22 June 2016

The CAP is destroying Europe

George Monbiot's article today about our old friend, the European Union's corrupt, insane Common Agricultural Policy, does a great job in describing its wastefulness, its transfers from the poor to the very wealthy, and its disastrous environmental depredations.

I am perplexed therefore by his decision to vote for the UK to stay in the EU:
I will vote In on Thursday, as I don’t want to surrender this country to the unmolested control of people prepared to rip up every variety of public spending and public protection except those that serve their own class. But if we are to live in Remainia, we should insist on sweeping change. Daylight robbery and mass destruction: the EU is supposed to prevent them, not to deliver them. Leave well alone, George Monbiot, 'the Guardian', 22 June
Why Mr Monbiot thinks the EU is suddenly going to reverse itself and dismantle the CAP - which still swallows up 40 percent of the EU budget - is a mystery to me. It has been four decades since, as undergraduate agricultural economists, we learned about the CAP's calamitous impacts. In those 40 years the unelected EU decision-makers have shown themselves to be incapable of responding to economic, social or environmental rationality. Which is why I think Britons would do better to vote to leave the EU in tomorrow's referendum. Yes, as Mr Monbiot points out, the Leave campaigners have promised to keep subsidizing UK farmers. But if Britons don't like that policy, they can vote to change it. They still have a say in who become Members of the British Parliament, and they can vote against stupid, cynical, wasteful and destructive policies. But the people who make EU policy? We don't even know who they are or how they got there. And we certainly can't get rid of them.

20 June 2016

Britain and the European Union

I am sympathetic to the idealism that led to the formation and development of what is now the 28-member European Union. I also see great value in having hundreds and thousands of bureaucrats, from all the member states, in Brussels, talking to each other; their children going to the same schools.

But, more and more, the people who work for the European Union; the administrators and politicians, are seen as - and indeed are - a separate caste. They have seldom worked outside government and they enjoy safety-nets and benefits that are decreasingly available to private-sector would-be employees, especially the young. The processes and institutions of the EU are opaque. The decision-makers are unknown and unelected. They dictate policies that are hugely important to ordinary citizens, such as those concerning immigration, without consulting the public and so without getting buy-in. Ordinary people cannot vote these people out and cannot engage in the policymaking process. There are few consequences for failure at any level of the EU bureaucracy. All this would be less intolerable if the European Union showed any sign of adapting to the wishes of the broader population. But I don't see that.
So I fear that this project is going too far, too fast, and without the consent of the vast majority of the public. If I could be persuaded that the EU and the people running it were keeping the peace, then I'd forgive all their hauteur and all their extravagances. Nothing would be worse than another European war. But the signs as I interpret them -  in Austria, France and elsewhere - are that we are seeing exactly the opposite: the European project, in widening the gap between politicians and ordinary people, is planting the seeds of exactly the sort of vicious nationalism that made its founding so necessary.

A vote in favour of Britain's leaving the EU might lead to worthwhile reforms. So might a close decision, either way. But I wouldn't bet on it. For British voters, I'd suggest that a Leave victory would help to close the gap between themselves and the people who make their laws, and reduce the risk of contagion from what looks increasingly likely to be a mean-spiritedly (at best) or murderously (at worst) nationalistic continent. 

09 June 2016

Metrics for World Peace Bonds

Metrics for World Peace Bonds, or: Why Long-term Goals are Best

Pondering the best metrics for peace, I came to think that with a goal for peace sustained over fifty or more years, metrics that target for elimination the use of deadly violence become more closely aligned with what we actually want to achieve. By this I mean that, with a decades-long goal, bondholders would have incentives not merely to prevent the outbreak of violence, but also to prevent the precursors to violence. From the point of view of the backers and issuers of World Peace Bonds this makes the metric of deadly violence more robust.

For example: the Cold War ended peacefully, but if World Peace Bonds issued in the year 1950 had targeted a period of sustained peace of just ten years then bondholders would have profited, despite the accumulation of ever more horrific atomic and nuclear weapons, during the period that preceded the Cuban Missile Crisis of October 1962. If the same bonds had been issued with a target of fifty years of sustained peace, then bondholders would have been motivated to reduce tensions, including by such means as reducing the weapons pile-up, or fostering better relations between the US and USSR. A ten-year goal would see the original bondholders making profits while the prospects for peace looked ever darker. A fifty-year goal would have seen the value of their holdings collapse before and during the Crisis.

