Participatory Democracy for Taxes, Possible Approaches

Possible Mechanisms for Participatory Democracy for Taxes

I proposed and our group at Western Illinois University are implementing techniques for people to vote on the laws that constitute the tax code. The tax code could be represented as a decision tree which in the end leads to the amount of tax or a simple formula such as a linear function of income that gives one tax. A decision tree is a set of divisions, each of which will have other divisions. For example, we might vote to divide people on the basis of the number of children. Thus, we would look separately at those having zero children, one child, two children, three or four children, five to eight children, etc. This has been referred to in the literature (Reference One) as Recursive Partitioning.

Then, we might look at the ratio of earned (wages) to unearned income (bank interest, dividends, bond coupons). Thus, the tree might have a division for those having no children and eighty to one hundred percent wage income. Another branch for those having no children and sixty to eighty percent wage income, etc.

Then for each of these divisions, we would have a formula or graph relating income to division.

At each stage in the process, individuals would vote on what divisions to make and eventually the ratio of income.

Another student is working on applying genetic algorithms to determing a tax code.

But do we need rules? Do we need a tax code?

One could envision a taxing system that simply said: each individual and each entity would go before a jury. They would determine the tax they pay. How can we make it less arbitrary?

1. Tax rates would not vary by more than ten percent year to year without a supermajority. To transition to that system, we would start with whatever tax the entity paid under our complicated tax code. Thus, if a firm paid four millions in taxes the previous year, their tax this year would be between 3.6 million and 4.4 million. However, sixty percent of the jury could vote to change it by twenty percent, in the example from 3.2 million to 4.8 million. Seventy percent could vote to change it by fourty percent, etc.
2. Several entities could be grouped together for comparison. One possibility is to group them randomly. Thus, a jury would see a disparate group of entities, say
   1. a middle-class individual
   2. a working-class individual
   3. a financial institution
   4. a factory
   The jury would vote on a tax rate for each entity. It doesn't follow that the corporations would pay a higher rate than the individuals. The jury might find that the corporation truly is a public-spirited organization committed to sustainability. And it might find that the individual is a fuel hog in taking unnecessary trips, and not taking care of self. (See my blog entry on the badness tax.)
3. The above scenario assumes no attempt to group elements. One certainly could group members. This can done by rules. That is, we could vote as discussed at the beginning for classifications. We could vote on dividing by corporation, partnership or individual. We could vote to divide by their net income, gross income or number of employees.. Thus, one would not be comparing small businesses with large businesses. But we wouldn't vote on a tax rate for the category, simply a number of sets to be collected from each group.

   A sample of let's say twenty individuals or entities or corporations would go before the tax jury. The tax jury would know that they have to collect a specific amount revenue from each set. (The computer would divide the total to be collected in each category by the amount of revenue).

   Example, we vote that we want to group all those married individuals earning between sixty-thousand dollars and eighty-thousand dollars and having two children in one group. We would look at the total income earned and decide that gather all such people should pay twenty billion in revenue. Assume this group was two-million families. Thus, on average each family would pay ten-thousand in taxes. And thus, each group of twenty would pay $200,000 in taxes. The jury would tnen adjust the $10,000 that each should pay based upon all kinds of other factors: how much have they given in charity, which have high medical bills or suffered other disasters this year, etc. etc.

   Each family would be given a chance to explain their financial situation and any reason why they should be given special consideration.

4. The alternative to rules for categorization is clustering. This would introduce a second type of jury. This jury would be given pairs of individuals. They would get financial information for the two individuals in the pair. These jurors would indicate how similar they are; not how much taxes they should pay.

   There are many algorithms available that cluster items into similar groups including Self-organizing maps. In two or three spatial dimensions, this would be groups of points that are very close, forming a clump on a scattergraph. This could be extended to a tax situation in that the software would treat numbers such as number of children, incomes, as spatial dimension and place each taxpayer as a point in the "n-dimensional space." The clustering algorithm would find groups of tax payers that are similar in input characteristics. The taxpayers would go before groups of the first juror types to explain those special tax considerations that would be lower than individuals that are similar.

