Place your bets

What is government for? Obviously, it's for distributing taxpayer funds to those who are most in need:

The much-anticipated first film of “The Hobbit” trilogy [could] gross about $3 billion. So how much taxpayer money, would you guess, did Warner Bros. Entertainment Inc. need to produce the films based on the J.R.R. Tolkien book? The answer is zero. The studios are investment companies, and the films are almost certain to be immensely profitable. But now you aren’t thinking like a studio. The real question is: How much taxpayer money can Warner Bros. demand from the government of New Zealand to keep production there (rather than, say, in Australia or the Czech Republic)? That answer turns out to be about $120 million, plus the revision of New Zealand’s labor laws to forbid collective bargaining among film-production contractors, plus the passage of three-strikes Internet-disconnection laws for online copyright infringement, plus enthusiastic and, it turns out, illegal cooperation in the shutdown of the pirate-friendly digital storage site Megaupload and the arrest of its owner, Kim Dotcom. Kill the Hobbit Subsidies to Save Regular Earth, Joe Karaganis, 'Bloomberg View', 4 December 2012

The Government is talking up lavishing taxpayers' dollars on Avatar sequels - but the Treasury has already panned the spending as a turkey. As part of the deal announced yesterday by Prime Minister John Key, two fellow ministers and Avatar director James Cameron, the movies' producers will get at least $125 million in taxpayers' money in return for spending at least $500m making the films in New Zealand. Critical Eye on Avatar Deal, Ben Heather, 17 December 2013

This is government as an investment company: thinking it knows how best to gamble with other people's money. Or it's a desperate attempt by politicians to associate themselves with something glamorous, at the expense of the millions of people who aren't as photogenic, so must pay for government and its whimsical bets. Either way, doling out millions to rich corporations is irresponsible at best, corrupt at worst. Governments can get away with this because they don't formulate policy in terms of outcomes. In our currently policymaking environment it's quite acceptable for politicians to act on the basis that, for instance, cutting back greenhouse gases will solve the climate change problem, or that building more roads will boost economic growth or, indeed, that boosting economic growth will enhance people's well-being.

The days when easily identifiable cause-effect relationships were significant enough to drive policy effectively and efficiently are gone. Society is too complex, the time lags too great, the linkages too murky, for that to work any longer. A better alternative would be to target outcomes, and let motivated people work out how best to achieve them, through adaptive, diverse approaches. A Social Policy Bond would do this and, as well, inject the market's incentives and efficiencies into every stage of every such approach.

For more details, see the SocialGoals.com website which, if you haven't been there recently, has been polished a bit, and now includes, on this page, links to pdf files of all the chapters in my book. 

I suppose things could be worse. Well, they are worse: as well as distributing scarce funds from the poor to the rich, government takes from taxpayers to subsidise the destruction of our environment. It makes our involuntary donations to Warner Brothers look like enlightened policy:

The UN Development Programme says rich countries should switch some of the staggering $35 billion a year they spend subsidising fishing on the high seas (through things like cheap fuel and vessel-buy-back programmes) to creating marine reserves—protected areas like national parks. In deep water, 'The Economist', 22 February (subscription)

Nobody's perfect

Freeman Dyson reviews Brilliant Blunders, by Mario Livio, "a lively account of five wrong theories proposed by five great scientists during the last two centuries." The examples Livio writes about: 

give for nonexpert readers a good picture of the way science works. .... Wrong theories are not an impediment to the progress of science. They are a central part of the struggle. .... The five chief characters in Livio’s drama are Charles Darwin, William Thomson (Lord Kelvin), Linus Pauling, Fred Hoyle, and Albert Einstein. Each of them made major contributions to the understanding of nature, and each believed firmly in a theory that turned out to be wrong..... [W]rong ideas can be helpful or unhelpful to the search for truth. No matter whether wrong ideas are helpful or unhelpful, they are in any case unavoidable. The case for blunders, Freeman Dyson, 'New York Review of Books' dated 6 March

Even more so in social policy, where underlying relationships change over time and are rarely independent of the psychic makeup of the principal actors and stakeholders. We need to encourage diverse approaches to our social problems, and ones that can adapt when they are seen to be inefficient or counter-productive. As with science, though, social policy practitioners, be they politicians, bureaucrats, academics or members of think-tanks, frequebtly commit their egoes - and public funds - to deficient theories or ideologies.

