J.D. Alt: A Push-Pull Model for Cooperative Markets Financed by Sovereign Spending

By J. D. Alt, author of The Architect Who Couldn’t Sing, available at Amazon.com or iBooks. Originally published at New Economic Perspectives.

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.

  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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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. Ben Johannson

    Yes, I think the best possible solution is for government to establish a market and act as competitor within that market, pushing its own standards and costs sufficiently to force improvements in private practices.

    1. Clive

      Yes, that’s a simple — but so seldom made ! — point

      All too often, all we hear is “oh, the government is rubbish at doing anything, the public sector can’t manage efficiently/effectively, only the private sector can deliver value for money” yada yada yada. The “evidence” for this is usually poorly executed government initiatives, of which — naturally — there are many examples.

      But who is giving us this messaging — and why ? Because I could sit here and cite many, many examples of private sector mismanagement, waste and projects gone horribly wrong just from my own experience.

      Rarely, if ever, do we get the chance to pit public and private sector provision side-by-side. I often wonder how that would go. But when it is mooted, usually what happens is that any private sector vested interests market participants moan about “unfair competition”. Uh-huh. Such unfair competition from the supposedly incompetent government… what, exactly, does the allegedly super efficient and always customer-focussed private sector have to fear ? Surely well-delivered public services act as a spur to private sector competition ? And if government provision can get economies of scale without monopoly abuse pricing risks, what, exactly, is wrong with government provision anyway.

      Oh, silly me. Because Markets.

    2. susan the other

      Alt is on to something here. I remember enrolling my daughter in a state-certified pre-school, but I paid full price. In fact, I paid over half of what I earned to “socialize” her, effectively. The place was very crowded. Not that that is necessarily bad. I always worried about some contagious disease like meningitis taking off like wildfire. But that was just me. It was a reasonably good and well run day care for preschoolers. On balance, I think it was a plus. So the push and pull of government participation in pre-schools is almost a moot point to me. The place worked OK. But the obvious real point Alt is making is that government can and does do a good job as a towing company. I most certainly agree. And somebody has gotta pull us out of our mess and give us a push down the road.

  2. beene

    Clive will give you a recent quote from Noni Mausa. Regardless of all the BS we read and hear about the efficiency of markets, in the end it is government that fixes things which the market has made a messed of.

    “Finally, the job of government is most evident at extremes of time and governance. Planning over decades or centuries? Gov’t’s your man. Acting instantly to repel invaders or manage disasters and plagues? Ditto. Knocking together the heads of businesses, banks and agencies to prevent national and international frack-ups? Boo yah! Luna, here we come!

    In short, mobilizing the energy and attention of the population irregardless of profit considerations is absolutely the core business of government. Demanding gov’t be efficient simply hobbles gov’t in its essential functions. And (back to your post) as small government reduces the stability and income of its people, they will either sell out the those heads they are supposed to be knocking together, leave for greener pastures, or continue to try to do their job with fewer resources and worse results.”

  3. Mitchell Shapiro

    J.D….your “hybrid” model is intriguing. It provides a “public option” supply/push-focused approach in the form of a “free if meets minimum standards” model, and also encourages innovation geared toward exceeding the minimum standard and/or providing services desired by certain sub-populations in the form of the “demand-pull” targeted electronic payment system you describe.

    One thing that strikes me as important is that (if I’m understanding you correctly) even the “demand pull” providers would be organized as cooperatives (or do you envision other more profit-focused models to be included as well?). I see co-ops (would these be “parent co-ops?) as more likely to focus directly on maximizing the quality of service for the allotted amount of fiat dollars than would a profit-maximizing corporation. Profit-maximizing goals can lead to maximizing service quality in some healthy market conditions, but this connection is indirect and, in particularly dysfunctional market, can be in conflict (the financial sector being a notable example of the latter).

