28 August 2010

Surrogate markers, in medicine and policy

A surrogate marker is an event or a laboratory value that researchers hope can serve as a reliable substitute for an actual disease. A common example of this is blood cholesterol levels. These levels are surrogates, or substitutes, for heart disease. If a medical study demonstrates that a medication can lower cholesterol level 10%, then we assume that this will also lower the risk of cardiovascular disease. Why doesn’t this same study determine if an anti-cholesterol drug decreases heart attack rates directly? After all, most folks would rather be spared a heart attack than have a silent decrease in their blood cholesterol levels. ...Surrogates often take on a life of their own, far removed from the actual disease they represent. Patients shouldn’t care if their ‘surrogates’ are improving; their objective should be to prevent disease, feel better and live longer. Evidence-based medicine in disguise: beware the surrogate, 'MD Whistleblower' (blog by Michael Kirsch), 1 August
Quite so. And as in medicine, so it is in policymaking, and for much the same reasons: 'It's much easier and cheaper ...to measure surrogates than actual disease events.' It's much, much easier to measure a government agency's spending than it is to measure its success or otherwise in delivering meaningful outcomes.

The problem isn't always that of measurement, or of short-term interests trumping long-term benefits. There is also the inescapable subjectivity of an important components of welfare: psychological wellbeing. To take one example that has obvious policymaking implications: in the UK for several years crime appears to have fallen, while fear of crime has risen (see here). The answer, if there is one, might be to re-localise some policymaking. Some of the most important components of wellbeing simply cannot be quantified and aggregated for efficient use by our highly centralised bureaucracies. Withdrawing unemployment benefit, for instance, could actually help someone who's lacking in motivation and would gain by being made to find a job. To another person, though, the loss of a welfare payment could mean calamity. No bureaucracy can make such a distinction, and we might not want one with the intrusive powers that could.

Social Policy Bonds are no different from conventional policy in that respect, except that they have to answer, upfront, the difficult question of whether a specified goal is a surrogate (a supposed means to an end) or an end in itself. Having to do that at the outset of making policy, is probably an advantage over the current system in which, too often, objectives are vague, conflicting, and only tenuously related to policy instruments allegedly supposed to bring them about.

25 August 2010

Biodiversity and Social Policy Bonds

Already the UN has conceded that the targets for safeguarding wild species and wild places in 2010 have been missed: comprehensively and tragically. Talk has not halted biodiversity loss - now it's time for action, Guillaume Chapron and George Monbiot, Guardian.co.uk, 13 August
It's a tough one. Some Guardian readers' ideas, many of them worth considering, are presented here. Could the Social Policy Bonds principle help? Part of the problem is to clarify whether biodiversity is a means to an end or an end in itself; and another is how to quantify what biodiversity is and what we want from it.

One option could be to for experts to list their top, say, 10000 plant and animal species, according to their intrinsic value, or their status as indicator species, representing the broader state of the environment, including biodiversity. It would probably be impractical to legislate effectively against serious depredations of such a large number of species. But a Biodiversity Bond, following the Social Policy Bond principle, could be issued, perhaps by a combinatin of governments, non-governmental organizations, and environmental bodies. What would such Biodiversity Bonds target? Not the health or survival of the full panoply of 10000 species; that would be too complex and expensive. But what about the health and habitats of, say, 100 of these species? That would be a fairly simple matter. The key to such a regime is that the 100 species would not be known in advance by either the bonds' issuers or investors in the bonds.

Instead, the 100 species could be randomly chosen from the 10000 towards the end of bonds' stipulated expiry period. The bonds could target a broad definition of biodiversity, encompassing the 10000 species, 30 years hence. Towards the end of that 30 years, 100 out of those 10000 species or habitats would be randomly chosen. If all 100 were doing well, surviving and thriving, the bonds would be redeemed. If not, they wouldn't.

Bondholders would then have incentives to preserve biodiversity of all the 10000 species (or ecological systems), but there need be no onerous, contentious and expensive monitoring of all 10000 species. Only a fairly small sample, randomly chosen after 29 years, need be examined. That, in my view, would make targeting biodiversity a practical proposition.

Your thoughts or comments on this idea are particularly welcome.

17 August 2010

An argument for a governing aristocracy?

Or perhaps, lottocracy? In a review of Philip Ziegler's biography of the former British Prime Minister, Edward Heath, Ferdinand Mount says:
[Heath] promised a 'quiet revolution', in terms which understandably convinced his right wing that he had come over to their way of thinking. By instinct, though, he preferred to control things rather than let them run free and endure the consequences. Plonking, Ferdinand Mount, London Review of Books, 22 July (subscription)
I wonder whether this is a feature of all non-aristocratic policymakers. Which is to say, those politicians - almost all of them nowadays, and definitely Mr Heath - who had to struggle mightily to get to their position. Effort is all very well but, especially when it has successfully advanced a person's career, it will predispose to a controlling mindset; one that will be predisposed to work on problems, rather than let them solve themselves. One that will be biased toward intervention and top-down, one-size-fits-all planning, rather than creating an environment whereby adaptive, diverse policies can achieve outcomes without government prejudging how they shall do so.

Social Policy Bonds could perhaps be a compromise. Under a bond regime, politicians would still articulate our social goals, and control their funding and priority; they would, though, relinquish their power to dictate how these goals shall be achieved.