The chief difference between science and other human enterprises such as warfare and politics is that brilliant blunders in science are less costly.

Quite: when great scientists commit themselves to wrong ideas the costs can be high, but when politicians do so they can be calamitous.

Social Policy Bonds would penalise failed or inefficient pseudo-solutions to our social problems, and reward only the most cost-effective ways of achieving our social goals. Bondholders would be motivated to terminate failing projects and divert funds into only the ones that are cost effective. If they don't do this quickly enough, others would bid more for the bonds than they are worth to the current holders. The bonds, being tradeable, would always be in the hands of people who are motivated to be efficient. Commitment to wrong theories would be penalised in immediate, pecuniary ways - a stark contrast with the current policymaking system, within which failed policies, instead of being terminated, often receive more and more funding in an effort to shore up vested interests.

Greenhouse gases, recidivist rates, cholesterol, and the one percent

What do greenhouse gas emissions, recidivist rates and cholesterol readings have in common? They are all surrogate indicators; that is, they are things that governments target, thinking (or pretending to think) that by doing so they are benefiting society. They aren't. Whether the associated loose thinking - or just plain dishonesty - originates in government or in the people who pay governments to shape the regulatory environment in their favour, surrogate indicators have little to do with human well-being.

Perhaps we need to ask in whose interest it is that we target things like greenhouse gas emissions, or recividist rates or cholesterol readings? Surely, if we want to reduce the adverse impacts of climate change on humans and the environment, we'd be better off, with all the scientific uncertainties, to target reductions in those negative impacts? Similarly, if we actually want to reduce crime rates, why don't we target crime rates rather than recidivist rates, which have very little, if anything, to do with crime? And if we want to target physical health, why don't we reward improvements in physical health, rather than encourage the mass ingestion of statins, whose long-term effects are nebulous at best and dangerous at worst?

One reason that I am a less-than-enthusiastic supporter of Social Impact Bonds is that they are targeting recidivism rates. Their targeting of an indicator that has nothing to do with things that matter to ordinary people risks discrediting the whole idea of channeling the market's incentives and efficiencies into the public good. We have had plenty of recent and disastrous experience of financial instruments being gamed to death, with calamitous effects on ordinary hard-working citizens. So we need to be very careful about introducing new financial instruments. There is, unfortunately, every reason to be cynical. Bankers, consultants, the financial services sector, big corporations, government agencies and even non-governmental organizations all have made lots of money doing things that are purportedly in the public interest, but in fact have done nothing for ordinary people.

That is why I suggest that Social Policy Bonds target only metrics that are, or are inextricably linked to, indicators of societal well being. The bond mechanism allows for that sort of targeting, because it does not specify how our goals shall  be achieved, nor who shall achieve them. Unfortunately, without that sort of guarantee, there is every reason to expect that the well-meaning targeting of rhetorically persuasive but flawed indicators will continue to enrich only the one percent.

The system's broken

 The Economist discusses the US Farm Bill, passed on 4 February:

[M]ore than 10,000 policyholders received over $100,000 from crop-insurance subsidies in 2011. The new bill tries to cap the amount that any one farmer can receive; but if the weather is bad, it could lead to higher payouts than planned. Taken together, these subsidies distort behaviour and trade in unhelpful ways. They have created products that make no economic sense in the rest of the world, such as making sugar from corn. As a penalty for keeping cotton subsidies in place, the World Trade Organisation’s rules require the American government to pay $147m a year to compensate farmers in Brazil. A trillion in the trough, 'The Economist', 8 February

It's the persistence for decades of these economically and environmentally disastrous policies that indict our entire policymaking system. Yes, policymakers will make mistakes; all the more reason why we should have systems in place to ensure that failed policies are terminated. But instead, we have the systems that ensure that appalling policies become more and more entrenched because of political inertia, because they subsidise resistance to their termination, or because they become capitalised into high asset values that would create genuine but temporary hardship if they were withdrawn. Governments have a long history of meddling in agriculture; they persist even though it's been known for decades that they are, to put it kindly, irrational.

