Forecasts by scientists versus scientific forecasts

One of the virtues of the Social Policy Bond approach is that we can insure against things that may or may not be happening. Take climate change: if the market believes the climate is not becoming more unstable, then Climate Stability Bonds targeting the current level of stability, would be valued at something close to their redemption value when floated. So the bonds' backers (most probably taxpayers) would lose very little. For this reason I'm in the happy position - intellectually - of not needing to have an opinion about what is happening to the world's climate. Climate Stability Bonds would be the most cost-efficient way of dealing with climate change whether we accept the scientific consensus or not. Correction: whether we accept the consensus of scientists or not. There is a difference, as the recent paper Global Warming: Forecasts by Scientists Versus Scientific Forecasts (pdf) by J Scott Armstrong and Kesten C Green makes clear:

The forecasts in the [Intergovernmental Panel on Climate Change’s Working Group One] Report [2007] were not the outcome of scientific procedures. In effect, they present the opinions of scientists transformed by mathematics and obscured by complex writing. We found no references to the primary sources of information on forecasting despite the fact these are easily available in books, articles, and websites. We conducted an audit of Chapter 8 of the Report. We found enough information to make judgments on 89 out of the total of 140 principles. The forecasting procedures that were used violated 72 principles. Many of the violations were, by themselves, critical. We have been unable to identify any scientific forecasts to support global warming. Claims that the Earth will get warmer have no more credence than saying that it will get colder. ...

Prior to conducting an audit, one might ask policy makers to say what information would be sufficient to change their opinions. People who are able to specify such evidence are often able to change their opinions. When we have used this question among academic researchers and students, we find that many of them are willing to specify such information. Disturbingly, however, many others are unable to even imagine that any information could possibly change their minds.

This paper could be seen as reassuring or threatening, depending on your viewpoint. Regardless, though, it is, as the authors say in the quote above, disturbing that basic scientific forecasting principles appear to have been violated. (See here for an article inspired by the paper.)
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Things that do move

Daniel Finkelstein, writing in today's London Times, talks about Nassim Taleb's new book Black Swans:

[Taleb] identifies fields in which experts are useful – livestock judges, test pilots, brain surgeons, accountants – and those where, as he puts it “experts tend not to be expert” – stockbrokers, personnel selectors, intelligence analysts. Simply, he argues that “things that move”, requiring anticipation and prediction, do not usually have experts, while “things that don’t move” seem to have some experts. Politics is very definitely in the former category.

This confirms my thinking that, when it comes to finding solutions to problems in a fast-changing, diverse society, the market is going to do better than any panel of bureaucrats or experts. We need adaptive, diverse responses to our social and environmental problems, rather than top-down, one-size-fits-all government-mandated pseudo-solutions. Politicians do have their uses of course. Social and environmental goals don't change very frequently, and politicians can represent us quite well in articulating these goals, and helping make us aware of necessary trade-offs. Politicians are also good at raising the necessary public funds to help achieve these goals. These are "things that don't move", and politicians and their attendant officials do them well enough.


A Social Policy Bond regime would split up the required processes quite neatly. Whoever issues the bonds, whether government or a private organization, would specify the targeted social or environmental goal and allocate funds for the ultimate redemption of the bonds. But they would then contract out the achievement of the goal to the private sector, a field in which "things move" and in which their expertise would count for little against the pluralist adaptability of highly-motivated investors in the bonds.

Librarians: corrupted by power?

A quote from an interesting article by Tim Coates about UK Libraries in the current Reader's Digest (pdf):

So high have expenses become—and so low is the attraction of the book collections—that the average book loan costs nearly £4...

Of course, libraries do many other things: they answer enquiries from the public, archive local history collections and, increasingly, lend DVDs, CDs and computer games. But still, £4 per book seems a lot, and I haven't seen that figure refuted on the web. Mr Coates hints at the likely explanation:

In one London borough with nine libraries, there are nine tiers of "managers" between the counter staff and the local councillor who is responsible for libraries. The Library Manager, who handles admin; the Librarian, who chooses the books; the Area Manager; a Library Management Team; a Senior Management Team; the Chief Librarian; the Head of Cultural Services; the Education Director and, finally, the Council Librarian. Recently I talked to a chief librarian who said that when she started in Glasgow 30 years ago, the library service had a City Librarian and he was the only person not based in a library.

