27 June 2016

Good policy is not about choosing a team

Michael Tomasky quotes Christopher Achen and Larry Bartels:
We conclude that group and partisan loyalties, not policy preferences or ideologies, are fundamental in democratic politics. Thus, a realistic theory of democracy must be built, not on the French Enlightenment, on British liberalism, or on American Progressivism, with their devotion to human rationality and monadic individualism, but instead on the insights of the critics of these traditions, who recognized that human life is group life.... For most people, partisanship is not a carrier of ideology but a reflection of judgments about where “people like me” belong. Can the monster be elected?, Michael Tomasky, 'New York Review of Books', dated 14 July
There are likely or possible explanations for this. One, perhaps, is that a country - still less a group of countries - is just too large a body of people with which we can identify. But more important is how this insight links with policymaking, and how it can be, and is, manipulated by those seeking power. So, for instance, it's regarded as 'compassionate' to approve of Angela Merkel's impulsive decision to welcome unlimited numbers of migrants from the third world. And the impulse truly was a compassionate one. Who would want to identify with the (relatively) hard-hearted approach of Australia towards boatloads of refugees and migrants? Or the (absolutely) hard-hearted approach of Saudi Arabia? People understand compassion and we all want to think ourselves compassionate.

It makes for disastrous policy. Migrants drowning in record numbers in the Mediterranean. People in Europe feeling let down by their elected representatives, generating widespread alienation and anger, more support for extremist parties, the erosion of free speech, British exit from the European Union and record gun sales throughout Europe.

It points to the irrelevance of outcomes as a determinant of policy in today's democracies. Bonding with 'people like me', signalling virtue and 'compassion', mutual back-patting: these are how we choose which policies and parties to back. I don't think there's anything particularly wrong or reprehensible with this - except that it leads to calamitous results, as we are seeing. Policymakers should hold themselves to a higher standard: instead of being compassionate, or acting compassionately, or allying themselves with the 'compassionate' side of an argument, they should be making decisions with a view to their likely outcomes.

Unfortunately, our system doesn't target outcomes and, especially, it does not target long-term outcomes. Politicians win points by seeming compassionate and human and empathic, regardless of the long-term results of their policies. Or by identifying themselves as being in opposition to 'compassion', unity, tolerance and all the other labels the other team likes to apply to itself.

The losers from all this are ordinary people including, especially and most tragically now, those thousands of Africans risking their lives trying to cross the Mediterranean.

Social Policy Bonds are a way of closing the gap between ordinary people and the politicians and bureaucrats who make the policy that determines how we live. Under a bond regime we could target long-term goals; goals that would not be swayed by striking televisual imagery, rhetoric, impulse or reaction. Ordinary people would help choose these goals and their relative priority far more readily than they can engage in policymaking in today's world. Crucially, policy goals - as distinct from the ways we achieve them - would be stable over time, and not subject to the whims and caprices of the 'people like us'.

Social Policy Bonds will never be seen as 'compassionate'. They channel people's self-interest into solving social problems. (I titled an early version of my book Give greed a chance.) People make money by achieving social goals, and if they're efficient, they make more money. That is anathema to the 'compassion' lobby, who are more interested in picking a team, banging a tambourine and advertising their virtue than actually finding the best ways of helping the most people. I would think, though, that the people we are trying to help - the poor, the disadvantaged, those who are illiterate after years of schooling, those whose lives are devastated by war - are more interested in outcomes than motives. I certainly am.

22 June 2016

The CAP is destroying Europe

George Monbiot's article today about our old friend, the European Union's corrupt, insane Common Agricultural Policy, does a great job in describing its wastefulness, its transfers from the poor to the very wealthy, and its disastrous environmental depredations.

I am perplexed therefore by his decision to vote for the UK to stay in the EU:
I will vote In on Thursday, as I don’t want to surrender this country to the unmolested control of people prepared to rip up every variety of public spending and public protection except those that serve their own class. But if we are to live in Remainia, we should insist on sweeping change. Daylight robbery and mass destruction: the EU is supposed to prevent them, not to deliver them. Leave well alone, George Monbiot, 'the Guardian', 22 June
Why Mr Monbiot thinks the EU is suddenly going to reverse itself and dismantle the CAP - which still swallows up 40 percent of the EU budget - is a mystery to me. It has been four decades since, as undergraduate agricultural economists, we learned about the CAP's calamitous impacts. In those 40 years the unelected EU decision-makers have shown themselves to be incapable of responding to economic, social or environmental rationality. Which is why I think Britons would do better to vote to leave the EU in tomorrow's referendum. Yes, as Mr Monbiot points out, the Leave campaigners have promised to keep subsidizing UK farmers. But if Britons don't like that policy, they can vote to change it. They still have a say in who become Members of the British Parliament, and they can vote against stupid, cynical, wasteful and destructive policies. But the people who make EU policy? We don't even know who they are or how they got there. And we certainly can't get rid of them.