And corrupt. The Economist continues:

How could Congress write such a law? One answer can be found in the register of political donations. The ten members of the House, nine Republicans and one Democrat, who accepted most money from agriculture lobbyists took in an average of $225,000 in political contributions during 2013, according to Open Secrets, which tracks donations—almost as much as some farmers received in return.

Not much is black or white in politics and policymaking, but as P J O’Rourke put it twenty-three years ago (in Parliament of Whores):

I spent two and a half years examining the American political process. All that time I was looking for a straight forward issue. But everything I investigated – election campaigns, the budget, lawmaking, the court system, bureaucracy, social policy – turned out to be more complicated than I had thought. There were always angles I hadn’t considered, aspects I hadn’t weighed, complexities I’d never dreamed of. Until I got to agriculture. Here at last is a simple problem with a simple solution. Drag the omnibus farm bill behind the barn, and kill it with an ax.

Another useless indicator creeps in

Social Policy Bonds embody two main principles: targeting outcomes; and the use of markets to achieve these outcomes most efficiently. Even if discussion of Social Policy Bonds just leads to a rational discussion of which outcomes we want to achieve, then my work on the bonds would not be in vain.

I've discussed the futility of over-narrow objectives before, when discussing  Social Impact Bonds. (See also why I think the bonds must be tradeable.) But broad indicators too can, by default, become de facto targets, and they can be similiarly flawed; by which I mean that they are not inextricably linked to society's well-being. We have a tendency not to think through the implications of certain indicators: the biggest one is GDP. But another that is creeping into policymaking dicussion is five-year survival rates for cancer. The Economist casually slips it into an article about managing heatlh care:

Deciding where to seek treatment might seem simple for a German diagnosed with prostate cancer. The five-year survival rate hardly varies from one clinic to the next.... Need to know, 'the Economist', 2 February

But the five-year survival rate is meaningless:

[I]n the U.S. prostate cancer is being diagnosed earlier, a lead-time bias, and the cancer is being over diagnosed, that is, a pseudodisease is detected" in the form of screening-detected abnormalities that "meet the pathologic definition of cancer but will never progress to cause symptoms in the patient’s lifetime." Source (Scroll down to Incorrect metrics.)

The article in the Economist ends:

[D]octors ... have long focused on clinical outcomes such as infection and re-admission rates. But by thinking about what matters to patients, providers can improve care and lower costs at the same time.

Exactly so. We need to be focusing on broad, meaningful indictors of well-being, such as Quality Adjust Life Years, and target those, rather than casually accept the use of flawed measures such as five-year survival rates. 

Arguments on both sides

There are two things you can always say if having dosed off in a meeting at work and you're nudged awake to find people staring at you, waiting for your contribution. One is "it's not black or white, it's a continuum". The other is "there are arguments on both sides".

Reading about subjects like low-carb diets, or medications intended to treat psychiatric conditions of, of course, climate change, I'm struck not so much by the controversies and seemingly valid arguments on both sides of fundamental questions, but by the absence of systems that would impartially encourage accurate, definitive resolution of the fundamental problems. So much about the way we deal with major challenges is now about defending positions, rather than looking for truth. One would hope that the arc of history combined with Darwinian processes would tend toward the settling of arguments as to whether, say, low-carb diets are helpful or harmful. We often assume that something like the scientific paradigm will inevitably resolve these issues. Perhaps it will, but there are problems with this. First, that the defending of entrenched, but harmful, wrong positions adds to the sum of human misery, perhaps on a large scale over a long time. Second, that we may reach tipping points, beyond which even if the right side eventually wins the argument against entrenched opposition, it's too late or costly to change the rate at which the damage is being done.


If there is significant wealth or status - individual or collective - or control at stake, we can be sure that there will be people virulently defending at least two sides of a policy discussion. Sometimes these sides and their biases are easy to identify: big pharma, big oil. Sometimes not: government agencies, non-governmental organizations of every sort. In many instances these bodies will genuinely believe in their case, in others, they won't.




But it doesn't really matter. The point is that, for many policy decisions, the stakes for society are too high for the debate to be determined by interest groups or ideologues, and their paid mouthpieces.We need some way of making policy that is independent of vested interests.