5. There are many algorithms to take sets of example data and create a function out of them. (See the discussion below and references one and two for a good summary.) Thus, the jurors could rate several tax payers as to how much tax they should pay. This, of course, assumes that the characteristics that determine how much tax an individual or entity should pay are all quantitative or captured by the collected parameters (income, medical expenses, etc.) Are we better off allowing people to present these issues and construct the rules interactively and collaboratively, or merely say what the tax should be for various tax payers and construct the rules mechanically.

Computer scientists and statisticians have developed many different ways that one could learn functions from example data. These relate from such standby's as multiple regression to the new methods such as neural networks, and machine learning techniques. Thus, assume that we have juror ratings of one thousand tax payers. We can apply these techniques to generate a function between the parameters and the tax assigned. Obviously, one could replace the jurors by the formula. Alternatively, people could use such capabilities to estimate how much tax they would have to pay. This would be how "tax planning" would be done.

This is similar to the various services that report jury verdicts in tort litigation to help trial lawywers decide when and for how much to settle their cases.

Classification Procedures and Tax

James E. Parker and Kenneth F. Abromowicz tried both statistical methods and recursive participation to see if they could discover tax law from examples. They tried it on decision rules of a straightforward tax law provisions for whetehr somebody should be considered a dependent. They also compared the ID3 results with those of a common statistical techniques such as regression. The ID3 based approach did slightly better than other techniques.

They then looked at one hundred decisoins regarding "tax home." Taxpayers can deduct traveling expenses when away from home. But where is one's home? If I claim my home near Western Illinois University where I am an Associate Professor, I cannot deduct the cost to go to and from. But if I am temporarily in Pennsylvania during my sabbatical, can I take my carfare off my taxes? It depends on what is considered my home. The Researchers looked at such factors as where the person filed state tax, have income producing property and where one's children resided. The ID3 algorithm correctly correctly classified twenty-seven out of thirty tax cases while the statistical techniques did only 26 to 30.

The tax law considers a scholarship or fellowship not income. If a profit-making corporation pays one's tuition in exchange for working for them latger, that is income. But what about the assistantships that Ph.D. students often get. There are some duties, but it is more awarded to support promising students Garrison and Michelsen looked at one hundred cases and then presented a holdout sample. The ID3 correctly classified all twelve cases as compared to one two or three from statistical approaches.

The Internal Revenue Service has been looking into using machine learning techniques to identify tax returns that are potentially fraudelent. See94ARD 030-1, Statement of Margaret Milner Richardson on February 10, 1994. NCR Terradata division and States has been using such techniques to help catch those who don't file their State Income Tax or don't pay it problperly. And in 2006, the National Taxpayer Advocate reported on using machine learning to identify abusive tax returns.)

Proposed Work

We can simulate the ID3 algorithm and use Lindahl Equilibrium as a figure of merit. That is, I will hypothesize individuals with various incomes and characteristics. I will also hypothesize a distribution for their preference for public goods (defense, public libraries, public education, national and state parks). We will assume some percentage of them behave strategically and some percentage simply vote their true preferences. Dr. Wally Smith did some excellent simulations for multiple-candidate elections, which will be another Thoughtful Thursday.

As an empirical work, we will solicit stories from taxpayers where they will provide their tax return, other information that the jurors would consider relevant to how much tax they should pay and possibly have them give a video clip explaining how much tax they feel they should pay and why.

We will try two different sets of jurors. One set will simply vote on the taxes to be paid by each taxpayer. They will have a training set of half the sample tax data. Other groups will develop a classification scheme by ID3 or Genetic Algorithms.

Then, we will generate a tax code using the examples from the first set of jurors, and classify the holdout set, the other half. We will ask the first set of jurors how they liked the results for the second half. The second group will have the holdout set classified by the rules on which they just voted. We will see how they like the result.

We may have to make up some hypotheticals for the very rich as we probably could not get them to give us their data. Although some politicians are wealthy and do make their taxes public.