The point is not only that peace sustained for a decades-long period encourages longer-term thinking. It is also that by choosing the longer-term goal, our targeting of a relatively easy-to-measure metric like deadly violence and its consequences, we shall inevitably do much to eliminate the much less quantifiable - but hugely important - precursors of violence. 

08 June 2016

PBR and SIBS: bring in tradability!

The Economist writes about Payment By Results (PBR) for public services in the UK, and cites these problems:

  • PBR can create strange behavioural incentives, including a phenomenon known as “creaming”. Given the emphasis on meeting targets, providers are often tempted to focus on the easiest-to-help people. 

  • In addition, the economics of PBR can work against innovation. Providers of public services must pay their employees and suppliers. It is difficult, especially for small firms, to wait around for a payment based on how they have done.  Pay up, the 'Economist', 4 June
It goes on:
The question, then, is not whether to get rid of PBR, but how to make it work better."
My suggestion? Make the contracts tradable. Then government can specify broad, much longer-term objectives which would encourage participation of a much wider range of potential service suppliers at every stage of the pathway towards goal achievement. Unlike under PBR there would be creative destruction of useless interventions and inefficient agencies.

The article also mentions Social Impact Bonds, of which there are now 32 in the UK and the most famous of which 'seems promising'. I have posted before about Social Impact Bonds, which, while I think they may be a much-needed improvement in neglected policy areas, would benefit greatly by being made tradable (and so becoming Social Policy Bonds, as I conceived them). You can now search this blog for keywords such as Social Impact Bonds, or see here and here for my short papers on them.

27 May 2016

Nuclear war? Yawn, yawn

The current Economist writes about North Korea's nuclear capability. Amidst many worrying facts cited are these:
North Korea is thought to have a stockpile of around 20 devices. Every six weeks or so it adds another.  Source

Two engines from Soviet-era R-27 submarine-launched ballistic missiles were coupled together to provide the propulsive power and range for a warhead carried by a KN-08 to hit the east coast of the United States. It is not known how many R-27s North Korea has, but up to 150 went missing from Russia in the post-Soviet 1990s. Source
The R-27, a submarine-launched ballistic missile, has the explosive power of 1 Megaton, or about 50 times that of the bomb that was dropped on Hiroshima.

I have no solution to the problem of nuclear proliferation and its attendant risks of catastrophe. I don't think anyone has, despite valiant efforts by well-meaning people working for governments or international organizations. But what I can offer is a means by which we channel more of our human ingenuity into solving that problem, rather than expending time and energy on activities of very little social value (see here for instance, or here). In other words, a way of motivating more people to put more high-quality effort into reducing the risks of a nuclear catastrophe.

That way entails issuing Social Policy Bonds that target for reduction either man-made conflict, or disasters of any kind. Bonds could be specially issued to target the risk of a nuclear explosion. How would this work? First, funds would be raised from any source - public- or private-sector or both - to back bonds that would be redeemable for a fixed sum only when there has been nuclear peace for a sustained period of, say 30 years. These bonds would  be issued on the open market for whatever price they fetch. The goal, being long-term, could mean that the bonds would sell for very little. So any movement to increase the likelihood of sustained nuclear peace would see an improvement in the bonds' value. The bonds would be tradeable, so holders (or their agents) could benefit in the short term by doing things that, in the eyes of the market, bring us closer to our long-term goal. The effect would be to reward people for helping achieving the goal efficiently. Nuclear Peace Bonds would create a protean coalition of people who have a powerful incentive to explore, investigate and implement the most effective (at any given time) array of measures that bring us closer to our goal. With such a big, remote objective, no single approach will work. A bond regime would stimulate diverse, adaptive solutions to the problem of nuclear proliferation.

The current policymaking system can work well when the relationships between cause and effect are readily identifiable. But for problems like the risk of nuclear catastrophe, which are large-scale and have multiple causes, the Social Policy Bond idea offers a better solution. Our nuclear peace goal fulfils other key criteria that point to the advantages of a bond regime :

  • Current approaches are either ineffectual or inefficient;
  • A robust and verifiable metric. I suggest 'a nuclear detonation that kills 500 or more people within 24 hours'; and 
  • Financial rewards to those involved in achieving objectives are currently uncorrelated to their effectiveness or efficiency in doing so.

Currently, there's a jarring mismatch between the fears of, and risks to, almost everyone on the planet and the resources devoted to mitigated them. A shift in resources away from ingenious ways of manipulating financial markets, or ingenious commercials for dog-food, would undoubtedly (in my view) be a worthwhile public good. But our current policymaking system doesn't encourage such a re-orientation of priorities. Instead, we have people, many of whom are dedicated and hard working, working through outdated bureaucratic channels to achieve bureaucratic goals in ways that do not reward directly and immediately reward success or deter failure. Nuclear Peace Bonds would be change all that, to the long-term benefit of all of us, including generations yet unborn.

