30 June 2013

Institutionalised hypocrisy

"The role of citizens, of Christians, of humanity is to take care of each other, but not for Washington to steal from those in the country and give to others in the country.”
These are the words of [US] tea party Congressman Stephen Fincher of Frog Jump, Tennessee [who] argued passionately in favor of ...gut[ting] the federal food stamp program by over $20 billion and push[ing] an estimated two million people—mostly retirees and poor families with kids—further into poverty and hunger.

The reason? Rep. Fincher is a Crusader for small government...but he’s also one of the biggest welfare queens in his home state of Tennessee. According to federal subsidy data compiled by the Environmental Working Group, Stephen Fincher has personally cashed in on $3.5 million in federal farm welfare payments (aka agricultural subsidies) since 1999. Fincher’s average welfare payout comes out to $300,000 annually—200 times bigger than the $1,586.40 an average family in Tennessee receives in food stamp benefits a year. Small Government, Huge Hypocrite, Yasha Levine, nsfwcorp, 28 June
And so it goes on. It's 35 years since the corrupt insanity of farm subsidies was obvious to informed undergraduates; 30 years since the huge cost of these subsidies began to be accurately quantified and promulgated...and yet they persist. Our policymaking system just does not have the mechanisms to terminate failed policies if they are backed by large corporations and, especially, if they take money from the poor to give to the rich. The rich, that is, who can afford to pay people to follow our arcane policymaking process and manipulate policy for the benefit of their paymasters.

We'd stand a better chance of achieving social goals if we clarified policymaking by targeting outcomes: meaningful outcomes that ordinary people can understand, engage with, and influence. One of the advantages of a Social Policy Bond regime is that it would do exactly that: target explicit, transparent, meaningful outcomes and reward people who achieve them. The complexity and obscurity of today's policymaking procedures work in favour only of the corrupt and the hypocritical.

23 June 2013

Evidence-based policymaking

John Bridgeland and Peter Orszag write about evidence-based spending decisions. It's a form of data mining, and has been applied to baseball "...replacing scouts’ traditional beliefs and biases about players with data-intensive studies of what skills actually contribute most to winning" but "is just as applicable to the battle against out-of-control health-care costs."
Based on our rough calculations, less than $1 out of every $100 of government spending is backed by even the most basic evidence that the money is being spent wisely. As former officials in the administrations of Barack Obama (Peter Orszag) and George W. Bush (John Bridgeland), we were flabbergasted by how blindly the federal government spends. In other types of American enterprise, spending decisions are usually quite sophisticated, and are rapidly becoming more so: baseball’s transformation into “moneyball” is one example. But the federal government—where spending decisions are largely based on good intentions, inertia, hunches, partisan politics, and personal relationships—has missed this wave. Can Government Play Moneyball, 'the Atlantic', July/August
It's encouraging that, after wasting billions of dollars in programs that do little other than subsidise the lifestyles of opponents of their removal, the US Government is looking at a more rational basis for allocating funding. The authors concede that change in this direction will be difficult:

Still, linking evaluation to program funding will be tough, as both of us have seen in practice, again and again. One thing that is essential to a more results-driven government is holding politicians accountable for their support of failing programs. Interest groups regularly rate politicians on their adherence to a particular perspective. What if we had [an index] easily accessible to voters and the media, that rated each member of Congress on their votes to fund programs that have been shown not to work?
OK; certainly an improvement on the dogs' breakfast that is the current policymaking environment. But we could, perhaps, envisage a system that doesn't require politicians to react to information in ways that conflict with their own interests? A Social Policy Bond regime would do this, because it would contract out the development and implementations of programmes to investors in bonds targeting a social goal. It would take resource-allocation decisions out of the hands of government, and put them into the hands of entrepreneurs, with no inherited resistance to change.

A Social Policy Bond regime would have other advantages over the system advocated by Messrs Bridgeland and Orszag. The evidence-gathering wouldn't be prone to corruption and gaming, as there would be no vested interests to keep happy. And it would be done on a dynamic basis, not as a one-off exercise designed to set policy for an indefinite number of years into the future.

Still, it's encouraging to read about evidence-based policymaking. The authors refer to a non-profit organization called Results for America, which is advocates for it. See here for more.


12 June 2013

Self-interest and social goals: inevitably in conflict?

Some people don't like the idea of using market incentives to solve social problems. The motivation for such opposition might be patch protection, or a more general suspicion of any radical new approach. But some of it centres on the apparent conflict between the values of the market and a vision of social justice.

These arguments need to be addressed. The fact is that markets have been abused, and that the 'markets' and their efficiencies have been used to justify ludicrous accumulations of wealth for activities of little or negative social merit, at the expense of ordinary people.