The default setting for any group in a position of power seems to be to expand the numbers of that group and thereby expand its power. Sooner or later, the founding objectives of the group cease to be its animating force. Instead, self-perpetuation becomes its guiding principle, and control - over people, resources, whatever - becomes an end in itself. Trade unions, universities, schools, religious bodies, and large corporations: they are all subject to the same corrupting influences. Most often, their power is circumscribed at some point by opposing power groups, and it is the results of the collision of these groups that gives us our current political and social system. Big problems arise, though, where the groups have interests in common that are in conflict with those of ordinary people. The UK Library System is a relatively benign example, but it still appears on the basis of Mr Coates' article, to represent a waste of resources that could certainly be deployed more usefully in Britain.

My suggestion is that we subordinate the existence and functions of social and environmental organisations to their goals. A Social Policy Bond regime would do this by inextricably linking investors' rewards to the bonds' stated objectives. Without achievement of those objectives, which would written into the redemption terms of the bonds, holders would not be rewarded. For more about Social Policy Bonds, please click on the links in the right hand column.

Policymaking is over-specialised

One day during the 1919 Paris Peace Conference Lloyd George, the British Prime Minister was thinking aloud:

Mesopotamia...yes...oil...irrigation...we must have Mesopotamia; Palestine...yes... the Holy Land... Zionism...we must have Palestine; Syria...h'm...what is there in Syria? Let the French have that. Arnold Toynbee, quoted in Paris 1919, by Margaret MacMillan

Throughout this fascinating book it's hard not to sympathise with the conference delegates. Whatever they decided was doomed from the start. They came as representatives of their countries or people - and by virtue of that, I think, they were bound to generate serious problems. Their success or failure was measured not by what they did for the wellbeing of their people or its individual members, nor even by the overall wellbeing of their people, but by a few not-always-meaningful indicators that become important mainly because they are shared by other interest groups. Let me try to clarify: in the case of the Paris Peace Conference, areas of control, political power, and reparations from Germany were the main things on the agenda. The remit of Lloyd George et al was not to maximise the total long-term wellbeing of their population: that's a difficult thing to quantify and difficult to explain to an opposition back home. Instead, a few, short-term and symbolic indicators were implicitly chosen as the ways in which the delegates' performance would be measured.

It's implicit in the form. The politicians of that time, as nowadays, are highly specialised; the result of a large gap between real people, and their alleged representatives. That gap was shrinking in the west, partly as a result of the social disruption caused by the Second World War (though there are ominous signs that it's widening). The politics of interest groups is quite distinct from the concerns of the individual. It is a specialised form, and its goals are specialised too. But when interest groups increase their power, as they tend to do, a vicious circle is set up. It is not always in ordinary people's long-term interest to classify themselves as 'British', or 'Muslims', or 'trade unionists' or whatever, to the exclusion of more human, rounded forms, but those are the labels that people in power will want to put on us. As with the Paris 1919 delegates, they are just as much victims of this misperception as the rest of us. A world of warring factions, whether they be empires, nation-states, religions, social classes or whatever, seems to be the inevitable result.

One solution could be to do away altogether with the specialised group of power-wielders, or at least to curtail their powers drastically. A Social Policy Bond regime would do that in two ways. First, by taking away the (often exclusive) powers of government (and its corporate friends) to supply health, education and welfare services. Second, it would devolve decision-making about what society should and should not target away from a specialised caste of policymakers back to ordinary people.

Wider motorways, wider motorways, and wider motorways

It's probably a good idea for a government to build a basic road infrastructure, but whether taxpayers should fund much beyond that is questionable:

The [British] government's Highways Agency is offering £1.6bn to a private consortium to widen around 60 miles of the M25 to four lanes in each direction. It will take five years to build, will swallow tens of thousands of acres of greenbelt land, encourage yet more people to travel by car - and it will end up costing the taxpayer more than £5bn. Source

Also in the UK, it is costing £21 million per mile to widen the M1 motorway. The cost of the total M1 widening project has risen from £3.7 billion to £5.1 billion. Interestingly, for the cost of widening 1.2 miles of the M1, the Scottish Executive will be able to cut class sizes in Scotland to 18 pupils in the first three years of primary school by employing more than 500 new teachers.

