15 May 2018

Government by intuition

In our complex, interlinked societies, it's increasingly difficult to identify cause and effect. This matters when making policy, because policy is supposed to have a beneficial effect. Linkages are sometimes easy to identify: that between, say, water quality and infectious disease rates, for instance. Others are much more difficult and, with our scientific knowledge rapidly growing, often impossible: So, facing problems such as crime or war or nuclear proliferation, where there are huge numbers of contributing variables, and our knowledge of relationships is both imperfect and expanding, should government do nothing, waiting for certainty?

What governments actually do is create bureaucracies, or shovel funds into bodies that might once have been successful (when society was simpler) but have become useless or, worse, obstacles in the way of achieving our goals.

A much better approach, in my view, is to target long-term outcomes, and let investors decide, continuously, what are the best approaches to solving our problems. Especially for longer-term goals, the optimal mix of approaches will vary with time in ways that nobody, including governments, can foresee. We need to reward people for coming up with new, efficient, solutions to our problems, many of which are so complex that only diverse, adaptive approaches will work. These are precisely the sorts of solutions that governments cannot identify. That, in essence is the Social Policy Bond approach.

Alternatively, we could opt for an easy life:
Peter Navarro, the head of the White House National Trade Council, told an interviewer, “My function, really, as an economist is to try to provide the underlying analytics that confirm [President Trump's] intuition. ...” Trump vs. the 'Deep State', Evan Osnos, 'New Yorker', dated 21 May
Unfortunately, Mr Navarro's way of doing things predominates.

12 May 2018

Safety, going backwards

Charles Hugh Smith, writes about US attitudes to health and safety:
If you've bought a new vehicle recently, you may have noticed some "safety features" that strike many as Nanny State over-reach. You can't change radio stations, for example, if the vehicle is in reverse. ...  The narrowness of this obsession with safety comes into focus if we ask: how can a society so obsessed with safety have spawned an opioid addiction crisis that kills tens of thousands of people and ruins the lives of millions of Americans? How Safe Are We? Our Blindness to Systemic Dangers, Charles Hugh Smith, 10 May
An excellent question. The safety bureaucracy has goals that differ markedly from those of the health care sector, and both have goals that have little to do with maximising the well-being of citizens per dollar spent. And that should be the guiding criterion for both health and safety: from the policy point of view, they shouldn't be distinct.


Policy decisions about health policy, broadly interpreted to include safety, are heavily influenced by the public profile of a disease or its victims, rather than on what would best meet the needs of society. It’s also a question of diet, exercise, transport, and culture. Recent research shows, for instance, the beneficial effects on health of green spaces in our cities (see here (pdf) for instance). The way government is structured, with its discrete bureaucracies and funding bodies, makes it unlikely that such benefits will influence funding decisions.

We cannot expect a government nor any single organisation to identify the huge numbers of variables, with all their time lags and interactions, that influence the nation’s health - and to do so dynamically, taking into account our rapidly expanding scientific knowledge. We can, though, devise a system that rewards people who explore and implement the most cost-effective health solutions, even when circumstances and knowledge are changing continuously. I have tried to show how this can be done with my essay on Health Bonds, which would aim to distribute scarce government funds to where they would do most good, as measured by such indicators as Disability Adjusted Life Years. Under a Health Bond regime, investors in the bonds would have continuous incentives to maximise their returns on the bonds at all times: their objective, assuming we have carefully defined our targeted health goal, will be exactly congruent with those of society. Bondholders might well decide that, for instance, we should implement measures to switch off the ability to flip radio stations while a car is going backwards - but only if they think that to be one of the most cost-effective ways of reaching society's health goal. Indeed, Health Bonds would ensure that every decision, every activity, that bondholders contemplate or implement will be entirely subordinated to that objective. A stark contrast with the current system, under which officials have goals entirely distinct from, and sometimes in conflict with, the broader interests of society.

03 May 2018

Subsidising planetary destruction or: Another reason to leave the EU

If you are serious about tackling climate change, the best approach, and the one I've advocated for years - decades - is to reward people for tackling climate change. Not to reduce greenhouse gas emissions, and certainly not to subsidise the production or use of biofuels. So, of course, subsidising biofuels, which means cutting down rainforests, is what the European Union, with its corrupt, psychotic subsidy regime, is paying people to do:
Half of all the palm oil imported by Europe is turned into biodiesel and blended into conventional fuel to power cars and trucks. This misguided attempt to "green" fuels is actually tripling carbon emissions, not reducing them. What's more, the practice is subsidised by the European Union. In other words, taxpayers are paying to destroy rainforests and accelerate climate change. The real palm oil problem: it’s not just in your food, 'New Scientist', 2 May

The loopholes in the way international carbon accounts are calculated mean that emissions from biomass are never counted. The New Scientist article quotes Tim Searchinger of Princeton University: 'You could cut down the Amazon, ship the trees to Europe to replace coal and that would count as a 100 per cent greenhouse gas reduction.'