It’s true that corporations are self-interested; further, their interests are very narrowly defined, largely by the accountancy profession. Corporations are less interested in free markets, and more interested in doing whatever is necessary to ensure their survival. If that is at the expense of free markets, or most of a corporation's employees, or the environment, or society in general, then that is not the corporation's concern. Cleaning up after a corporation's rampage is something that is done by governments, if at all. Corporations, as they grow bigger, will do what they can to corrupt and undermine markets and manipulate the regulatory environment in their favour - all to the cost of wider society. The reckless activities of the financial institutions who siphoned off the financial benefits of their activities and socialized the enormous costs are only the most spectacular example of this anti-social behaviour. So people are right to be cynical about the benefits of so-called markets. 

But self-interest can do good things, and if we re-jig the incentives we can channel it into the public good. In economic theory, and on all the evidence, markets are the best way of allocating society’s scarce resources. It is unfortunate that, largely for historical reasons, we leave the achievement of social goals to the sort of command-and-control mechanism that is often inefficient (and can also be abused).

A Social Policy Bond regime would probably see some enrichment of corporations, new or existing, but only as a side-effect of their achieving society's agreed social and environmental goals. It could lead to the creation of entirely new organizations, dedicated to finding and implementing the most efficient solutions to our social problems. The bonds are all about building a coalition of motivated investors whose self-interest would be exactly congruent with those of society. If these investors fail to achieve society's goals, their bonds will lose value and they will receive nothing. If they achieve society's goals efficiently they will benefit. Much of this benefit will take the form of salaries for employees of these corporations. It is very like paying people to be teachers: in some societies this would be seen as sacrilegious, but we recognise today that, however idealistic they or their employers might be, teachers need to earn a salary.

A Social Policy Bond regime represents a new departure: rewarding people for achieving society’s long-term goals, and doing so in a way that encourages efficiency and effectiveness and punishes incompetence. Sadly, this has never been tried before. In the long run, the existence of this unambiguously socially beneficial way of accumulating wealth could make it easier to raise the tax rates on other profitable, but less edifying activities.

Aligning self-interest with social justice could generate huge benefits, and it would be a shame if these were to be denied to the people who need them most for reasons of ideology or because market forces in general, rather than their abuse and manipulation, have been discredited in the eyes of well-intentioned policy makers. 

04 June 2013

Ingenuity is not in short supply

What stimulates human ingenuity of this sort?

Like casino designers' spatial strategies, their ambient strategies treat affect not as something passive or static, but as an active and dynamic capacity that can be harnessed and guided in lucrative directions. A study titled Effects of ambient odors on slot-machine usage in a Las Vegas casino found that slot revenue rose by a full 45 percent in a gambling area where machines had been subtly treated with a certain pleasing odor while remaining static in another area that had been treated with a different but equally pleasing odor. The author speculated that certain aromas produce an 'affective congruence with the situational context," encouraging longer play... Source: Addiction by Design: Machine Gambling in Las Vegas, Natasha Dow Schull, August 2012

Or this:

In thousands of labs across the planet, medical researchers are trying to find the cause of, and cure for, obesity. They examine genes, chemical exposures and metabolic pathways. They experiment with amphetamines, anticonvulsants, probiotics. Some of this research is funded by the companies that make and sell the food that makes us fat. In thousands of other labs across the planet, food scientists and marketers are working on ways to make you eat more. They employ highly sophisticated psychological and physiological research to this end; they examine the effects of colour, unit size, price, texture, packaging and advertising on human desire. Look around you: who is winning? Fat City, Karen Hitchcock, 'The Monthly', March
Human ingenuity can be channelled in all sorts of ways; the two examples above show how significant quantities of high-quality mental resources are channelled into producing goods and services that generate short-term, financial, benefits for corporations, while imposing heavy costs not only on wider society but also on the targeted individual consumers.

The people who do this targeting aren't evil. They raise families, take out mortgages, pay taxes and no doubt volunteer at school sports days. They are simply part of a system that rewards, more than anything else, activities that benefit a corporation in ways that can be calculated by the accountancy profession. 

It's a crazy system. Of course, we don't want a society that tells corporations what to do, and there will always be a role for regulating their activities. But couldn't we give incentives for people and corporations to generate long-term benefits for wider society? Why must society be largely driven by those transactions that are captured by corporations' trading accounts or balance sheets?

A Social Policy Bond regime would instead target society's long-term goals. It would lead to the setting up of corporations whose goals would be entirely congruent with those of society. Instead of paying people to spend their working lives implanting odours into slot machines, we could redirect their ingenuity into solving some of our social and environmental problems. We don't suffer from a shortage of ingenuity; we suffer, and some of us suffer grievously, from a system of perverse incentives, which  directs our ingenuity into activities that have little social merit. Social Policy Bonds could re-orientate those incentives: the implications of building a motivated coalition of people who, necessarily, will want to achieve society's wider goals and whose rewards will depend on how well they do so, are immense.