Ok, it is not self-evident that allocating scarce resources to wider roads rather than better primary education is wrong. The question though, is does it reflect society's wishes? Who is making these decisions, and on what basis? As the disconnect between politicians and the people they are supposed to represent becomes ever wider, perhaps the most direct route for concerned people who want to make a difference is to become a celebrity:

As serious public and political life has withered, so celebrity culture has expanded to fill the gap, often with the encouragement of political leaders desperate for some celebrity cover.

Government and monoculture

Schools are now legally required to teach pupils to read using phonics, which involves blending letter sounds to form words. This method was already part of the [British] government's literacy strategy, but teachers had been previously encouraged to use a variety of methods. However, the [Jim] Rose review, which sought to address concerns about literacy standards among young children, concluded that phonics was crucial to raising standards. The Guardian

Government influence on health, education and housing, to take just a few huge policy areas, is now so big that when it gets things wrong, the consequences can be calamitous. That has certainly been the case with its perverse subsidies, such as those to agriculture, which have devastated the physical environment, transferred wealth from the poor to the rich, and led to the massive overcapitalization of farms in the west, rural depopulation and industry concentration. When government gets involved in something it is often well meaning; but it also imposes a uniform, top-down approach; it is incapable of adaptation and reluctant to terminate failed experiments. In agriculture the visual result is mile after mile of denuded landscape devoted to highly specialized production - or non-production - of canola, wheat or whatever government bureaucracy favours in that particular part of the world. A series of monocultures, in short.

But monocultures, in agriculture or anywhere else, are inherently vulnerable. When things go wrong, they go wrong in a big way. So the news item excerpted above worries me. The capacity to respond and adapt to changing circumstances or new research findings or new techniques is essential. That is why I advocate policy subordinated to outcomes. If Social Policy Bonds targeting literacy were issued, they would have the capacity to adapt to every type of changing event: ideology, fashion or fad - which have so often bedevilled education - would be disregarded in favour of the targeted outcome. In education, literacy as in agriculture and the environment, diversity is essential. For a short paper about Social Policy Bonds aimed at raising women's literacy in the third world click here. For a longer pdf text encouraging the private issue of bonds targeting literacy in a third world country (Pakistan), click here.

Government failure imposes large costs

Newt Gingrich in some recent spoken comments contributes the title of this post, and:

How many of you have ever gone online to check the location of a package at UPS or FedEx? In a room this sophisticated, it’s virtually universal. ... The market has led to the capital investment and the information technology and a corporate culture which is that productive. It can track millions of packages simultaneously in virtually real time. This is a fact. You experience it in your own life. Over here is, for example, the federal government, which cannot find between 11 and 13 million undocumented workers. Look at these two information systems. I’ve argued as a public policy matter... that if we simply allocated $200 million to send a package to each person who’s here illegally, that within 48 to 72 hours UPS and FedEx would have foundthem, we’d know where they are. It is so grotesque, it’s funny, right? And yet in this city and frankly in most of the public administration and public policy and government courses in the country, you cannot get them out of the world that failed.

He and Noam Chomsky should get together - see my previous post. Government is so big and remote that it doesn't do things the voters want it to do; it does do things the voters don't want it to do; and when it does do things that voters want, it does them so badly as to be worse than ineffectual. A final quote:

[I]f you do want to have a system that has, for example, less carbon-loading of the atmosphere, I will guarantee you that an incentive-based and prize-based marketplace is going to get to solutions radically faster than a litigation and regulation-based model.

I agree.

Failed States

Writing about the United States Government's perceived need to 'reframe pretexts not only for [military] intervention but also for militarized state capitalism at home', Noam Chomsky writes:

It is sometimes argued that concealing the development of high tech industry under the cover of "defense" has been a valuable contribution to society. Those who do not share that contempt for democracy might ask what decisions the population would have made if they had been informed of the real options and allowed to choose among them. Perhaps they might have prefered more social spending for health, education, decent housing, a sustainable environment for future generations...as polls regularly show. Failed States (page 127)

Quite. If people want to subsidize at vast expense, high technology, non-stick saucepans, or the replacement of wildlife by oil-burning heavy machinery let us at least make those decisions for ourselves. Given the sums involved and the destruction and conflict such subsidies can create, they are hardly trivial. Any half-sensible outcome-based policymaking system, such as a Social Policy Bond regime, would give a high priority to the polls that Prof Chomsky refers to, rather than the short-term interests of corporate or 'defence' lobbyists.

