'Complexity is fraud'

The late P.J. O’Rourke once wrote, in The Atlantic in April 2002, that: 'Beyond a certain point complexity is fraud…. when someone creates a system in which you can’t tell whether or not you’re being fooled, you’re being fooled.'

When people's wishes clash with vested interests it's the vested interests (the political class and those groups that can afford expensive lobbyists) that win every time. Our political systems are too complex, arcane or corrupt for ordinary people to stand a chance. The result is clear: an ever-rising gap between politicians and the people they are supposed to represent. 

Voting makes little difference. And, while we don't really know the intentions of the people in power, I suspect that whoever they are doesn't make much difference either. The vested interests are too powerful. They have perpetuated a policymaking process that effectively excludes influence from people outside their exalted circle. They have weaponised the complexity and obscurity of our systems of government for selfish ends.

They can get away with this because our political discourse centres on sound-bites, personality, and image. Actual policymaking is an entirely distinct process: much of it focuses on the structures and funding of government bodies, law and regulation; all of which are opaque to non-professionals - which is to say, ordinary people. The only people who now really understand policymaking are those who are paid to do so, and the only people who influence it are those who have the millions of dollars necessary to pay them.You might even think the system has been specifically designed to keep ordinary citizens out of it.

Bernardo Mueller's 2019, Why public policies fail, is perhaps less cynical: 

The failure of public policies is ubiquitous.This paper ascribes this failure to the complex system nature of public policies. A key characteristic of complex systems is that they cannot be closely controlled or predicted. Yet the traditional approach to public policy is fundamentally based on both control and prediction, as it proceeds by comparing the expected costs and benefits of a postulated set of alternatives. In this paper I provide five pathologies of complex systems and show how they cause the failure of the traditional approach. If a public policy is recognized as taking place within a complex system, it is necessary to use instruments that can work within those informational and epistemological constraints. I provide several examples of the types of policies that meet these demands. But when dealing with complex systems, even with appropriate instruments it is nevertheless necessary to adjust the expectations of what can realistically be achieved. Why public policies fail: Policymaking under complexity, Bernardo Mueller, September 2019

I believe that we can set up a system that solves our long-term problems by bypassing government decision-making and rewarding solutions however they are achieved and whoever achieves them. Social Policy Bonds would work by giving incentives to people to try many different approaches to problems, such as crime, conflict, climate change, and pursue only those that are most promising. Such a system would resemble biological evolution, in that there would be constant pressure, in the form of incentives, to select only the most successful approaches to achieving our social and environmental goals.

A bond regime would require that policymaking focus on outcomes, rather than the alleged means of achieving them. Outcomes are more meaningful to ordinary people than the current policymaking emphasis on legal pathways, funding arrangements, institutional structures and composition, and other arcana.

Meaningful outcomes are one essential element of the Social Policy Bond idea. The other is the injection of market incentives into their achievement: rewarding those who achieve our goals according to their efficiency in actually achieving them. The idea might sound outlandish at first hearing: handing over the solution of our social and environmental problems to investors. But government would still articulate our goals and raise the revenue for their achievemnt - things that democratic governments can actually do quite well. Only their achievement would be subject to the market, which economic theory and all the evidence suggest is the most efficient way of allocating society's scarce resources. No doubt the Social Policy Bond idea could do with some discussion and refinement. But the real question is: what is the alternative? To continue as we are doing, where the gap between vested interests and ordinary people grows ever wider, risks, in my view, social collapse.

The widening gap between politics and people

Unlike many economists I have no view on the size of government. Government is a means to various societal ends and those should be decided by people. I don't believe that taxation is theft, nor that economic freedom is the most important consideration. It is the large and widening gap between government and people that I believe needs to be addressed. 

The gap would narrow if more people participated in policymaking. One reason, I believe, why we're not very interested is that policy is formulated in terms that are difficult to relate to outcomes that are meaningful to us as natural persons, as distinct from corporate bodies. Policymakers seem to concern themselves with decisions about funding for different government agencies, dispensing patronage to big business and other lobbies, presenting themselves in the best light ... almost anything, in fact, except outcomes that mean something to real people.

A government that issued Social Policy Bonds would, from the outset, have to think clearly about social and environmental outcomes, rather than the supposed means of achieving them. Its main roles would be to articulate society's wishes regarding social and environmental outcomes, and to raise the revenue that would fund these outcomes. Unlike most of the current determinants of policy, the language of outcomes and the necessary trade-offs between them is comprehensible to people other than politicians, bureaucrats, lawyers and public relations experts. For that reason, more people would be drawn into policymaking - an end in itself, as well as a means toward getting greater public buy-in to the resulting policies.

Expressing policy in terms of outcomes, and the consequent closing of the gap between public and policymakers would be one valuable benefit arising from a Social Policy Bond regime. The other would be the much greater efficiency in achieving social and environmental goals once the market, rather than a handful of government employees, decides who shall achieve these goals, and how they shall be achieved.

