23 February 2019

Climate change: the people have spoken

Consider the destruction of a rainforest to make room for a palm oil plantation. Or some island jurisdiction changing its tax laws. Or catching a plane from London to New York. All have effects, some of which can be captured by a market, some of which cannot. If globalisation means anything, it means that these effects can have ramifications far beyond the territory in which they take place. 

Many of our actions have impacts on the physical environment, and most of  these aren't captured by the market. Economists call these externalities. The negative impacts of fossil fuel use include air pollution. Even limiting ourselves to the impacts of air pollution, we don't know all the long-term effects. We suspect that they are or will be deleterious to human, animal and plant life. (In net terms, that is: some populations will benefit.)

The problem policymakers face is that the positive externalities of, say, fossil fuel use are upfront and of similarly huge dimensions to the negative. Every plane flight hugely benefits the passengers on board, their pals, the crew, and the others employed by the airline industry ... and then there's the freight. A fraction of these positive impacts, but not all, is captured by the market. At least as compelling are the positive externalities resulting from fossil fuel use in general: the benefits of electricity, heat, air conditioning.

To summarise: the market captures and quantifies some but not all of the impacts of a transaction. It misses a lot of positive and negative impacts. It fails to capture any impacts of anything we do that is not a transaction. All this is to say that fossil fuel use has huge positive impacts as well as negative, and we cannot say whether the negative effects outweigh the positive. The market does not, and cannot help us, because there's no way we can know and weight all the objective impacts accurately, but also because many impacts are subjective and unquantifiable.

Climate change: do we care?

Take climate change. The net negative impacts on human, animal and plant life of climate change – probably better termed climate breakdown – are incalculable and massive. Possibly catastrophic. We are pretty sure, but not certain, that greenhouse gas emissions cause some, maybe much, maybe all, of climate change.

We can, though, be more certain about whether we really care about the threat of climate change. And the answer is a resounding: not really. Lots of conferences, exhortations, subsidies for renewables (though not as many as for fossil fuels - see below), stirring rhetoric and doom-laden prognostications. Some change? Sure, at the margins. But meaningful results? No, no, no.

It's true that our political systems are so corrupted by their proximity to the ultra-rich that the long-term interests of millions of ordinary people count for less than the short-term goals of billionaires. The ultra-rich and their lackeys in and out of government are responsible for some of this: fossil fuel subsidies are estimated to be worth $160-200 billion per annum, and we are pretty indulgent in letting billionaires dictate policy. But that cannot be the complete answer. It's more like a cop-out.

The billionaires people have spoken

The fact is that we have collectively chosen not to do anything significant about climate change. We’ve chosen quality and quantity of life in the short run, over quantity and quality of life in the longer term. We find it easy to do this, in my view, because:

  • 'Climate change' is too abstract. and
  • We focus too intensely on greenhouse gas emissions, whose effects aren't fully known, and whose reduction might or might not do anything significant to bring about a more benign climate at some indefinite future time. 
My suggestion is that rather than address or pretend to address what we suspect, but don't know for certain, and cannot prove, is the principal cause of climate change (greenhouse gases emissions), we should try to deal with environmental depredations, whether or not they they are caused by climate change.

Limiting greenhouse gas emissions isn't happening and isn't going to happen. Even if the billionaires were to switch sides, most of us don't really want it to happen. The costs are upfront, the benefits nebulous and long term. What we want, what we can understand, relate to, and identify with, are reductions in the more tangible environmental pathologies: flood, wildfire and other adverse climatic events, loss of biodiversity, loss of wilderness, pollution of the air and seas. It's not solely an issue of presentation. We are more ready to pay taxes to help human, animals and plant life than we are to do something that might reduce the increase of some measure of global temperature some decades hence.

So I suggest that we divert resources from trying to reduce greenhouse gas emissions to solving other environmental problems, including those caused by climate change.

One way we could do this is by massively backing global Environmental Policy Bonds. These could target our biggest environmental challenges, regardless of their supposed source. The bonds would reward the achievement of verifiable, meaningful environmental outcomes. Examples: cleaner air, cleaner seas, reduced losses of biodiversity and habitat. We could target for reduction those environmental ravages that we now attribute to climate change including species loss and the impacts of adverse climatic events. The way the bonds would work means that investors would work out for themselves at all times, whether or not the best way of dealing with our environmental challenges is to tackle what we think are their root causes.