References

1. Parker, James E. "Predictive Abilities of Three Modeling Procedures" The Journal of the American Taxation Association, 37 to 53, Volume 11 Number One Fall 1989.
2. Garrison, Larry R. and Robert H. Michaelsen, "Symbolic Concept Acquisition: A New Approach to Determining Underlying Tax Constructs" Journal of the American Taxation Association, 77 to 91, Volume 11 Number One Fall 1989.

Separation of Powers/Judicial Independence/Thoughtful Thursday

Does separation of powers help? One part of this is the separation of the executive and legislative powers. Yet there are many democracies where the people only elect members of parliament--and they choose the executives. Another part of this is an independent judiciary, and how judges are selected and how they are retained, from lifetime appointment as in the federal system to partisan elections every four or so years as in some states. The American Bar Association is concerned about judicial campaigns and the financing thereof. Special Interest cash is increasing. Several Illinois candidates raised multiple million dollars and Donald Blankenship contributed 1.7 million dollars to Brent Benjamin for Supreme Court, one dollar for every West Virginian. 76 percent of voters believe that money has "at least some influence on judicial decisions." Many Similar polling results are reported by the ABA Recommendation Retired Associate Justice Sandara Day O'Connor has exprressed very strong concern about state judicial elections--in 39 states/

Drs. Lacombe and Lacombe of New York University compared 112 countries over a twenty six years. One measure of effectiveness is keeping deficits down. Countries electing a chief executive and countries having a straight parliamentary system have less deficit. However, coalition governments whether they involve a president or a parliamentary system increase the defit. Yet I question whether Countries should even have a president/ chief executive/prime minister/premiere and proposed a dynamic system would allow at each point in time that the voters could choose to have one, have several or none at all. Of course, in fairness to the Lacombe's, they were comparing systems that were in effect rather than an optimal system.

They look at corruption--one theory is that accountability in parliamentary systems is indirect: voters elect legislature; legislature chooses cabinet. Also there are no checks and balances and no opportunity for the voters to split their vote. They found that presidential systems have more corruption than countries that use parliamentary systems. And, as one might expect, governments that were not elected by a majority or that were coalitions also have more corruption.

And yet as Przeworski put it, institutions that work in one country do not work in another. He compared the constitution left in Haiti after we left in 1934 with that left in Japan and Germany. And he noted that Franklin Roosevelt authored Haiti's Constitution as Assistant Secretary of the Navy. And he noted that Costa Rica had a civil war after a close election while United States did not after Bush vs. Gore. A beautiful piece of writing--that for which I fear I cannot do justice, other than to recommend that you follow the above link and enjoy.

Why is judicial independence important? And we can begin with the Federalist:

I agree, that "there is no liberty, if the power of judging be not spearated form legislative and executive powers." The judiciary, it is in contiual jeopardy of being overpowered, awed, or influenced by its co-Ordinate branches.. nothing can contribute so much to its firmness and independance as permancy in office. The complete independence of the courts of justice is peculiarly essentially in a limited Constitution. By a limited Constitution, I understand one which contains certain specified exceptions to the legilative authority... Limitations of this sort can be preserved in practice no other way than through the medium of courts of justice, whose duty it must be to declare all acts contrary to the manifest tenor of the Constitution void. Without this, all the reservations of particular rights or priveleges would amount to nothing."

I would go further--if a people forming an institution want to preserve some value--they must provide people who are dedicated to checking that the government does so even if a majority of the people disagree. That is distinguished from making sure that the government does not become corrupt or divorced from the current views of the people. The latter can be handled by participatory democracy and monitoring systems--if necessary, permanently strap a camera to each government official or employee and connect same to the internet for anyone to watch. In the case of rights, this may protect against a majority committing a tyranical act by commission.

We see this principle in the Iranian Constitution. Article Ninety Four says that the Guardian Council checks that all legislation si compatible with both "criterial of Islam and the Constitution." And article 108 provides for a chain of experts from the first Guardian Council. And as one might expect, Articles Two through Four state the goals and primacy of Islamic criteria. This included Article Four,

All civil, penal, financial, economic, administrative, cultural, military, politcial and toher laws and regulations must be based on Islamic Criteria. This principle applies absolutely and generally to all articles of the Constitution as well as to all other laws and regulations.