15 August 2010

The costs of free parking

In his book, Professor Shoup estimated that the value of the free-parking subsidy to cars [in the US] was at least $127 billion in 2002, and possibly much more. ... “Who pays for free parking? Everyone but the motorist.” Free parking comes at a price, Tyler Cowen, 'New York Times', 14 August
One big advantage of Social Policy Bonds is their transparency. If we wanted to subsidise car drivers, for example, a Social Policy Bond regime would require that we do so with our eyes open. Under the current arcane, opaque policymaking process those interest groups with (essentially) the most muscle can manipulate the legislative and regulatory environment to suit their own ends. So we end up with free car parking for the minority of people who drive cars a lot. The price is high, but it's borne by society in general. The car drivers who benefit, pay very little. It's the same pattern in other sectors. The well resourced use the vagueness of current policymaking to their own advantage. And who are the well resourced? Large corporations or government agencies. More and more, it seems, their goals are not only different from those of ordinary people; they are in conflict with them.

14 August 2010


An article in the Atlantic, highlights the likelihood of Iran's developing nuclear weapons.
The Iranian leadership’s own view of nuclear dangers is perhaps best exemplified by a comment made in 2001 by the former Iranian president Ali Akbar Hashemi-Rafsanjani, who entertained the idea that Israel’s demise could be brought about in a relatively pain-free manner for the Muslim world. “The use of an atomic bomb against Israel would destroy Israel completely while [a nuclear attack] against the Islamic countries would only cause damages,” Rafsanjani said. It is this line of thinking, which suggests that rational deterrence theory, or the threat of mutual assured destruction, might not apply in the case of Iran, that has the Israeli government on a knife’s edge. The Point of No Return, Jeffrey Goldberg, 'The Atlantic', September
And much of the rest of the world. But if the leaders of Iran aren't rational human beings, that doesn't mean they aren't susceptible to incentives. The usual incentives might not apply to them, themselves. But the people who work for them, who follow their orders, who supply their centrifuges or generate their electricity: some of them will be susceptible. And this is where Social Policy Bonds could help. A Middle East Peace Bond or, more broadly applicable, a Disaster Prevention Bond, could focus people's attention on what needs to be done in a more systematic, incentive-driven manner, than the current array of high-stakes bluster, talks about sanctions, talks about talks and all the rest of it.

08 August 2010

Socialism, American style

That's the title of a post by Denis Weisman, which outlines some of the laws that protect US car dealers from having to beheave competitively.
Some states make it illegal to sell cars at lower prices to high-volume dealers than to low-volume franchisees. Some prohibit car companies from selling directly to the public (say, via the Internet) because it would adversely affect the competitive position of the dealers. Socialism, American Style, Denis Weisman, 26 July
How did this come about? It's the usual tawdry tale of lobbyists filling the vacuum created, in my view, by a complex political system that's opaque to non-specialists; that is, ordinary people, as distinct from corporations.
In the American political system, a highly focused, well-funded lobby with tight connections in every House district is almost unbeatable when it chooses to play rough.
It's policymaking by the rich, for the rich, and there's little sign of it ending any time soon.

You can see where I am heading with this. A Social Policy Bond regime would target outcomes. Outcomes that are meaningful to ordinary people. Corporate success would be a by-product of a prosperous population, not something that grows out of the power of the lobbyist. Government's raison d'etre is to enhance the wellbeing of the population, not corporations. Policymaking should subordinate corporate interests to those of ordinary citizens, and a Social Policy Bond regime would do that.

03 August 2010

Give greed a chance

Tyler Cowen asks:
How many [books on morality and markets] take seriously the notion that our moral intuitions can be badly misguided for judging the operation of an impersonal market economy in the modern world? Not so many, though all seem to think they do. Source
I sometimes am asked how Social Policy Bonds, which envisage self-interest as playing a still bigger role in our economy, can be reconciled with morality and ethics? I have two answers. One, that morality is at least as much a matter of outcomes as about the means of reaching them. Our private sector, whose motivation is profits (or sales, market share, or revenue), generates much of the tax revenue with which we help the disadvantaged and supply public goods and services. It also contributes much in the way of positive non-market impacts: through employment it alleviates poverty and crime, etc. In short, a system based (apparently) on greed, as regulated by government, enables us to raise the wellbeing of all, especially the disadvantaged: greed can be good.

My other answer is that what is labelled as self-interest and is disdained for that reason can be no more than someone going to work for money, to support him/herself and his/her family. Under a Social Policy Bond regime, investors in the bonds would make capital gains if they help achieve society's targeted goals. That doesn't make them profiteers or worthy of condemnation. It makes them entrepreneurs willing to take a risk so that they can pay themselves and people who work for them (at a lower risk) salaries. Competition for the bonds would bid away excess profits anyway. Largely for reasons of history and (I think) too-little-examined moral disdain for self-interest, we've been reluctant to channel self-interest into the solution of social problems. Those who are charged with solving them are rarely rewarded in ways that correlate with their success in doing so. Social Policy Bonds are my suggested way of channeling the incentives and efficiencies of the market into the achievement of social goals, including those, such as world peace and the elimination of poverty, that most would agree are morally uplifting. My header says it all.