World Peace

Targeting long-term goals means that we can greatly extend the realm of achievable oucomes compared to those available to today's policymakers. 

For example: world peace. Today that simply means an absence of war or civil war - violent political conflict. So the current definition of peace can (and does) allow for: piling up of all sorts of weaponry; including weapons of mass destruction; and hateful and provocative propaganda in the media, schools, and religious institutions. These increase the probability of deadly conflict in the long run, but would still technically be defined as 'peace' today. Rewards under this short-term vision accrue to arms merchants and others intent on fomenting conflict to take place some time beyond the horizons of today's politicians. Today's incentives then do little to prevent conflict. 

World Peace Bonds would be different. They would be issued with a very long time horizon: perhaps five decades. Any outbreak of large-scale violence would see investors in the bonds the prospect of losing money. But if they are effective in ensuring world peace, then they stand to benefit - as does everyone else on Earth. World Peace Bonds, with sufficient backing, would outweigh today's incentives. With such a long-term view, it would be in the interests of bondholders to eliminate the hateful indoctrination of schoolchildren and everyone else, and to control the sales and lethality of armaments. Bondholders would have incentives also to research, experiment and implement new approaches to conflict reduction, concentrating on those that are most promising and efficient. 

The goal of 'world peace' is readily categorised as unrealistic, utopian, idealistic and, of course, impossible. That's partly because we have only to look at human history in confirmation. But incentives have unleashed such human ingenuity that the quantity (population and longevity) and quality (standard of living) of billions of our species have risen spectacularly in recent decades. Long-term challenges threaten our achievements. We urgently need to supply incentives commensurate with the magnitude and long-term nature of those threats. 

The apotheosis of process

In a long post, the entirety of which is well worth reading, Dr Malcolm Kendrick contrasts the ongoing UK public enquiry into Covid with that done by the Swedes: 

In the UK we have massive Covid enquiry going on. It consists of ten ‘modules’, one of which has been finally completed, the other nine grind on. The chair hopes to conclude public hearings by the summer of 2026. Yes, 2026… Four years after it the enquiry started. (I would place a small wager that this deadline will be missed.) After this, a majestic report shalt be written. Which will take several more years, no doubt? By which time we will all have lost interest or died of old age. Last time I looked, the enquiry had cost well over one hundred million pounds (~$125m). I guess it will end up costing close to quarter of a billion by the time it is finished. All taking longer to complete than WWII. Sweden wrapped up their enquiry by February 2022, in well under two years. Done and dusted, before ours even got started. ...

In meeting its aims, the Inquiry will:

a) consider any disparities evident in the impact of the pandemic on different categories of people, including, but not limited to, those relating to protected characteristics under the Equality Act 2010 and equality categories under the Northern Ireland Act 1998.

b) listen to and consider carefully the experiences of bereaved families and others who have suffered hardship or loss as a result of the pandemic. Although the Inquiry will not consider in detail individual cases of harm or death, listening to these accounts will inform its understanding of the impact of the pandemic and the response, and of the lessons to be learned;

c) highlight where lessons identified from preparedness and the response to the pandemic may be applicable to other civil emergencies;

d) have reasonable regard to relevant international comparisons; and

e) produce its reports (including interim reports) and any recommendations in a timely manner. (A timely manner…ho, ho.)

Dr Kendrick asks what’s missing from these aims?

Just about every question you would wish answered. Plucking a few from the air:

• What is the evidence that lockdowns did any good
• What is the evidence that lockdowns were harmful
• What is the evidence that wearing masks provided any protection
• Were the models created by epidemiologists inaccurate, if so why, and why did we listen to them – and should we do so in the future
• Should we have had a behavioural unit within SAGE (Scientific Advisory Group for Emergencies) which used messages of fear to control the public response
• Were the vaccines rushed through without sufficient consideration to safety
• Were experts who disagreed with the official narrative attacked and silenced when it would have been more effective to listen to them

Yes, these sort of questions. The sort that you probably would like to have answered. Questions that the UK enquiry will go out of its way to avoid. Instead, it will be almost entirely concerned about process. Which departments should have spoken to each other. Should there have been a different oversight committee. Not, God forbid, any analysis of outcomes. What went on during Covid?, Dr Malcolm Kendrick, 29 January 2025

Exactly. By setting up these endless reviews of process, politicians can distract us from their failings and anyway wait till we've all lost interest before they're exposed. It's a systemic problem. Our political debates centre round peripheral issues: personalities, sound bites, funding arrangements, institutional structures and, yes, process. Everything except outcomes.What do I suggest? At the national level, I propose Tradeable Health Outcome Bonds, which would take a panoptic view of a country's physical and mental health, and reward people for improving it. (A shorter version is here.) The focus needs to be on outcomes, about which there is room for legitimate debate and discussion - the sort of discussion that ordinary people can understand and in which we could participate. Such discussion would be an end in itself, as well as generating a level of buy-in - essential when it comes to complex matters such as health and the environment, but which is largely absent from our current policymaking environment. Focusing on outcomes has other benefits as well as efficiency and transparency: especially in complex policy areas like health or the environment, where our knowledge is expanding rapidly, our goals are far more stable over time than the best means of achieving them. The Social Policy Bond concept is entirely aimed at achieving society's goals. The essential first step is to clarify exactly what are these goals, in consultation with experts and the public. You would think this would be a priority for every democratic government, but, sadly, it rarely happens. The result? Politics has become a circus, and policymaking a farce.