In other words, in 1979, the founders of the republic wanted to preserve certain values. They set up a mechanism to enshrine these values, even against the will of the people. I had a colleague, possible business relation, and friend who expressed concern about truly particpatory democracy. He was concerned about gay rights and a people oppressing a minority for religious reasons. He hoped and suspected that a court majority would side with the oppressed minority against the will of the people. However, enshrining values can work the other way as we have seen in the Iranian context.

I hope I have better luck in this forum than when I had some people over for dinner about a year ago. I brought up the issue, and unfortunately, it became a discussion over the merits of that religion, rather than a discussion of enshringing values in a Constitution and how to look at that in a value-neutral fashion.

The first question is whether a Supreme Court chosen by sortition from the general population would do a better or worse job than one chosen from lawyers. Such a statement has not been proven but some people accept on face value that experts do better at this tasks than regular Citizens:

"Most people lack either the mental cpaabilities or the time and inclination to master the subject. A typical citizen judging whether government has overstepped its constitutional limit might do no better than random guessing."

(Sutter, 1997) (This was a bold statement without citation. There is evidence that only some domains are experts better than random guesses, databases, or artificial intelligence programs. So which type of domain is this type of judging-- I have a plan to find out, but that is another post.) he cited Wagener and Gwartney that "procedural over substantive constraints" is better. In other words, citizens could detect better whether two thirds of the legislature overrode the president veto of a bill than whether a budget violated a balanced budget ammendment or a law violated the Bill of Rights.

One line of thought that is important to look at is how a constitution is amended and how that affects constitutional instability and judicial independance. Another line of thought is that initial legal traditions from many years ago, centuries, have an efect today. And State Constitutions vary in the amount of detail, what one author calls "super-legislation," that they have. Things in some states might be put in the Constitution that other states treat as ordinary legislation in station. (States with a civil-law tradition, warmer and more humid, that entered the union later had longer Constitutions at first and lnger Constitutions now.) And they noted that State Legislatures might alter their constitution in response to decisions that might anger some people such as gay rights. They found that the States that had only one party in power most of the time and where there were greater ideological differences were more likely to have merit appointment rather than partisan elections. Thus, if parties competed, they felt they could not control who would be in office--so I guess they guessed they might as well have an independent judiciary. If the party felt that it would be in power indefinitely, they went to control that judiciary.

Perhaps of most importance to this forum, is how having elections affected the quality of courts. They used three highly-correlated surveys as to "measure" court quality. And they found that those states that had partisan elections and those that frequently ammended their Constitutions ended up with poorer courts. However, sortition would be a good way to select Judges, that is choosing judges randomly from those who did well on a certain examination, or from the population of lawyers. Sortition elections would mean that judges would be elected, but only from a random sample of the people. It gives individuals more of a say in their judiciary, but eliminates the problems with judicial appointment, partisan elections the obvious corruption associated with having law firms contributing to campaigns funds for those running for office.

As Berkowitz and Clay put it, eliminating partisan elections would improve the quality of the State courts by one and a half standard deviations. And reducing the Constitutional ammendment rate would improve the quality of state courts by 0.75 standard deviation. And they cite other research that improving State Courts does improve the State's economic performance.

Giuseppe Euseppi points out that Constitutional Courts can create bizarre interpretations. Article Eighty-One of the Italian theoretical prevents the legislature from increasing the expenditure side of the ledger without increasing the revenue side. But the Constituional Court simply said that "debt was an appropriate means of coverage." As another example of the problems in Constitutional Interpretation, one can look at interpreting a State Constitution's Requirement that

The state shall provide for an efficient system of high quality public educational institutions and services. ...The State has primary responsibility for financing the system of public education

(Commissioner vs. Edgar, 174 Ill 2d One, 672 N.E.2d 1178)

Effectively, the Italian Court emasculated the requirement for a balanced budget, just as the Illinois Court dismissed an attempt to "correct" disparities in educational expenditures between districts. And the Indonesian Constitutional Court showed itself equally lacking in backbone. It found that education was not one fifth of the budget as required, in "flagrant disregard." However, the court refused to declare the budget invalid on "prgmatic" grounds. (Butt2009) He cites cases in Germany and Italy In 1993, all those in Italy who appionted the Constitutinoal Court judges were thrown out in a corruption scandal. Then, all of a sudden the constitutional court showed some backbone. And Euseppi proposed, like Roland, selecting judges by lot.