24 May 2016

Answering the phone quickly is not a health goal

Another story - this from the UK - shows what happens when we have Mickey Mouse micro-objectives rather than broad meaningful goals:
In January 2016, Lincolnshire Police began an investigation after an allegation that staff within the Force Control Room were calling 999 at quiet times, to ensure calls were picked up quickly to improve performance statistics. ... Today [23 May], five Force Control Room staff have been suspended from duty and have been informed they are under investigation. Source
('999' is the emergency phone number in the UK.) I've been inveighing against these micro-goals for years (here's my first blog post on the subject). Their basic problem is that they arise from the narrow, short-term needs of organizations, rather than the people these organizations are supposed to serve. They're too easy to game, and their achievement is - to put it kindly - not inextricably linked to improvements in the well-being of ordinary people.

A Social Policy Bond regime would be different. We'd target for improvement broad, meaningful goals, such as the health of the entire population. Bondholders would benefit by financing projects that accelerate the achievement of society's targeted outcomes, rather than, as so often today, turning up for work and fulfilling some meaningless quota.

23 May 2016

Blockchain could guarantee integrity of redemption terms

I've written before about hidden metrics as applied to Social Policy Bonds. Briefly, the aim is to overcome the sort of gaming that we see nowadays with certain micro-objectives: here, for example. Campbell's Law, if we're not careful, could apply. One answer, as I wrote, would be to target broad outcomes without specifying exactly how we shall determine whether our target has been achieved. So, say, we are aiming for 99 percent literacy of 15-year-olds in a country. We could issue Literacy Bonds, redeemable only when surveys show that that goal has been satisfied. We could say at the outset what the broad outlines of these surveys would look like: say a minimum of 250 boys and 250 girls randomly sampled from another random sample of 10 regions out of 100 regions. The identity of these regions need not be revealed or even determined until the bond market reckons that the literacy target has been achieved. At that point, the regions to be surveyed could be randomly chosen. That would work, provided the randomizing could be seen to be done transparently and fairly.

But the current Economist points to what might be a more elegant solution. It discusses using blockchain technology to distribute public keys to the protocols of the many thousands of medical trials carried out annually to ensure that the pharmaceutical companies sponsoring these trials cannot alter trial protocols. This, the sponsors have been known to do because the drugs being trialed have some positive effects, but not those specified at the outset of the trial. Such 'hidden outcome switching' can exaggerate the value of the drugs being trialed.
The blockchain is a database that acts as a public ledger of all transactions with the currency, and is thought to be almost completely tamper-proof because it is validated and stored independently on thousands of different computers worldwide. This provides a way ... to check that results have not been fudged. Better with bitcoin, the 'Economist', 21 May
Anyone with a copy of the trial protocol could generate the original private key, and check that it generates the same public key when it's decrypted using the same algorithm that encrypted it. 'Public keys for protocols should be uploaded to trial registries ... and included in research papers. Researchers and medical journals could speedily check whether the right results were being reported.'

More important, from the Social Policy Bond point of view, is this possibility, which concludes the Economist article:
Another benefit, paradoxically, is that the protocol for studies could be hidden until completed. This might be useful for commercially sensitive trials of new therapies. As long as the public key was uploaded to a registry when the trial began, the protocol could be verified later without the worry that it had been changed during the study.
If, instead of 'protocol for studies', we substitute 'detailed redemption terms', then we could use the same technology to could guarantee to investors in Social Policy Bonds that the backers of the bonds they own would not attempt to evade their obligations by manipulating the terms under which the targeted goal shall be deemed to have been reached.

22 May 2016

What is government for?

Simon Calder writes about the effects of European Union regulation, EC261, which says that airlines must pay at least €250 to every passenger who arrives three hours or more behind schedule. Mr Calder quotes one senior airline executive:
Of course, if we are approaching a three-hour delay, we may decide to accelerate the turn-round by leaving bags behind. When airlines deliberately leave behind your baggage, Simon Calder, 'the Independent', 21 May
He imagines how passenger would react to this announcement from an airline captain:
Only half the bags have been loaded. We can either set off now, and be two hours 55 minutes behind schedule, or wait for another 10 minutes to load the remainder. 
Passengers would vote unanimously to wait another ten minutes. But EC261 makes such an onboard referendum unlikely, stipulating, as it does, "a blunt three-hour boundary between paying out nothing and being exposed to compensation claims amounting to tens of thousands of pounds."