That's where focusing on outcomes - rather than supposed means of achieving them - becomes important. Under a Social Policy Bond regime, policymakers wouldn't start out weighing the arguments for, or against, say, doing something about climate change or whether people should eat more fat and less sugar. They would instead determine which broad outcomes we want to see. And these outcomes would be goals that are meaningful to ordinary citizens, who could therefore participate in the policymaking process. It would be up to bondholders to work out whether the supposed means of achieving society's goals entail favouring one interest group or another, or neither. Their motivation would be to achieve society's targeted goal at minimum cost and as quickly as possible. The most efficient bondholders will be rewarded the most, and it is they, acting in their own self-interest to establish as best they can, impartially, the actual scientific relationships that will advance them most cost-effectively on the road to maximising not only their own profits, but also society's well-being. Impartiality and truth-seeking, motivation and efficiency: these are all built into the very structure of a Social Policy Bond regime.

Unfortunately, the lack of uptake of the Social Policy Bond principle, after it has been in the public arena for 25 years, could be interpreted as a symptom of the same problem: the power of vested interests to resist anything that could threaten their position.

GDP and war

Theordore Dalrymple puts it succinctly:

An increased GDP, however distributed, is perfectly compatible with a deteriorated, even much deteriorated, way of life: and, presumably, a lowering of GDP is compatible with an improved, even a much improved, way of life. Of GDP and happiness, 'Library of Law and Liberty', 2 January

Unfortunately, in the absence of any coherent other targets, increasing Gross Domestic Product (or GDP per capita) become the de facto objective of most democratic governments.  But, as an end in itself, GDP has numerous flaws. Its targeting institutionalises our confusion between ends and means. Economic growth should not be end in itself. At best, it is a means towards certain ends. Growth in GDP implies only a growth in economic activity. It does not distinguish between helpful and harmful economic activity. It puts no value on any activity that bypasses the monetary economy. So it ignores leisure time, the environment, crime, health, and other contributors to well-being that are meaningful, or even essential, to natural persons.

We urgently need goals that are far less randomly tied to human and environmental well-being. I make some tentative suggestions in my book and on SocialGoals.com. Hand-in-hand with meaningful targets goes a sensible way of achieving them. Our current systems are failing in both respects, and the failures are becoming too spectacular to ignore for much longer. In these increasingly dire circumstances, Social Policy Bonds could be an answer. Under a bond regime, policymaking would be something with which ordinary people could engage. The bonds would target meaningful goals, with which we could all identify. These goals would be ends - targets inextricably linked to well-being - rather than real or supposed means towards achieving them. The bonds would inject the market's incentives and efficiencies into the achievement of our goals. And because they reward the achievement of our goals, rather than activities, they do not rely on our knowing how our ends are to be achieved or who will achieve them. This means that we can target problems, like war, that we have no idea (yet) how to solve.

One thing seems certain: however remote a World Peace Bond regime seems now, a world without war within our current, corrupt, haphazard system, is even less likely.

We need to talk about outcomes. Oh, and the future of this blog.

Discussing the 'intellectual viability' of TED talks, Benjamin Bratton concludes: 

At a societal level, the bottom line is if we invest in things that make us feel good but which don't work, and don't invest in things that don't make us feel good but which may solve problems, then our fate is that it will just get harder to feel good about not solving problems. We need to talk about TED, Benjamin Bratton, 'The Guardian', 30 December

Exactly. To put it another way: we need to talk about outcomes.... Rather than how advocates for particular policies perform, or institutional structures, or glamorous projects, or the short-term financial interests of private- and public-sector agencies. Unfortunately our entire political system, and the complexity of society, have allowed policymakers to get away with looking after the interests of corporations and other favoured bodies, rather than the ordinary people they are supposed to represent.

Social Policy Bonds would see policymaking start from first principles: what do we actually want to achieve?, and then reward people for actually achieving our goals, rather than merely for turning up to work for organizations whose names suggest they want to achieve these goals but are far more concerned with their own self-perpetuation.
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Is there anyone actually out there? This blog has been going for nine years now, and recent months have seen zero comments posted. Viewer numbers according to Google rarely go into three figures and Social Policy Bonds, though they have had some media attention in recent years, aren't really advancing in ways that encourage me to continue with this blog. That said, perhaps there are readers via RSS or on mobile platforms whose views don't register with Google. If you have an opinion on the future of this blog one way or the other, I'd be grateful if you get in touch. You can email me directly and pseudonymously if you prefer, via the links on this page: http://socialgoals.com/blog-contact-me.html. Thanks.