References

1. Christiane Almeida de Aguiar Lacombe and Marcelo Barroso Lacombe, "Do Constitutions Matter? The Economic and Political Impact of Presidentialism and Parlimentarism"
   Prepared for the Political Choice Society Conference, New Orleans, 2005
2. Eusepi, Guiuseppe, "Who shall Keep the Keepers Themselves? On the Moral Foundations of the Separation of Powers" (now in Beyond Conventional Economics: the Limits of Rational Behavior in Political Decision Making by Giuseppe Eusepi and Alan P. Hamlin" although I printed it out from the Internet a while back.)
3. American Bar Association Standing Commitee on Judicial INdependence, Recommendation
4. Daniel Berkowitz and Karen Clay, "The Effect of Judicial Independence on Courts: Evidence from the American States" August 2004
5. Daniel Sutter, "Enforcing Constitutional Constraints" Constitutional Political Economy Volume Eight 139 to 150, 1997.

For Future Thoughtful Thursdays

As I was reading the above, I identified the following as being worth reading and including in a future throughtful Thursday Post.

1. Butt, Simon, "Conditional Constituitonality, Pragmatism and the Rule of Law" Legal Studfies Research paper Number 09/28, May 2009
2. Hammons, Christopher W., 1999, "Was James Madison Wrong? Rethinking the American Preference for Short, Franmework-Oriented Constitutions?" American Political Science Review 93(4) 837 to 849.
3. La Porta, Rafael, Florencio Lopez-de-Silanes, Cristian Pop-Eleches and Andrei Shliefer, 2004 "Judicial Checks and Balances" Journal of Poltical Economy 112(2) 445 and 470
4. Lutz, Donald, "Toward a Theory of constitutional Amendment" American Political Science Review Volume 88 (2) p[ages 355 to 370
5. Persson, Torsten and Guido Tabellini The Economic Effects of Constitutions Cambridge
   and "Do Political Institutions Shape Economic Poicy?" working Paper 8214 National Bureau of Economic Research. April 2001
6. Adam Przeworski, "Institutions Matter?" (Manuscript, New York University, 2003)
   and Democracy and Development: Political Institutions and Well-Being in the World, 1950 to 1990, New York: Cambridge University Press 2000
7. Rose-Ackerman, Susan Corruption and Governmen New York: Cambridge University 1999
8. and, of course, the Federalist Papers (Hamilton, Alexander, James Madison and John Jay, published by the Unviersity of Chicago
9. Wagner R. E. and Gwartney,, J. D. "Public Choice and Constitutional order" In Gwartney J. D. and Wagner R. E. Public Choice and Constitutional Economics 29 to 56, Greenwich CT, JAI Press.
10. Ginsburg, Tom, Judicial Review in New Democrascies; Constitutional Courts in Asian Cases Cambridge University Pres
11. Stone Sweet, Alec, Governing with Judges: Constitutional Politics in Europe Oxford University Press

Cultural Cognition Project

NPR just had a piece showing that individuals focus on different facets and presentation of information. The Cultural Cognition Project asks people to describe their cultural information. Theuy were asked about nanotechnology and given information. There were some who like "technology, free enterprise and authority." There are others who are suspicious of these.

And they found that some people would believe information from the "rumpled and bearded" expert. Others believed the crisply business-like expert.

I will follow up on the Cultural Cognition Project in a later posting, probably Thoughtful Thursday.

Lincoln Day

February Twelvth is Lincoln Day. Our University shuts down for Lincoln Day instead of President's day. Here is a quote relevant to the concern about our financial system expressed many places in this blog.