There are plenty of suggestions in the UK media about how some of the people who voted for Brexit might have regrets. I don't.

02 May 2018

Skin in the game

David Bahnsen reviews Skin in the game, by Nassim Nicholas Taleb:
When operators are forced to adopt the negative implications of their decisions, poor decision-makers do not survive, asymmetries are eliminated, and the result is a system that is devoid of poor decision-makers. In other words, skin in the game does not just cause better decision-making because of disincentives; its evolutionary forces eliminate those fools or shysters who are the source of great systemic damage. Risk and business, David L Bahnsen, 'Nationial Review', 26 April
The pity is that operators in the public sector are rarely 'forced to adopt the negative implications of their decisions'. This is partly because effect is genuinely difficult to trace back to cause when looking at the consequences of, say, this or that health intervention or infrastructure investment decision: there are too many confounding variables and time lags. But it's also because nobody within our policymaking system has any incentive to evaluate. That's no basis for an efficient bureaucracy.
 [G]overnment bureaucracies non-self-evaluate. At a minimum, agencies with evaluative responsibilities are not invited to evaluate - they are kept out of the loop, their opinions unsought. At a maximum, government agencies actively suppress their own internal evaluative units and are discouraged from evaluating the beliefs and policies of other agencies. Why States Believe Foolish Ideas: Non-Self-Evaluation By States And Societies (pdf), Stephen Van Evera, Massachusetts Institute of Technology Political Science Department and Security Studies Program, 2002
We need to be reminded that around 40 per cent of the rich world's income is spent by organisations that resist, almost to the death, the idea of examining their policy blunders and learning from them. I mean, of course, governments who, in Taleb's words, have no skin in the game.Van Evera says that even in the world wars of the 20th century, when policy mistakes could have grievous consequences: 'the belligerents made large errors without carefully assessing their options. Even rudimentary analysis often would have exposed these errors but was omitted.'

In my experience, it is often the smallest decisions in government that receive most scrutiny: whom to offer a three-month contract; which brand of computer printer to buy; that sort of thing. The larger decisions often escape detailed analysis. Sometimes this is unavoidable but what is inexcusable is that lessons from policymaking disasters are never learned. One grievous example: it's now estimated that the US intervention in in Iraq will cost about ten times more than the White House projected. This calculation was done by a non-governmental body and it's a safe bet that it will never be referred to when similar enterprises are considered in the future.

Social Policy Bonds would change this. They would give investors in the bonds incentives to look at which projects help achieve society's goals, and which are a waste of resources. They would do this on a continuous basis; that is, throughout the lifetime of the bond. Currently, the way governments tackle long-term goals is to build on existing ideas with, perhaps, some funding for research. Incremental improvements are possible, but there are few financial incentives to come up with innovative ideas that might undermine existing institutions. Social Policy Bonds, in contrast, would subordinate institutional survival, and all their activities, to the efficient achievement of transparent, meaningful outcomes. At every stage of every approach that will be needed to solve our most complex social problems, bondholders (and would-be bondholders) would have powerful incentives to explore, investigate and implement only the most promising projects and, crucially, to terminate those that are failing or inefficient. They will have so much 'skin in the game' that they would optimise returns on their investment to the benefit not only of themselves but of all members of society.

22 April 2018

A crass attempt at transparency

Targets and indicators are essential if we're looking at improving well-being in our large, complex societies. Currently, though, our targets are chosen unsystematically and incoherently. So we see results like this:
One in three heart surgeons refuse difficult operations to avoid poor mortality ratings, survey shows.... [S]urgeons would look at a patient and think, 'I know what’s best for you’, it’s this operation. Now a surgeon looks at a patient and says, ‘I know what’s best for you but is this going to be good for my figures?' ...Since 2014 the [UK's national Health Service] has published the individual mortality rates for consultant surgeons on the publicly available website ‘MyNHS’, which was supposed to represent a milestone in transparency. 'Daily Telegraph', accessed 22 April
It's pitiful. A national health service will always need numerical indicators, but we should be making sure that achieving them is inextricably linked to improvements in people's health and well-being. Mickey Mouse micro-targets, like an heart surgeons' 'success' rates are, as we see, worse than useless. They are as crassly thought out as certain other targets, such as:
A notorious example was that some hospitals kept patients waiting in ambulances outside the hospital until the hospital could be confident that the patient could be seen in its accident and emergency department within the 4-hour target. Source
I suggest that instead of these idiotic micro-targets or idiotic attempts at 'transparency', we look at we target measures that are important to ordinary people: the users of health care services. My suggestion is that we issue Health Bonds, which would explicitly and impartially target improvements in longevity, Quality Adjusted Life Years, infant mortality rates and other general population health indicators. Resources are always going to be limited but decisions our healthcare goals and - and the basis on which they are made - should be made clear to ordinary people, so that we can participate, if we want, in their formulation.

