchy is intended to be ideologically neutral; it could result in anything from an extreme socialism to an extreme minarchy, depending on what voters say they want, and on what speculators think would get it for them.
Futarchy seems promising if we accept the following three assumptions:
Democracies fail largely by not aggregating available information.
It is not that hard to tell rich happy nations from poor miserable ones.
Betting markets are our best known institution for aggregating information.
Hmmm. How plausible are these three assumptoins?
1) In what sense do democracies "fail"? True failure comes from being overthrown by non-democratic groups : revolutions and coups. That may be partly due to failure of information. As JohnRobb suggests, democracies may need an intelligence market to counter the BazaarOfViolence, but I don't think this is what Hanson means.
What else is this "failure"? Where democracies seem to be frustratingly doing other than we'd like, this seems to be more a result of competiting interest groups : deadlock between parties in parliament, lobbyists or factions getting the ear of legislators etc.
What or who's pain is this addressing?
2) view from 2020. Well that's where it all falls down, doesn't it? Is the TrumpLand a "rich happy nation" (with the biggest, most powerful economy in the world) or a "poor miserable" one (full of people who pining for a lost golden age of "greatness")? Is Brexit Britain? The answer is both. Depending where you look. Economic inequality and precatory stretches the society beyond the point at which is is easy (or even possible) to tell.
Hansen relies on the liberal capitalist myth of the tide raising all boats. But left to its own devices capital doesn't raise all boats. It wastes as little of its resources on other people's boats as it can get away with, unless the government obliges it to.
Older comment : It sounds like he thinks governments are in the business of making their people "rich". And rich = high GDP? Is this the only purpose of government?
More on running things by markets : ManagementByMarkets