26 April 2013

Policymaking and journalism: it doesn't matter if you're wrong.

John R MacArthur writes:
What’s the use of being right, in journalism or politics? I gave a lot of thought to this question during the tenth anniversary of the American–British invasion of Iraq, and I’ve come to the conclusion that being right is not much use at all, at least as far as career advancement goes. No reward for being right on Iraq, John R MacArthur, 'Harper's Magazine, 18 April

Incentives are important, and they needn't be monetary. Unfortunately, our current political system, beset as it is by its own complexities as well as those of society, does not reward success or punish failure consistently enough to filter out stupid policies. Mr MacArthur quotes Scott Ritter: "Everybody who lied about the [Iraq] war got rewarded because they played the game." Exactly so. When it comes to looking back at evaluating policies - something that's rarely done - few people are rewarded in their lifetime for being right. Amongst politicians loyalty counts for far more.

Social Policy Bonds would change that. They reward people not for who they are, what they say or for whom they support, but for achieving society's explicit goals. Society's limited resources would be channelled into the achievement of these goals, transparently and impartially. Politicians couldn't get away with insane, disastrous policies; instead they would, under a bond regime, be limited to what they do best: articulating society's goals and raising the revenue for their achievement. Efficient approaches would be rewarded by the way the market for the bonds works. Inefficient approaches would receive little funding and be terminated - something that rarely happens under current policymaking systems. Under a bond regime, successful achievement of society's goals is the top priority. Under the current system it hardly features at all, as Mr MacArthur's poignant article makes very clear.

25 April 2013

Obesity is like poverty or climate change: there's no obvious cause

Everyone thinks he or she understands obesity. Believe it or not, this is one of the harder medical conditions to comprehend. Why? Obesity is a combination of several factors: physics, biochemistry, endocrinology, neuroscience, psychology, sociology, and environmental health, all rolled up into one problem. Robert H Lustig, Fat chance, December 2012
Obesity is much like any social or environmental problem. There's very little point in government picking a particular theory or approach and backing it with taxpayers' funds. There's no obvious causal relationship. The best government, or any interest group can do, is to stimulate diverse approaches that adapt over time to changing circumstances and our expanding scientific knowledge.

It wasn't always like that. In health care it's now widely accepted and has been clearly shown that, for example, decent sanitation is essential for good physical health. Society and the environment were, generally, less complex in those days. But there is a lot more complexity now. Government would do better, when dealing with very complex concerns, to target outcomes, rather than the supposed means of achieving them.

Social Policy Bonds allow government to do this in ways that channel market forces into socially useful directions. When it comes to obesity, government should think clearly about what it wants to achieve, then reward those approaches that most efficiently achieve it. It might be that obesity itself is not a problem, but rather a marker of other health problems, as Dr Lustig says in his book. In that case, government should directly target those health problems for solution.

A Social Policy Bond regime would not prejudge the ways of tackling complex health problems. It would focus entirely on society's health goals and put in place a system of cascading incentives rewarding those who achieve them in the most cost-effective ways. For more information, check out my book or other papers, which can be freely downloaded from my Social Policy Bonds website.

14 April 2013

It's all too complicated

Our financial system has become as complicated as our social and physical environments. All are too complicated and too rapidly changing for ordinary people ever to understand fully so, by default, hugely important policy decisions are made by people who are at best, under-informed or, at worst heavily influenced by the campaign funding contributions of vested interest groups. We aren't going to see a reduction in complexity; not in our social and physical environments. There are just too many variables and time-lags, combined with rapidly changing circumstances and growing knowledge of scientific relationships. Politicians can readily escape or deflect censure even for their worst policies, because the relationships between cause and effect are too delayed or obscure to identify unambiguously. The incentive to get long-term policy  right is correspondingly diluted.

Social Policy Bonds don't require a prior knowledge of cause and effect. Instead, they start from broad, desirable social and environmental outcomes. Say we want to increase society's physical well being, defined as some agreed, weighted combination of objective indicators, such as longevity, Quality Adjusted Life Years, etc. It would not then be up to policymakers to establish, rule on (or obscure), say, the relationship between burning coal and lung disease, or between a new drug and its net benefit; instead our politicians would, in effect, contract out the achievement of society's health goal to a motivated coalition of investors, with powerful incentives to reward the most efficient ways of improving society's health and, crucially, to terminate the least efficient.

Health, like a robust financial system and a benign physical and social environment, is too complicated for anybody to understand. But, rather than resign ourselves to cynicism and despair, we could adopt some or all of the most salient features of a Social Policy Bond regime: a focus on desirable outcomes in the form of broad, quantifiable, goals; and the channelling of market incentives into their achievement.

05 April 2013

'Renewable' is not an end in itself

The Economist writes about the problems of burning biomass (mainly wood and crop residues) as a source of renewable energy in Europe: 
[T]he ideal of a biomass plantation that is harvested only at the rate at which it grows back is not always met. Even when it is, such plantations displace other ecosystems that would themselves have sucked down carbon. Processing and transporting the wood to the place where it is burned requires energy that may well come from non-renewable sources. [S]ome biomass programmes could end up emitting more carbon than the fossil fuels they are being subsidised to replace.The underlying problem is the reverence accorded to renewable energy itself. Greens like it for various reasons: independence from fluctuating fuel prices, rural employment, sustainability, as well as low carbon emissions. But as the sorry state of biomass shows, not all renewable-energy technologies are good at achieving all those aims. Nor are all those aims worth spending scarce public money on. Bonfire of the subsidies, the 'Economist', dated 6 April
This is what happens when instead of targeting climate change itself we focus instead on trying to limit greenhouse gas emissions; or rather, those gases thought in the 1990s to be the causes of climate change. If we want to achieve environmental outcomes, I think we'd do better to target these outcomes directly, rather than have government - heavily influenced as it is by interest groups - identify the ways of achieving them. A congenial climate, along with many other environmental and social goals, is too complex to be reduced to a set of simple invariant relationships of the sort that government can identify and encourage or discourage.

Social Policy Bonds would instead identify desirable outcomes and reward people for achieving them, however they do so. A bond regime would see investors automatically adapt to changing circumstances and our ever-expanding knowledge about the relevant scientific relationships. If burning biomass were to create more environmental problems than it solves, investors in Climate Stability Bonds would soon focus on better ways of achieving society's climate target. It would see 'renewable' and other high-sounding adjectives as possible means towards society's ends, rather than as ends in themselves.