16 April 2018

The EU: punishing the poor

I set out my main reason for voting for the UK to leave the European Union here. It is not simply that the EU has corrupt, stupid, wasteful policies - most countries have those. It's that the EU has no mechanism by which these policies can be terminated. The EU's Common Agricultural Policy has done much to destroy Europe's environment, raise food prices for all Europeans while transferring taxpayer funds to Europe's wealthiest people and agribusinesses ('One in five [of the CAP's] biggest recipients are billionaires and millionaires'), and it has been doing all this for more than forty years. It swallows up 40 percent of the EU's budget and imposes further costs on ordinary consumers by putting up tariff barriers.
High import tariffs (estimated at 18–28%) have the effect of keeping prices high by restricting competition by non-EU producers. It is estimated that public support for farmers in OECD countries costs a family of four on average nearly 1,000 USD per year in higher prices and taxes. Source
These barriers have helped impoverish Africans by limiting their exports to Europe, and now, equally tragically, the EU is subsidising milk, which gets exported to Africa, and helps destroy the livelihoods of African dairy farmers.
European milk is pouring into Africa, with disastrous effects for local herders and farmers. ...Multibillion-euro dairy multinationals are exploiting rock-bottom European milk prices to expand aggressively into West Africa. Over five years, they have nearly tripled their exports to the region, shipping milk powder produced by heavily subsidized European farmers to be transformed into liquid milk for the region’s booming middle class. This milk rush is ratcheting up long-standing accusations that poor countries pay the price for EU farm policies crafted in Brussels. How EU milk is sinking Africa’s farmers, Louis Nelson, Politico, 8 April
The consequences can be seen in the Mediterranean: desperate Africans sacrificing their life-savings and often their lives, in an attempt to get to Europe.

How do our politicians get away with it? One answer is that nobody, except those with vested interests or their paid agents, can understand the Common Agricultural Policy or, indeed, any other policy throughout the protracted, arcane, corrupt and legalistic processes that lead to their enactment or modification. It's a good bet that if ordinary citizens knew that the CAP means they pay more for their food so as to enrich millionaires, devastate the environment and destroy the livelihoods of millions of Africans, then we'd vote against anyone advocating it. But policymaking is so obscure - deliberately so, perhaps - that apathy rules.

Social Policy Bonds could be the answer: under a bond regime, we'd target explicit goals that are meaningful to ordinary people. There would be many ramifications of such an approach; one happy one would be that corrupt and insane policies, such as the EU's Common Agricultural Policy, would fall at that first hurdle.

12 April 2018

Killing for profit

Dr Jason Fung concludes his concise post about the corruption of Evidence Based Medicine thus:
So here’s a damning list of all the problems of EBM
  1. Selective Publication
  2. Rigged outcomes
  3. Advertorials
  4. Reprint Revenues
  5. Bribery of Journal Editors
  6. Publication Bias
  7. Financial Conflicts of Interests
Killing for profit, Jason Fung, 12 April
My comment, after thanking Dr Fung for his post, was short: I think we need to re-orientate the incentives away from activities, publications, and other surrogate indicators, and focus entirely on outcomes that are meaningful to ordinary people: longevity, infant mortality, Disability Adjusted Life Years etc. In the abstract, this sounds difficult, but my suggestion of a new financial instrument could help.

06 April 2018

Goals for health

Peter Jacobsen writes to the New Scientist:
One factor may be missed when comparing war severity between 1823 and 2003 using fatalities.... Recent wars have had fewer fatalities, but perhaps not because they were less severe. Weapons are increasingly potent but trauma care has improved a lot, and hence the lethality of war has decreased over time. A similar bias can be seen with the murder rate. Medical care means more survive modern war, Peter Jacobsen, 'New Scientist', 27 March
This points to the importance of choosing our social and environmental goals carefully. They need to be goals that are, or are inextricably linked to, what we actually want to achieve. Do we want to aim to reduce (for instance) deaths by violence, regardless of how much funding is to be spent on trauma care? Or would any additional funding be better spent on general health care with, perhaps, more lives saved per dollar spent? These questions need to be addressed for the operation of a Social Policy Bond regime, and they are not simple. But it's crucial to remember that they need to be asked too in our current policy regimes. They rarely are. Instead funding for healthcare is typically decided by people with little incentive or capacity to maximise improvements in health per dollar spent. Funding is often a function of history, or the charisma of medical specialists, or how newsworthy is a particular health problem. (See for instance this report from Australia: Men die earlier but women's health gets four times more funding.)