Who cares about the grassroots?

Commenting on the imminent closure of Waltham Forest public swimming pool, in London, 'the biggest and best swimming pool, the one used by club swimmers and triathletes and talented teenagers with dreams of competing for Great Britain in 2012', Martin Samuel writes in today's London Times:

In the end, it is about priorities. An Olympic logo that could have been designed for nothing by the students in art colleges around Britain came in at roughly £400,000. The same sum would cover the year-on-year losses on the pool at Waltham Forest College until 2012 and beyond, yet we have no money to do that. ... To make the Olympic budget work, £2.2 billion has been taken from lottery funding. That is the reality of the London games. Big-ticket items constructed at the expense of grassroots sport.

This is the story the world over: the small and local sacrificed to feed the appetite of the large and global. Our political system is like our economic system. Things that really matter to people are given away, because they cannot be quantified and, especially, cannot be converted into monetary terms. It's happening to the environment and it's happening to social cohesion. It's not just Britain and it's not just sport. There is something very wrong with our decision-making mechanism when the aggregated wishes of large numbers of ordinary people are routinely under-weighted, while the financial demands of large corporations - including government agencies - assume over-riding dimensions.

Ordinary people in the current system find it difficult to articulate our concerns. One reason is that we have to make guesses as to how to achieve our goals. We might all want, say, better sports facilities for our children, and we might be prepared to give up the chance of hosting the Olympics for that goal. But to bring that about, how would the ordinary person make those wishes apparent to policymakers? Find people who believe the same thing, perhaps get a petition going, find sympathetic politicians to articulate your case.... But all this takes time, and in that time the the corporates - advertizers, property developers, broadcasters, and the rest - will have already made their case to government, and made it very slickly and persuasively too.

An alternative approach would be for policy to be subordinated to the goals of natural persons, rather than corporates. Broad health and social goals would subsume grassroots sports objectives. Britain might still get to host the Olympic Games, but only if that were thought by the market to be the best way of achiving those goals.

Britons - hypochondria or non-participation?

The current Economist (subscription) muses upon the British unhappiness with its current condition - which, to remind ourselves, is the envy of probably 98 percent of the world's population:

Though the British have always been hypochondriacs, earlier bouts of intense self-deprecation—after the war, when bread was rationed and the empire fell apart, or the discontented late 1970s—have coincided with real hardship. By any sane measure, the current grouching doesn't. ... But these inklings [of British good fortune] tend to be submerged in the mud of disgruntlement: the same public is convinced that, in general, the NHS is a wreck. What explains this disconnect?

The Economist attributes the grouching and disgruntlement to hypochondria, but I am not so sure. I believe that if the British had achieved exactly the same conditions - in their health service, cultural makeup, educational achievement, and the rest - with more participation in the governance that brought them about, they'd be happier. Participation in defining and creating society's goals is an end in itself. Comparing the different Swiss cantons,

Messrs Frey and Stutzer [found] that a one-point increase in this democracy index, after stripping out the effects of the other variables, increases the share of people who say they are very happy by 2.7 percentage points. What this means is that the marginal effect of direct democracy on happiness is nearly half as big as the effect of moving from the lowest monthly income band to the highest Source (subscription, possibly).

In Britain government is extremely centralised (see here and here, for instance) - at least in absolute terms - and has become more so since the early 1980s. And Britain itself has pooled sovereignty with the European Union. A memorable example occurred in 1996 when, despite its best instincts and against overwhelming economic and humanitarian logic, European Union foreign ministers, against British protests and pleas from Nelson Mandela's South Africa refused to allow free-trade negotiations between the EU and South Africa to begin, because that would have upset French farmers. Is it any wonder that Britons feel disenfranchised, and that this takes the form of unhappiness despite, what on any objective criteria, are enviable living conditions? It's not enough to give people the things you think they want. It's as important to let them make their own decisions. One way of allowing that to happen would be to formulate social goals in terms outcomes that are meaningful to real people, rather than have decisions made by remote government and big business in a mutual back-scratching exercise, as at present. (More about Professor Frey and links to his interesting work can be found here.)

