04 September 2012


 From the Economist
Modern governments play a much larger role in the economy than the ancient Greeks or the founding fathers could have imagined. This makes political leaders a huge source of patronage, in the form of business contracts, social benefits, jobs and tax breaks. ...[T]hese goodies are highly valuable to the recipients but the cost to the average voter of any single perk will be small. So beneficiaries will have every incentive to lobby for the retention of their perks and taxpayers will have little reason to campaign against them. Over time the economy will be weighed down by all these costs, like a barnacle-encrusted ship. The Greek economy could be seen as a textbook example of these problems. One answer could be to take fiscal policy out of the hands of elected leaders, just as responsibility for monetary policy has been handed to independent central bankers. Democracies and debt (subscription), 'The Economist', 1 September
And not only the Greek economy. It is not so much the existence, but the persistence of these barnacles that is the biggest indictment of the way we currently run things. In important respects they are self-entrenching: the more favoured are certain interest groups, the more resources they have to lobby against withdrawal of their special privileges. It's true that one reason for their persistence is because 'the cost to the average voter of any single perk will be small'. Another reason is that the cost to the voter of understanding what's going on is large. Current policymaking is incomprehensible to outsiders. It's very difficult to trace the vague statements about policy goals to actual policies, and no easier to identify links between policies and outcomes. Only people who are highly motivated will make the effort to do so. Whether such obscurity is deliberateis not that important. (Though I suspect it largely is where enormous subsidies and tax breaks for wealthy landowners and large corporations are concerned.) More important is: what to do about it?

One answer might be to express policy in terms of goals that are meaningful to ordinary people. Instead of talking about, for example, the institutional structures for health care, for instance, or funding arrangements, we should talk about national (or global) health care outcomes and ensure that whatever agencies are set up, and whatever their activities, they are all aimed at achieving these outcomes. Similarly with education, housing, crime or pollution or whatever. What is important is not who achieves our goals, nor how they do so, but that they have sufficient incentives to do the job.

A Social Policy Bond regime would immediately refocus our attention on our social and environmental goals. Under a bond regime we could target long-term, broad, societal goals, and reward those who are most efficient at achieving them. Because of the way the bonds work, it would be the disinterested market, rather than politicians who would make these decisions. Would people still opt to transfer wealth, as we do now, from the working poor to the ultra-rich? Unlikely, but if we did we'd at least be doing so with our informed consent. That in itself would be an improvement over the current policymaking environment.

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