    Would the pull model allow for wealthier households to add their own dollars to their payment, to support a more expensive tier of service providers (e.g., wealthy neighborhoods might form co-ops that spend more than the fiat-dollar allocation per child)?

    It also seems important to make sure that the per-capita allocation of fiat dollars is the same for both the push and pull sides of the model.

    Your thinking here strikes me as relevant to the goals of the recently announced Next System Project.

  4. Roger3

    “Demanding gov’t be efficient simply hobbles gov’t in its essential functions.”

    Nailed it. Anyone who thinks government should be run like a business knows nothing about governments nor businesses.

    Also, in the OP, “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. ”

    I don’t see why this is the case at all. Medicare doesn’t work that way.

    1. susan the other

      I agree with you Roger. Push and Pull can ease us through our lives and still give people a chance to “go into business” whether it is daycare or some other. But when it comes to what we need in this modern world, as humans, all of us caught up in our own ongoing evolution, the most vulnerable times in our lives should be covered by our collective cooperation. That is the very young, and the very old. And I would extend that to include education through high school and on to higher ed depending on what each person decides to do (given the available choices). We need more socialism here. We are living in a desert and soon we’ll all be lichen unless we become a tad more generous with each other.

      1. Roger3

        I agree wholeheartedly.

        I’m pointing out that there’s no reason for “the designated local “free” care provider.”

        Surely it’s possible to set up a system whereby anyone who meets the standards is designated. I don’t see why there “can only be one,” so to speak.

  5. Carla

    A three- or four-year old child is going to choose their own preschool?

    Oh, please.

    Has any of you ever HAD a child?

    1. Roger3


      It’s stated in the article that it’s the parents doing the choosing. Clearly newborns won’t be picking daycares. The OP is using “children” in this case to ensure understanding that whatever monies are given to families, it’s based on the number of children.

      1. Carla

        “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”
        “Thus the children can control how the dollars are spent—by choosing which pre-school provider to enroll with”

        1. Roger3

          First line of the same paragraph: “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. ”

          Notice the quotes? They’re indicating that the author is using a metaphor. One he continues throughout the piece. There is nothing to see here, I promise.

  6. Roger3

    “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. ”

    The more I read this, the more I disagree.

    Are there classes of government programs which waste money and fail to accomplish their goals? Sure.

    Are they the majority? I rather doubt it, it’s a pretty big claim to say that a preschool program is going to inevitably fall into that class of failed programs. Our schools get maligned all the time, they’re still very, very good schools, taken as a whole. Why waste time, effort and energy making a whole new system and why not just fold the preschool system into the primary school system? The infrastructure is already there.

    And this part, “…which waste money…” define waste. Being expensive to run? Being more expensive to run than a comparable private sector project? Paying people to do seemingly silly jobs? I’m not sure that any of those things are out-of-bounds as appropriate governmental action. Expense is a silly issue to bring up with a sovereign currency. Being less cheap than the private sector too, especially considering government’s (potential) role as a floor to wages. Paying people for silly jobs? Well, they’re silly to you, but generally somebody thought they were important enough to get some help with, and besides, sovereign currency, the government has to contribute money into the economy just to keep up with wealth creation anyways, and pumping money in from the bottom is surely 1000% better than sticking in the wealth loop where all it does is go round and round to rich people.

    Yeah, I really don’t like that ‘reason’ for not considering just using the existing school system to implement free daycare.

  7. ORNELLA 91

    Sovereign spending to finance public education need not involve any federal role at all.
    Let the sovereign share its money powers with the states, in order to make up for a couple of hundred years of mismanaging the money system that the states used to control.
    This is the design of the Kucinich sovereign money proposal,(HR 2990 of the 112th Congress) 25 percent of all new money spending would be done by the states, who, one could assume, would be doing the work of local government, who could in turn be getting the protocol for pre-school education from the education-community of parents, children and teachers.
    Using sovereign-financed spending can remain very locally controlled.
    At least to some degree.

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