23 May 2017

Economics and politics: closing the gaps

Elisabeth Jacobs, in an essay, about Thomas Piketty's book Capital in the Twenty-First Century, says that politics is 'everywhere and nowhere' in his book. The reviewer points out that:
A focus on efficiency is unobjectionable in a world in which political and institutional stability can be taken for granted, much less so in a world in which it cannot. ... [E]conomists set themselves too easy, too useless a task if they can describe how capitalism works only when politics is unchanging. A new anthology of essays reconsiders Thomas Piketty’s “Capital”, the 'Economist', 20 May
Quite so. I've questioned the limited purview of the economics profession before. Economists find it safer to describe the world as it is, and to try (and usually fail) to predict what's going to happen to certain macro-economic variables. (There are exceptions of course.) The gap between economics and useful endeavours mirrors that between politicians and the concerns of the citizens they are supposed to represent.

In both cases, I think Social Policy Bonds could help close the gap. A bond regime would take as its starting point broad goals that are meaningful to a population: goals that are inextricably linked to our well-being and that we can understand. And because we can understand outcomes such as improved health, or nuclear peace, we can participate in assigning their priorities. (Economists could, perhaps, make a useful contribution here.) Such participation will give us more understanding of the trade-offs that inevitably need to be made. We might not see our own priorities replicated exactly in those  that society chooses to target, but we shall have been consulted, and so have far more buy-in, than under any of the current policymaking systems.

I think that lack of buy-in goes a long way in explaining why our political systems are failing, perhaps catastrophically. The gaps between policymakers and citizens; between the rich, the bureaucrats, media, academics, and ordinary people, are growing ever larger. Consultation about the outcomes we wish to see would start to close these gaps. Injecting the market's efficiencies and incentives to bring about those outcomes with optimal efficiency, would take that process a step further. The ultimate goal would be a politics that improves all our well-being, making for a more healthy, more prosperous and peaceful, more contented and cohesive society. A Social Policy Bond regime, I believe, could achieve all that.

19 May 2017

New concepts in Mickey Mouse micro-targets

What determines the targets that our governments aim at? Something that sounds good? Something that they're already measuring? Something that they know they can easily achieve without doing anything? One thing's clear: whether the goal is big (GDP, net immigration, inflation) or small (waiting times at hospitals), the goals chosen have nothing to do with the well-being of the citizens our governments are supposed to represent.Two examples recently cited:
Fifteen years ago police in Hokkaido, in Japan’s sparsely populated north, conspired with yakuza gangsters to smuggle guns into the country so they could meet quotas for finding them. As crime dries up, Japan’s police hunt for things to do, 'the Economist, dated 20 May
Some road space rationing scheme have had perverse knock-on effects. According to some reports, people in Mexico and Beijing have started buying second vehicles with different licence plates to get around restrictions. Often the second car will be cheap and more polluting. Cutting through the smog: What to do to fight air pollution, Nic Fleming, 'New Scientist', 3 May
In our complex societies quantitative targets are probably necessary. But these targets need to be both meaningful to ordinary people and inextricably linked to, improvements in well-being. The alternative to such indicators are the sort of Mickey Mouse micro-targets, like those above, that actually conflict with societal well-being. Social Policy Bonds would clarify what exactly as a society we want to believe. Targets would be the subject of debate in which the public can participate. They'd be broad and relevant, comprehensible and explicit. Targets are too important to be left to the interests of those with an interest in keeping them narrow, short term and irrelevant (at best) to the nation's well-being.

13 May 2017

Bribes for peace

A headline from Mailonline:
Could $175bn pay for the removal of Kim Jong-un? Huge bribes of $30m may be enough to convince North Korea's top officials to abandon their dictator, says expert by Julian Robinson, 12 May
I'm happy to see that the judicious use of financial incentives to achieve a desirable social outcome is at least being considered by one academic. The piece continues:
In his bookStop North Korea!: A Radical New Approach to Solving the North Korea Standoff, [Professor Shepherd] Iverson imagines a scenario where the top tiers of North Korea's power elite could be bribed to ensure a peaceful transition.
I've made similar suggestions myself: under a Social Policy Bond regime targeting, say, Middle East peace, bribes could be paid to troublemakers, but only if bondholders think that to be one of the most efficient ways of ensuring peace. As I'm sure Professor Iverson would agree, while the fanatics themselves are unlikely to be moved by lavish cash handouts, their enablers and supporters are another story.

This particular type of activity is one that neatly illuminates one of the less obvious advantages of a Social Policy Bond regime: whereas governments would find it politically impossible to pay such bribes, and whereas if they were anyway to offer such payments, there would very likely be a counterproductive reaction, holders of Social Policy Bonds need suffer no such qualms. Even if the bonds were issued and backed by some government or combination of governments, bondholders are not agents of government. It's entirely up to bondholders to decide how best to achieve the targeted goal, and if bribery is the most effective way of doing so, then that's how they'll do it. Notions of justice and fairness may have to be suspended but, in the case of North Korea (and others), avoiding catastrophe should be our highest priority.

05 May 2017

I don't know

'I don't know.' How often do we hear this from policymakers? Ask them how they plan to reduce crime, improve the environment or grow the economy and they will talk about things to do with funding allocations, institutional structures, laws, regulations and processes. They will never say 'I don't know.' We could even ask them how they intend to bring peace to the Middle East, to reduce the chances of a nuclear exchange, or to deal with climate change...and they'd still come up with superficially adequate responses. Responses, though, not answers.

Simple goals - sanitation, basic education, satisfying the nutritional needs of children etc - are those for which cause and effect are easy to identify, don't vary much over space, and don't change much over time. A benign and reasonably efficient government knows how to achieve these things. The more complex problems, though - including how to bring about benign and efficient government where it is absent - require a range of approaches to be tried, with only the most efficient being implemented. This is something policymakers don't do very well. Probably no single conventional organisation can do it well, beholden as they are to fixed world views, and the interests (monetary, ideological) of their supporters and employees.

I don't know how to bring about world peace, nor improve a nation's health, nor prevent or mitigate disasters, man-made or natural. I offer no solutions, but I do think that the Social Policy Bond concept is a way of encouraging people to find solutions: a way that channels the market's efficiencies and incentives into all the processes necessary to discover and implement the optimal mix of approaches to solving our complex problems. So, when asked how to solve the world's problems, I answer 'I don't know. However...'