20 June 2016

Britain and the European Union

I am sympathetic to the idealism that led to the formation and development of what is now the 28-member European Union. I also see great value in having hundreds and thousands of bureaucrats, from all the member states, in Brussels, talking to each other; their children going to the same schools.

But, more and more, the people who work for the European Union; the administrators and politicians, are seen as - and indeed are - a separate caste. They have seldom worked outside government and they enjoy safety-nets and benefits that are decreasingly available to private-sector would-be employees, especially the young. The processes and institutions of the EU are opaque. The decision-makers are unknown and unelected. They dictate policies that are hugely important to ordinary citizens, such as those concerning immigration, without consulting the public and so without getting buy-in. Ordinary people cannot vote these people out and cannot engage in the policymaking process. There are few consequences for failure at any level of the EU bureaucracy. All this would be less intolerable if the European Union showed any sign of adapting to the wishes of the broader population. But I don't see that.
So I fear that this project is going too far, too fast, and without the consent of the vast majority of the public. If I could be persuaded that the EU and the people running it were keeping the peace, then I'd forgive all their hauteur and all their extravagances. Nothing would be worse than another European war. But the signs as I interpret them -  in Austria, France and elsewhere - are that we are seeing exactly the opposite: the European project, in widening the gap between politicians and ordinary people, is planting the seeds of exactly the sort of vicious nationalism that made its founding so necessary.

A vote in favour of Britain's leaving the EU might lead to worthwhile reforms. So might a close decision, either way. But I wouldn't bet on it. For British voters, I'd suggest that a Leave victory would help to close the gap between themselves and the people who make their laws, and reduce the risk of contagion from what looks increasingly likely to be a mean-spiritedly (at best) or murderously (at worst) nationalistic continent. 

09 June 2016

Metrics for World Peace Bonds

Metrics for World Peace Bonds, or: Why Long-term Goals are Best

Pondering the best metrics for peace, I came to think that with a goal for peace sustained over fifty or more years, metrics that target for elimination the use of deadly violence become more closely aligned with what we actually want to achieve. By this I mean that, with a decades-long goal, bondholders would have incentives not merely to prevent the outbreak of violence, but also to prevent the precursors to violence. From the point of view of the backers and issuers of World Peace Bonds this makes the metric of deadly violence more robust.

For example: the Cold War ended peacefully, but if World Peace Bonds issued in the year 1950 had targeted a period of sustained peace of just ten years then bondholders would have profited, despite the accumulation of ever more horrific atomic and nuclear weapons, during the period that preceded the Cuban Missile Crisis of October 1962. If the same bonds had been issued with a target of fifty years of sustained peace, then bondholders would have been motivated to reduce tensions, including by such means as reducing the weapons pile-up, or fostering better relations between the US and USSR. A ten-year goal would see the original bondholders making profits while the prospects for peace looked ever darker. A fifty-year goal would have seen the value of their holdings collapse before and during the Crisis.

The point is not only that peace sustained for a decades-long period encourages longer-term thinking. It is also that by choosing the longer-term goal, our targeting of a relatively easy-to-measure metric like deadly violence and its consequences, we shall inevitably do much to eliminate the much less quantifiable - but hugely important - precursors of violence. 

08 June 2016

PBR and SIBS: bring in tradability!

The Economist writes about Payment By Results (PBR) for public services in the UK, and cites these problems:

  • PBR can create strange behavioural incentives, including a phenomenon known as “creaming”. Given the emphasis on meeting targets, providers are often tempted to focus on the easiest-to-help people. 

  • In addition, the economics of PBR can work against innovation. Providers of public services must pay their employees and suppliers. It is difficult, especially for small firms, to wait around for a payment based on how they have done.  Pay up, the 'Economist', 4 June
It goes on:
The question, then, is not whether to get rid of PBR, but how to make it work better."
My suggestion? Make the contracts tradable. Then government can specify broad, much longer-term objectives which would encourage participation of a much wider range of potential service suppliers at every stage of the pathway towards goal achievement. Unlike under PBR there would be creative destruction of useless interventions and inefficient agencies.

The article also mentions Social Impact Bonds, of which there are now 32 in the UK and the most famous of which 'seems promising'. I have posted before about Social Impact Bonds, which, while I think they may be a much-needed improvement in neglected policy areas, would benefit greatly by being made tradable (and so becoming Social Policy Bonds, as I conceived them). You can now search this blog for keywords such as Social Impact Bonds, or see here and here for my short papers on them.