The money powers prey upon the nation in times of peace and conspire against it in times of adversity. It is more despotic than a monarchy, more insolent than autocracy, and more selfish than bureaucracy. It denounces as public enemies, all who question its methods or throw light upon its crimes. I have two great enemies, the Southern Army in front of me and the Bankers in the rear. Of the two, the one at my rear is my greatest foe.. corporations have been enthroned and an era of corruption in high places will follow, and the money powers of the country will endeavor to prolong its reign by working upon the prejudices of the people until the wealth is aggregated in the hands of a few, and the Republic is destroyed.

(This came from Rick Unger's blog.

And of course, there is Gettysburg's address,

"that this nation, under God, shall have a new birth of freedom—and that government: of the people"

According to the Wikipedia, this phrase originated in Theordore Parker's sermons which said, 'Democracy is direct self-government, over all the people, for all the people, by all the people" which is certainly more participatory democracy than I am sure Lincoln had in mind.

I quickly found a log of famous people's quotes on bankers, which includes many that echoes some of the concerns expressed in this blog. And Abraham Lincoln said:

“The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity.” - Abraham Lincoln

Summary Judgment

It is probably well known that the judge decides the facts and the juror's determine the facts. Here are pointers to a law review articles that showed that in the beginning of America, the jurors did decide the law. They then question the basis for this, since law is no longer the apolitical science.

Also, judges have the power to enter a summary judgment. This prevents a trial. This is done when the judge finds that the law commands the case and there is no legitimate dispute over the facts. E. G. the plaintiff might submit a duly signed contract for a sale and state that it sent the money but never got the goods. If the defendant doesn't deny, beyond a scintilla of evidence, that these facts are true, then the plaintiff gets a summary judgment. NO trial, no jury. Apparently the Federal Courts is increasing the number of times it does this.

On-Line Versus Face-to-Face, Thoughtful Thursday

Our group is progressing towards having a system up on experimentation in having a set of voters setting up a complicated legal structure. An example will be a penal code, e.g. determining the penalty or even if it should be legal if a person should possess a gun. Our initial system is based upon the ID3 algorithm. and the weopons they use. And they will be "talking about it."

Should we use voice, exchanging of messages, or is face-to-face communication needed?

Dr. Alphonse Chapanis answered my question. He studied ten types of communications to solve practical problem. One of these was directly comparable to a professor working with a student; one party had assembly instructions and the other was trying to put together the item. He found the mean time to solve the times as follows:

1. Communication Rich, 29 minutes
2. Voice alone, 31 minutes
3. exchanging hand written messages, 53 minutes
4. typing messages by those with touch typing skills, 67 minutes
5. typing messages back and forth by those who were slow typists, 69 minutes

He summarizes the results that voice is critical but other commuication modes are not. Those who had access to voice simply used more words, message, sentence, etc, (as many as ten times as fast) as those using more limited means.

This article was published in Scientific American in 1975, Volume 232 (3) 36-42. I found it in the book readings on Computer Supported Cooperative Work edited by Irene Greif.

This is an older paper and it covers only pairwise commuications. Dr. Chapanis raises the question if the results vary for groups or other types of commuication--such as voting in our case rather than getting a single answer or accomplishing a single goal. I will be researching these and including those in later Thoughtful Thursday pieces. Dr. Peter Muhlberger reports on on-line and conventional deliberations as improving social trust in solving community problems and continued the deliberative democracy research effort and partially addressing the concerns over Americans being interested in stealth democracy. I will discuss Dr. Muhlberger's work and related work later

Mortgage Crises, Share Economy

The Tarp Watchdog, Neil Barofsky, is concerned abuot that ninety percent of mortgage loans are backed by Fannie Mae, Fredie Mac and the Federal Housing Administration. This has increased the risk of another housing bubble. Millions of home owners have refinanced.

A long term solution is extending the idea of the share economy. An MIT Economist, Martin Weitzman proposed the Share Economy as a solution to stagflation. Companies would pay their workers a fixed percentage of their gross revenue rather than a fixed monthly wage. That way, when recession hits, the company would not have to lay people off.