We need diverse, adaptive approaches. No single, top-down, one-size-fits-all policy will work. Environmental Policy Bonds can encourage the array of diverse, adaptive approaches that we need to begin to solve our environmental problems.

16 February 2019

Why don't we target trust and empathy?

Dr Elliott Barker asks How do we prevent crime?:
It seems incredible to me that as a society we don't publicly advocate those values upon which all harmonious social interaction depend - trust, empathy, and affection. Why shouldn't society - all of us collectively - reinforce our own latent awareness that these values are where it's at, and why shouldn't we do this at least as frequently and effectively as we allow ourselves to be reminded to drink Coca-Cola? How do we prevent crime?, Dr Elliott Barker, 'The Natural Child Project', February
Dr Barker calls for scrutiny of policies affecting infants and toddlers and a recognition that capacities for trust, empathy, and affection are more important than superlative exam results or musical virtuosity. Indeed, achieving such goals can conflict with child rearing practices that produce an adult capable of harmonious, co-operative human existence.

What's this got to do with Social Policy Bonds? Quite a lot, I think, and not just in respect of crime. Social and individual well-being are legitimate targets for government - at least as legitimate as educational achievement. It's entirely plausible that Dr Elliott is correct in that trust, empathy, and affection contribute mightily to well-being but my point is that, under our current system, few of us are motivated to find out whether he is or not, and that even if it could be shown that he is, few are motivated to do anything about it. At the individual level, sure, there are parents who have the time and energy to devote to child-rearing and who share Dr Elliott's insight. But they still have to contend with social forces, heavily influenced by government policy and its de facto targeting of economic growth at the expense of our social and physical environment.

Social well-being, trust, empathy, affection: these are difficult qualities to measure. The effects of their absence, though, are measurable, and politicians try to deal with some of them - especially those that could be televised - with an array of short-term measures: more money for the police, more prescription drugs, decriminalising narcotics, and so on. But they have little inclination to think long term. A Social Policy Bond regime, because the bonds are tradeable, could help in achieving such long term goals as social cohesion and the other contributors to well-being described by Dr Elliott. It could, for instance, target for reduction such pathologies as crime, mental illness, and other effects of social alienation and lack of trust. Our current political systems are inescapably short term, though and they focus on more immediately and readily quantifiable indicators - such as GDP and academic achievement - regardless of the longer-term cost to individuals and society of doing so. As Dr Elliott says:
It seems peculiar in a society in which schooling is mandatory from age 6 to 16 that we turn out graduates who have no preparation for the one job they are almost certain to have - raising children. Surely, before conception is a possibility, boys and girls should appreciate the permanent emotional damage that can result if the emotional needs of a young child are not met.
Dr Elliott is pessimistic about whether we will do anything to avoid such emotional damage. I will leave the last word to him: 
Why won't such preventive measures be taken? There are many factors. In part, it is because we are presently attuned to a shorter time frame politically and psychologically than prevention necessitates. In part we are misled by the excitement and drama of intervention after a problem has occurred. The cops and robbers game for example is the stuff of much of our entertainment. In part it is because today's casualties have greater motivation to lobby for their own immediate needs than for prevention of tomorrows' victims. In part it is because an impossible level of proof is demanded whenever we discuss changes that appear to tamper with our present values. But mostly we just know that such proposed solutions to crime prevention are "naively idealistic."

13 February 2019

Humanity versus vested interests

A correspondent asks me why the Social Policy Bond concept hasn't yet been implemented. A good question, especially as the non-tradeable version (Social Impact Bonds, also known as Pay for Success Bonds, etc) is becoming more widely deployed and much discussed. So...why not Social Policy Bonds?