G8 and the protestors

The current Economist, discussing the G8 Summit:

The main message of the protesters was rejection of policy-making that kow-tows to “global capitalism”. As helicopters roared overhead, and water cannon readied for action, they pleaded for more debt forgiveness for the world’s poorest countries.... Non-governmental organisations said the G8 pledges fell short. Oxfam, an aid group, argued that the $60 billion proffered to combat disease added only $3 billion a year to what had already been promised up to 2010. Greenpeace, an environmental group, said that despite the inclusion of America in work to reduce emissions, the Bush administration was “as far away as ever” from agreeing such reductions itself.

I have some sympathy for the protestors. I am skeptical about debt forgiveness: presumably the protestors would like the majority of people in the poorest countries to have a much improved standard of living. So would I, but I don’t think debt forgiveness is a particularly useful way of achieving that; nor do I think that the sums disbursed to combat disease, whatever the total, will be allocated with any great efficiency. I’d prefer to see direct targeting of important goals by something like Women’s Literacy Bonds, rather than a prejudgement that the best way of getting there is to let (mostly) corrupt or incompetent governments off the hook. I am just as skeptical about top-down government-mandated efforts to reduce greenhouse gas emissions. Again, I think targeting climate change itself has advantages over Kyoto. Nevertheless, I sympathise with the protestors, because I think they feel disenfranchised by a political system that has too many distortions and is too remote to take on board what most people actually want. Perverse subsidies (for agriculture or oil, to give two examples), against which I have railed in previous posts, are the most obvious sign of this. Nuclear proliferation is another.

From the preface to Failed States, by Noam Chomsky:

[S]ome of the primary characteristics of failed states can be identified. [One] is their tendency to regard themselves as beyond the reach of domestic or international law, and hence free to carry out aggression and violence. And if they have democratic forms, they suffer from a serious "democratic deficit" that deprives their formal democratic institutions of real substance.

One of the virtues of a Social Policy Bond regime, as I see it, is that by targeting outcomes it would bring concerned people and organizations back into the fold. It could reconnect ordinary people with their political system, which at the moment feels remote and unresponsive to their needs. There’s nothing inevitable about this growing gap between natural persons and their policymakers. It’s largely a result of a bias in favour of big business; a self-reinforcing favoritism that a reformulation of political goals in terms of outcomes could do much to correct. Whatever one thinks of the protestors against ’global capitalism’, it’s difficult to argue that their voices would be heard under the current regime if they took up conventional politics.

Destroying the countryside

From today’s London Daily Telegraph:

The catastrophic decline of farmland birds in Britain due to intensive farming methods is being mirrored across Europe, a new survey reveals. The red-backed shrike has become extinct as a nesting bird in the UK. Europe’s farmland birds have declined by almost half in the past 25 years as a direct consequence of the Common Agricultural Policy, it is claimed.

What is disturbing is not so much the damage that the CAP is doing to the environment, nor its economic wastefulness, nor even its social inequity - it taxes the poor to subsidise the rich. Rather it is the persistence of all these disastrous flaws, in the face of evidence accumulated over decades.

How respectable are Social Policy Bonds?

When I first began talking about Social Policy Bonds, 18 years ago, I thought in my naivety that the idea would sell itself. Now, bombarded with information of all kinds, as we all are, I’m not so sure. Some sort of filtering mechanism is necessary to keep out the dross and to ration decision-makers’ scarce time. There is such an onslaught of trivia and junk that, regrettable as it may be, approval by people higher up the hierarchy can at least be understood as a rationing device, though it’s difficult sometimes to approve of that.

Anyway, against this criterion, and after 18 years, how do Social Policy Bonds stack up? How respectable are they? Some years ago Robert Shiller, Professor of Economics at Yale, wrote to me in support of the Social Policy Bond principle. His book The New Financial Order mentions Social Policy Bonds briefly, and the website for that book refers to them. One essay and presentation about Social Policy Bonds won an award by the UK-based Institute of Social Inventions - now the Global Ideas Bank; another was a finalist at the inaugural St Andrews Prize for the environment. I have given presentations about the bonds at the Organization for Economic Cooperation and Development in Paris, at Cambridge University, and at think-tanks in London and Melbourne. More about the record of Social Policy Bonds can be found here and here.

