Finance, like dog food advertising, is a low priority

Social Policy Bonds are intended to channel our ingenuity and ever more impressive technology into achieving our social and environmental goals. I often suggest that many of the activities into which we currently devote boundless energy and resources are socially useless or in conflict with society's wishes. It is not only the relatively minor indulgences that somehow win society's approval against which I inveigh: advertising dog food for example, but such far more consequential resource sinks, such as nuclear weaponry (see my previous post), or finance: 

That’s finance. The total value of all the economic activity in the world is estimated at $105 trillion. ...The value of the financial derivatives which arise from this activity – that’s the subsequent trading – is $667 trillion. That makes it the biggest business in the world. And in terms of the things it produces, that business is useless. It does nothing and adds no value. It is just one speculator betting against another and for every winner, on every single transaction, there is an exactly equivalent loser.  For Every Winner a Loser: What is finance for?, John Lanchester, London Review of Books, 12 September 2024

We ought not to condemn those who choose financial trading as a career, whatever the net results of their collective actions. These people are reacting rationally to the incentives on offer. As Mr Lanchester says:

[I]n our society the classic three ways of making a fortune still apply: inherit it, marry it, or steal it. But for an ordinary citizen who wants to become rich through working at a salaried job, finance is by an enormous margin the most likely path. And yet, the thing they’re doing in finance is useless.

It's the incentives that are perverse, directing our efforts into socially useless, or worse, activities. One way of re-jigging the incentives would be to issue Social Policy Bonds, which would inextricably link the rewards gained by efficient resource allocation to the achievement of our social goals. These non-interest bearing bonds would be redeemable for a fixed sum only when a specified social goal. These goals would be broad and, importantly, meaningful to ordinary people, who could thereby participate in which goals would be chosen, and which would have higher priority. Such goals could include: reduced crime, an improved environment or, at the global level, nuclear peace, or a reduction in adverse climatic events. 

A Social Policy Bond regime would allow us to target broad global and national goals explicitly, while channeling the market's efficiencies into the best use of our limited resources. Given that the survival of the planet itself is under threat, I think the case for such targeting is a strong one, even if financial markets lose a fraction of their liquidity in order for us to get there.