My suggestion is that we issue Health Bonds, which would explicitly and impartially target improvements in longevity, Quality Adjusted Life Years, infant mortality rates and other general population health indicators. Resources are always going to be limited but decisions our healthcare goals and - and the basis on which they are made - should be made clear to ordinary people, so that we can participate, if we want, in their formulation.

29 March 2018

Who speaks for the losers?


The Economist, accurately I think, says the explanation for today's political polarisation lies not so much between those who favour free trade, immigration and cultural openness and those against, but in:
the gap between exam-passers and exam-flunkers. Qualifications grant access to a world that is protected from the downside of globalisation. You can get a job with a superstar company that has constructed moats and drawbridges to protect itself, or with a middle-class guild that provides job security, or with the state bureaucracy. Failing exams casts you down into an unpredictable world of cut-throat competition. Exam-passers combine a common ability to manage the downside of globalisation with a common outlook — call it narcissistic cosmopolitanism — that binds them together and legitimises their disdain for rival tribes. Exam-flunkers, meanwhile, are united by anger at the elitists who claim to be open as long as their jobs are protected. They are increasingly willing to bring the system crashing down. Talking about open v closed is a double error. It obscures the deeper forces dividing the world, and spares winners by playing down the legitimate concerns of losers. The trouble with open v closed, the 'Economist', 22 March
I agree, though I would add that the exam-passers add to the problems of the exam-flunkers by formulating policies that favour economic openness. Simple economics, for instance, tells us that large-scale immigration (for instance) raises the cost of housing and reduces wages for those whom the exam-passers see as 'losers'. Similarly with free trade: such openness might be good for that abstraction called 'the economy', but the benefits go mainly to the exam-passers (the insiders) and often accentuate the losses of the flunkers. The cultural negatives of such policies are more subjective, but I'd argue that they are important too. It's especially unfortunate, to my mind, that not only is the formulation of economic policy conducted almost exclusively by the exam-passers, but so too are discussion and debate about such policy and its consequences.

19 March 2018

Killing through complexity: the US healthcare system

The Economist looks at healthcare in the US: 
Every year America spends about $5,000 more per person on health care than other rich countries do. Yet its people are not any healthier. Which firms profit most from America’s health-care system, 'The Economist', 17 March
... In crude terms, the health-care labyrinth comprises six layers, each involving the state, mutual organisations and private firms. People and employers pay insurance companies, which pay opaque aggregators known as pharmacy-benefit managers and preferred provider organisers. They in turn pay doctors, hospitals and pharmacies, which in turn pay wholesalers, who pay the manufacturers of equipment and drugs. Some conglomerates span several layers. 
Understanding the US healthcare system is possible, but it might be conceptually simpler to solve the problem rather than explain it in detail. With the proliferation of Social Impact Bonds (about which I have reservations) there has been a welcome shift in public policy toward focussing on outcomes.

I think that health policy, by targeting improved outcomes could go a long way toward making healthcare systems the world over more efficient. The outcomes I'd target would be ones that are meaningful to ordinary people. That is, they would not be about funding arrangements, institutional composition or structure, or irrelevant micro-targets. Instead we'd target measures of health such as: Quality Adjusted Life Years, longevity, infant mortality.

We'd also reward people for achieving these outcomes, rather than for carrying out activities that may or may not be helpful, or that might even conflict with our health goals.

The Social Policy Bond principle applied to health could be the answer. Health Bonds would target meaningful outcomes, and they would reward their achievement. Being tradeable (unlike SIBs), investors would have incentives to carry out steps leading to long-term goals: goals that extend beyond any individual investor's time horizons. Bondholders could use the information generated by the market for the bonds to allocate funds to those initiatives that will bring about the biggest improvements in health per dollar spent. Such initiatives might well fall outside the traditional, antiquated purview of those currently responsible for health policy. One example: the most cost-effective way of saving young lives might be to lay on taxis for people leaving nightclubs in certain areas. Maybe. Maybe not. But under the current system there's no way of knowing, and nobody with any incentive to see how such a project stacks up against others.

The second para, above, excerpted from the Economist does help our understanding. They US healthcare system is ridden with so many vested interests, that any change in any direction will be seen as a threat and opposed. As in other sectors, it is precisely the profits these bodies gain from uncompetitive and manipulative practices that allow them to fund lobbyists to oppose any reform that might diminish them. I don't think the complexity of the system is an accident either. Indeed, policymaking itself is so complex that only powerful vested interests, or their paid agents, can follow and hope to influence it.


In this, again, US healthcare is quite typical. As the Economist article concludes:
Wherever products are too complex for customers to understand, and where subsidies and complex regulation add to the muddle, huge profits can opaquely be made. Remember mortgage-backed securities?