The case for non-ideological policymaking

At the end of a long review of the recent book US Federal Reserve Board ex-chairman Alan Greenspan, Robert Solow writes:

The Alan Greenspan I admired was a pragmatic central banker who was able to believe both the data and his eyes and to ignore the people who already knew the answer without looking. The author of this book makes a show of both, but not really. His eyes are too often closed and he seems to be listening to another voice, with quite conventional opinions, coming from somewhere stage right. Alan Greenspan Is Still Trying to Justify His Bad Decisions: What the maestro doesn't understand, Robert M Solow, 'New Republic', 16 December

If you are making policy, subscribing to an ideology is something of a cop-out, but very tempting all the same. Enormous quantities of data available to policymakers match the increasing complexity of our society and environment. As individuals, we cannot deal with these phenomena. In the face of so much complexity, it is so much simpler just go with our prejudices. That’s one reason we ought to subordinate policy not to ideology, but to outcomes. And that applies to any social or environmental problem with multiple causes and where a multiplicity of solutions need to be tried, refined and either terminated or promoted. In the developed world, most policy issues are that complex - the goals of monetary policy included.

Social Policy Bonds target explicit, transparent and meaningful goals, and they make rewards contingent on achieving those goals. By contracting out the achievement of social goals to the market, they maximise the efficient use of our scarce resources. A government that targets social goals, clearly and publicly, would have little use for the sort of ideologically driven policies propagated by Mr Greenspan. Monetary policy, under a Social Policy Bond regime, would instead be one means of achieving agreed social goals, rather than a way of confirming existing (and quite peculiar) prejudices in the mind of a single individual, however smart.

Transcending institutional decay

I won't discuss Professor Francis Fukuyama's long piece on The decay of American political institutions in detail. I think that the problem he discusses - the divergence of politicians from the electorate - applies to most of the western democracies, though the specific causes differ. The essay does confirm to me that any policymaking that does not reward explicit, verifiable outcomes, is doomed to fail. Even if the proponents of a policy are well-meaning, programmes that focus on institutions, structures, activities, inputs or outputs will inevitably be gamed or manipulated, especially at the national (or supra-national) level.

So, when it comes to bribery and corruption: 

The law bans only the market transaction, not the exchange of favors. The latter is what the American lobbying industry is built around. ...
The Decay of American Political Institutions, Francis Fukuyama, 'The American Interest', 8 December

Exchange of favours is only one of the myriad ways in which political institutions decay, but it is representative. 

Pluralist theory holds that the aggregation of all these groups contending with one another constitutes a democratic public interest. But due [sic] to the intrinsic over-representation of narrow interests, they are instead more likely to undermine the possibility that representative democracy will express a true public interest. 

'[T]hey' here refers to the US public sector trade unions, but it could stand for any interest group. 

There is a further problem with interest groups and the pluralist view that sees public interest as nothing more than the aggregation of individual private interests: It undermines the possibility of deliberation and ignores the ways in which individual preferences are shaped by dialogue and communication.

Quite so. It also crowds out the likelihood that people will think beyond their identity as members of their group. Perhaps more seriously, it also takes existing ways of doing things as a given, which is almost a definition of decay.

The answer? I think we need to re-orientate policy debate around outcomes; broad, meaningful outcomes that will engage ordinary people in the shaping of individual preferences 'by dialogue and communication'. Arcane legalistic discussion about structures and funding excludes people who aren't lawyers, politicians, lobbyists or academics, but that is the system we have today. If we could instead talk about outcomes - such as universal literacy, or reduced crime rates, or better health - then we could do so in debates that people can understand and in which we can participate.

Social Policy Bonds would allow the targeting of broad outcomes, whose achievement would transcend, in both time and purview, the compass of existing institutions and interest groups. Current ways of addressing war, or 'defence', say, focus almost exclusively on military spending or on treaties and coalition-building that do little to discourage war itself. Our current system doesn't supply meaningful incentives to create a world in which violent political conflict comes to an end. 

That is where a Social Policy Bond regime could enter the picture. For more, see this short article, or this longer one, both on the SocialGoals.com website.