You might think, as I do, that government would do better to leave this sort of micro-management to the market. But every organization, including every government agency, however well-meaning and hard-working, has as its over-arching goal self-perpetuation. Formulating, propagating and enforcing Mickey Mouse micro-objectives like the three-hour deadline doesn't help passengers, still less airlines, but it does promote the unstated (and perhaps even unconscious) goal of government: to expand its role.

A Social Policy Bond regime would be different. it would target broad goals in essential areas, such as health, crime or - at a supra-national level - war. These goals would be meaningful to ordinary people, and the agencies who take on the role of goal-achievement would have a composition and structure that would adapt to changing circumstances and expanding knowledge of the causes and effects of social problems.These organizations would subordinate all their activities to the achievement of society's goals - in stark contrast with our current policymaking system.

15 May 2016

More regulation, more gaming

The Economist, writing about new vehicle emission testing, is realistic rather than cynical: 

Changes to testing regimes are afoot. Japan is likely to review the way its tests are carried out. Europe’s system is also being readied for an overhaul. Plans are in place to replace its test cycle with a new one that more closely mimics real-world driving and imposes stricter rules over how cars may be prepared. A system for rechecking NOx emissions from production vehicles on the road is under discussion. That should ensure exhausts are cleaner. But the new test will only be harder, not impossible, to game. Exhaustive analysis, the 'Economist' 30, April
Incentives matter. The incentives faced by car manufacturers under any likely testing regime will, as the Economist says, encourage gaming. It's one chapter in an old and gloomy story: government sees a problem (air pollution in this instance), thinks it knows how best to solve it (by limiting certain vehicle emissions), and legislates its preferred solution. This can still work: where cause and effect are easily identifiable and when society's complexities are not overwhelming. But when it comes to air pollution it fails. It fails because vehicle manufacturers will game the system. And it's likely to fail for other reasons. The government doesn't and cannot know the type and impact on human health of the emissions vehicles produce when, necessarily, only some of the many emitted compounds can be identified and quantified. Regulating carbon dioxide, for instance has led to increases use of diesel engines, which generate different pollutants of unknown impact. Depending on how electricity is generated, even electric cars could have a more severe effect on health than petrol or diesel vehicles. Technology is changing fast, so is our knowledge of the relationships between emissions and health. Regulations cannot keep up with the pace of change. 

Here's another suggestion: use the Social Policy Bond principle to target air pollution. Issue bonds that become redeemable only when air pollution targets have been met and sustained. The bonds would then encourage exploration, experimentation and implementation of those ways of reducing air pollution that are most cost-effective. Being tradeable, they could target a long-term goal: investors could profit by making achievement of the goal more likely, then sell their bonds to new holders who would take the necessary next steps toward the goal's achievement. For links to papers on applying the Social Policy Bond principle to the environment see here.

07 May 2016

Terrorism and strokes

The website Think by Numbers looks at US government spending on health:

[W]e spend $500 million for every death from terrorism and only $2,000 for every death resulting from strokes. That means we spend 250,000 times more per death on terrorism. Anti-Terrorism Spending 50,000 Times More Than on Any Other Cause of Death, Mike P Sinn, October 2011
We can quibble a bit about the numbers, but these figures do seem to indicate an inefficient way of improving the health outcomes of American citizens. There would be nothing necessarily wrong with such spending patterns if this disparity were the result of an informed populace deciding for itself where its taxpayer dollars should be channelled. But, this isn't the case, and the Economist this week reminds us that 'defence' - that is to say, the military - is one of those industries notorious for cronyism. (Others identified by that journal include telecoms, natural resources, construction, which all 'involve a lot of interaction with the state, or are licensed by it'.)

Of course, it's unrealistic to ask people exactly how every health dollar should be spent. But we can engage the public in such decisions by focusing not on the pathways to improved health - which are complex and ever-changing - but on the outcomes we should like to see. For instance, we could express health goals in terms of Quality Adjusted Life Years, and then answer questions as to whether some x percent improvement in QALYs should be weighted more heavily than others. If the consensus is 'yes', and we judge terrorist deaths, for example, to be more negative than deaths caused by strokes, then we can allocate spending accordingly. Even then, we're unlikely to see the sort of disparities outlined above, which are more a consequence of emotional reactions to television footage, lobbying and cronyism than rational thinking.
My short piece on applying the Social Policy Bond principle to health goes into more detail.