In recent years, progress appears to have faltered. The occasional flurry of enthusiasm for varied applications, which tends to die down after the initial burst of enthusiasm. The odd newspaper article published, the odd comment received on this blog site (for which I am grateful) and the odd mention in a published article (example here). But the concept remains at the margin. Until it has been tried, discussed and refined, it’s unlikely to take off, but until it finds a champion who sees it through, it’s unlikely to be tried. I believe now that government in any form is unlikely to be the first to apply the bond concept. I have drafted a handbook (pdf) to help guide private issuers of Social Policy Bonds should they be interested. As far as I know, nobody has actually taken up the challenge.

Black Swans

Nassim Taleb the author of The Black Swan: The Impact of the Highly Improbable, defines a Black Swan as an event that is unexpected, has an extreme impact and is made to seem predictable by explanations concocted afterwards. The Economist reviewing (subscription) the book, says:

[W]hen faced with a Black Swan we often grossly underestimate or overestimate its significance. Take technology. The founder of IBM predicted that the world would need no more than a handful of computers, and nobody saw that the laser would be used to mend retinas.

The 'we' in the first sentence is key. If decisions about black swans or any other risky or uncertain venture are made by just a few people, then yes, they will make poor decisions. If those people can do so, they will do everything they can to validate their poor decisions. If they are in government they can do this successfully, so blocking any attempt to investigate or explore new initiatives. It is not just about technology (Concorde (scroll down) and the Soviet experience come to mind) where government has a prodigious record in picking losers. It's also about the range and type of approaches that government through its interventions, encourages or blocks.

A top-down, one-size-fits-all approach to policymaking, just cannot adapt to changing events, nor can it easily vary its approach for differing local circumstances. When a government dictates how problems shall be solved, that can spell disaster. We see this in the failure of foreign aid (see my previous post), as well as the ludicrous perverse subsidies such as those to agribusiness, fisheries or the coal mining industry. Government, unfortunately, is not content to specify outcomes and contract out the achievement of those outcomes to the market (which would be the Social Policy Bond approach). For myself, I'm concerned that government's preferred solution to climate change - cut back anthropogenic greenhouse gas emissions - will not do the job; we could end up with worst of all worlds: rampant global warming, and very high upfront costs. My suggestion? Climate Stability Bonds.

The failure of western aid

One of the problems of the conventional approach to policymaking is that the risks of government failure are usually borne by the taxpayer. And one of the virtues of the Social Policy Bond approach is that if a government issues bonds, it is the bondholders who lose if they fail to achieve the targeted outcome. I'm currently looking at applying the bond principle to the poorest countries in the developing world. My work is made easier by the well-defined Human Development Index, which is a broadly-based measure of development as measured by literacy, school enrolment, life expectancy and income. Billions of dollars of western aid to the poor countries have done little to help. As author William Easterly observes in The White Man's Burden, western aid hasn't even provided the cheap fixes that could save millions of lives. Medicine that would prevent half of all malaria deaths, for example, costs just 12 cents a dose. A bed net that would protect a child from getting malaria costs $4.

The top-down approach to aid has mostly been a disaster, as Easterly describes. It's uncoordinated and unaccountable and channels billions to corrupt leaders who steal or squander the money. And it measures success by the volume of aid dollars pledged rather than the results they generate.

That's the key. The current measure of success is that of the accountant, rather than the human being. Now no single figure can encapsulate all the variables that make up human well-being, but at the low levels of social welfare prevailing in the developing countries there is a strong correlation between objectively measurable indicators such as those comprising the HDI, and well-being. Social Policy Bonds targeting the HDI of the poorest countries would generate incentives for people actually to raise well-being, rather than distribute government funds. The citizens of these countries should benefit, but so too would the taxpayer in the west who, if the bondholders failed as miserably as western governments have, would not lose a penny.

Subsidizing environmental destruction (continued)

The Global Subsidies Initiative reports on subsidies to coal mining in the European Union:

Current production aid helps producers cover operating losses. It is used in Bulgaria, Germany, Hungary, Romania and Spain, where the E[uropean] C[ommission] report says coal mining would not survive without aid. Notably, the Commission adds that these countries have had limited success re-structuring their coal industry, with production costs only slightly reduced and in some cases increased. Global Subsidies Initiative