Extending the idea, mortgage payments would be a percentage of the wages. The investments based upon them would not be fixed-rate instruments, but a simple percentage of the payments received from the mortages on which they are based. For example, twenty individual with $100,000 to invest might contribute $5,000.00 to each of twenty mortgages for a total of $100,000.00. Each borrower would agree to pay thirty percent of their take-home pay to the mortgage. Thus each investor would receive 1.5% of each worker's gross revenue. Should one borrower suffer a medical setback or a layoff, this would get propagated to the mortgagors. Of course, other borrowers might do better than expected, so with good diversification and "the law of large numbers," it would approximately balance out. Should one of these investors themselves have a mortgage, the changes in their income would be propagated to the investors funding same, so they would not be squeezed. And this idea works well with commercial mortgages such as for hotels and shopping centers. The hotelier would pay a percentage of the room rents they received, and the shopping center would pay a percentage of the rents, which often are a percentage of what the stores sell. Thus commercial real estate trusts would not go bankrupt unless they couldn't pay basic upkeep; then, they would cease paying revenue when the buildings crumble and the ultimate investors would get the appropriate share of the value of the raw land.

Yogi Berra said that "It is difficult to make predictions, especially when they concern the future." Weitzman's share economy means that when a business owner predicts higher demand or better prices for the firm's products, the workers don't suffer layoffs. We should extend this idea to mortgages and for those receiving income from real estate or securitized mortgages. This means that homeowners don't suffer foreclosures and financial institutions don't fail just because someone is more optimistic than the reality turns out to be. There is already precedent for this, one can convert some types of student loan to an agreement one pays up to twenty percent of one's income rather than a fixed payment.

This idea of extending the share economy to segments of the financial industry is certainly not new. As Hyman Minsky pointed out in 1995, using speculative assets can lead to a cash shortage and a collapse. A long term solution is extending the idea of the share economy. An MIT Economist, Martin Weitzman proposed the Share Economy as a solution to stagflation. Companies would pay their workers a fixed percentage of their gross revenue rather than a fixed monthly wage. That way, when recession hits, the company would not have to lay people off.

Extending the idea, mortgage payments would be a percentage of the wages. The investments based upon them would not be fixed-rate instruments, but a simple percentage of the payments received from the mortages on which they are based. For example, twenty individual with $100,000 to invest might contribute $5,000.00 to each of twenty mortgages for a total of $100,000.00. Each borrower would agree to pay thirty percent of their take-home pay to the mortgage. Thus each investor would receive 1.5% of each worker's gross revenue. Should one borrower suffer a medical setback or a layoff, this would get propagated to the mortgagors. Of course, other borrowers might do better than expected, so with good diversification and "the law of large numbers," it would approximately balance out. Should one of these investors themselves have a mortgage, the changes in their income would be propagated to the investors funding same, so they would not be squeezed. And this idea works well with commercial mortgages such as for hotels and shopping centers. The hotelier would pay a percentage of the room rents they received, and the shopping center would pay a percentage of the rents, which often are a percentage of what the stores sell. Thus commercial real estate trusts would not go bankrupt unless they couldn't pay basic upkeep; then, they would cease paying revenue when the buildings crumble and the ultimate investors would get the appropriate share of the value of the raw land.

Yogi Berra said that "It is difficult to make predictions, especially when they concern the future." Weitzman's share economy means that when a business owner predicts higher demand or better prices for the firm's products, the workers don't suffer layoffs. We should extend this idea to mortgages and for those receiving income from real estate or securitized mortgages. This means that homeowners don't suffer foreclosures and financial institutions don't fail just because someone is more optimistic than the reality turns out to be. There is already precedent for this, one can convert some types of student loan to an agreement one pays up to twenty percent of one's income rather than a fixed payment.

This idea of extending the share economy to segments of the financial industry is certainly not new. As Minsky pointed out in 1995, using debt to create physical assets and the the hedge finance of our modern capitalist system can (and obviously has) evolved into speculative bubbles, like we see in real estate.