I suspect part of the answer is that Social Policy Bonds are a threat to existing institutions: politicians, because they would have to relinquish their control over who shall achieve social goals and how they shall be achieved; and government agencies, such as education, police, health departments, because investors in the bonds would subordinate all their funding decisions to efficiency and, in many cases, new organisations and new techniques will be more efficient than existing bodies with their entrenched ways of doing things and fairly limited remits. Just one example: the best way of reducing crime rates in a disadvantaged area might be to subsidise employment there, rather than increase funding for the local police force. Or a cost-effective way of reducing the numbers of people killed or injured in car accidents might be to lay on free mini-cabs or taxis or have teams of dedicated, paid drivers whose sole job would be to ferry people from pubs, bars, nightclubs, home at night. That might be really cost effective but, under our current system, there's nobody to speak up for such a policy, and it would be opposed by vested interests. More dramatically: nobody really want to live under threat of nuclear war, but currently there are no bodies with sufficient influence and motivation to ensure that won't happen. Sure, there are teams of dedicated people in international bodies striving valiantly to reduce conflict but, the resources, including brainpower, just aren't there. Big money has less interest in avoiding nuclear catastrophe than it does in devising imaginative ways of selling dog-food. And why not? It's reacting rationally to the incentives on offer - which (I think) are perverse in that they prioritise the narrow short-term interests of a few corporations (and, arguably, a few dogs) over the survival of millions of human beings.

Another reason for the absence of Social Policy Bonds from the scene could be the hysterical nature of today's politics, where shrieking abuse at the opposition has supplanted making policy to improve society's well-being as the prime activity. So solving social problems is seen as a 'left-wing' goal, and using markets is seen as 'right-wing'. In more enlightened times, you'd think a policy that uses markets to improve social well-being would unite both left and right; but that's not happening. So while I'm partly encouraged by the slow spread of Social Impact Bonds, I'm also concerned that - especially if they become so common as to escape public scrutiny - they will end up serving vested interests at the expense of society as a whole.

For more about Social Policy Bonds see my home page. For my concerns about SIBs see here and here, as well as some previous blog posts.

05 February 2019

Perceptions and reality: no easy answers

A retired MD writes to the American journal Consumer Reports:
AS A RETIRED M.D. (30 years in emergency medicine), I agreed with most of your article about too many tests. However, you forgot to point out one of the big reasons for overtesting: hospital, clinic, and provider “scorecards.” Medicare providers are still being ranked by “patient satisfaction,” which is often driven by whether patients get all the tests they want— even after you explain why they aren’t necessary. Doing an X-ray on every sprained ankle is a classic example in emergency medicine. —Emma K Ledbetter, MD, 'Consumer Reports', March
There's s a genuine problem for policymakers: should we target for improvement only those goals that can be objectively measured, or should we also aim to improve something far more subjective: people's happiness or satisfaction? Ideally there wouldn't be a conflict, but in matters of health there is often a discrepancy between what's actually happening, and what people think or fear is happening. Crime too:
One would imagine that if crime was high, fear of crime would be as well, and alternatively, if crime was low, fear of crime would follow this pattern. What has been found over the years, however, is that crime and fear of crime rarely match up. Fear of crime, Nicole Rader, Oxford Research Encyclopedia, March 2017
In both health and crime, perception and reality aren't easily disentangled. In health, we all know about the placebo effect,whereby an objectively useless pill or procedure does actually improve a patient's condition and his or her perception of that condition. Crime rates might be low, but perceived crime high for a valid reason: people are afraid of, for instance, venturing onto the streets after dark. To add to the confusion: people's perceptions are difficult to measure accurately.

How to deal with perceptions when they might conflict with reality is crucial when trying to formulate policy for anything other than a very small number of people. Take, for example, the question of whether we should incorporate perceptions of crime into an overall crime index that we target for reduction? I'm minded to say no because perceptions can easily be gamed at the expense of objective reality. In today's political climate, it's all too easy to imagine an interested body to work on perceptions - via a massive advertising campaign, perhaps - and doing nothing to reduce crime rates. Similarly with health: we could weight the physically verifiable results of testing, or a placebo, say, more highly than their psychological impacts. (The latter could perhaps be given zero weight, as over-testing and other unnecessary procedures can have negative physiological impacts.) In general, then, perhaps the best approach is to target objectively verifiable indicators and hope that perceptions begin to match them more closely. When it comes to something like our crime example, where people are afraid to walk in the streets because of the fear of being mugged then we'd need to be more creative in coming up with objective targets in addition to goals such as 'reduced number of assaults'.

No easy answers then, to this question that's relevant not only to a Social Policy Bond regime, which relies on targeting explicit, verifiable and meaningful goals, but to any body implementing social policy that uses aggregated data to help formulate policy.