Market signals to inform those who achieve social goals

The market for Social Policy Bonds would generate extremely useful information that would enhance the efficiency of a bond regime. Price signals would be of immense value to investors in the bonds. At flotation, the bonds would be auctioned, and difference between the sums raised at flotation and the total redemption value of the bonds would supply the market's best estimate of the cost of achieving the targeted goal at that time. This estimate would vary over time, depending on many factors including bondholders' performance in undertaking or financing goal-achieving projects as well as changing economic, scientific and social circumstances. The market for Social Policy Bonds, then, as with all markets, plays a vital role not only in allocating resources but also in signalling to investors and policymakers the market's best estimates of the costs of achieving social goals.

A competitive market for Social Policy Bonds as well as signalling the total cost of achieving a specified objective, would minimise it. More subtly, and more technically, it would also indicate the marginal cost of achieving further improvements. Say one million crime reduction bonds issued by a local authority were to sell for $5 each. This would tell the issuing body that the present value of the expected maximum cost, including bondholders’ profits, of reducing the crime level from, say 50 to 40 units, would be $5 million. The local authority might then suppose that it could afford to be more ambitious, and aim for a further fall to 30 units. It could issue a million additional bonds redeemable when this new lower rate were reached. These would (probably) have an initial market value of less than $5, reflecting the (probably) diminishing returns involved in preventing crime. The point is that, by letting the market do the pricing of the bonds, the local authority would be getting an informed view of the marginal cost of its objectives. So if the bonds targeting the new level of 30 units were to sell for $4 each, then the maximum cost of achieving that objective would be $11 million, being equal to: $5 million (paid out when the level fell from 50 to 40 units) plus $6 million (paid out when the level fell from 40 to 30 units). The marginal cost of a 10-unit drop in crime would thus have been revealed to have risen from $5 million to $6 million. Should the local authority aim for a further fall to 20 units? Following such crime rate-targeting bond issues it would have robust information about the cost of doing so.

This is, of course, a simplified example and in fact the bond market would continuously update its pricing information. Say that new research, of the sort that might be stimulated by an initial bond issue targeting crime, suggested new ways of reforming or deterring criminals. Bondholders may, for example, have financed successful research into more effective reform programmes, or set up more appealing alternative lifestyles for especially hardened criminals. How would the market react to such developments? Once their effectiveness had been revealed, the value of all the bonds would rise. Instead of being priced at $5 and $4, the two crime reduction issues of the example might sell for $8 and $7. The total cost to the government of redeeming these bonds would not change: it would remain at $11 million (though redemption would most probably occur earlier). But the market would be generating new information as to the likely cost of future reductions in the crime rate. The market would now be expecting reductions of 10 units of crime to cost $2 million (from 50 to 40 units), and $3 million (from 40 to 30 units). The new research would have reduced the costs from $5 million and $6 million (respectively). So the cost of any further crime reductions would also fall, and by following market price movements policymakers could gauge approximately by how much.

These figures are hypothetical, but they do indicate the role that markets for Social Policy Bonds could play in helping the government, and taxpayers, decide on their spending priorities. This sort of information is just not available to today's policymakers, which is one reason why the costs of major projects are almost invariably much higher than initial estimates. (There are, of course other reasons rooted in cynicism and political expediency.) The point is that the market for the bonds is elegantly efficient in conveying information about the cost of achieving objectives and, crucially for investors and policymakers, how this cost varies with time and circumstances. I discuss this in chapter 5 of my book.

Climate change theatre

Jonathan Hinkles writes in the UK magazine, Airliner World:  

Talking to a major bus operator earlier this year, I was astonished to learn that the hydrogen powering the buses that Virgin HQ's building every few minutes comes from Saudi Arabia. It's converted to ammonia pellets, which are shipped to the UK, then converted back into hydrogen for use in buses. A mind-boggling amount of energy is expended in that process to achieve 'emissions-free travel', as the bus slogan proudly complains. Sky View, Jonathan Hinkles, 'Airliner World', dated February 2025

This is what happens when we target micro-objectives devoid of any link to our environmental goals. The micro-objective here is 'a reduction in greenhouse gas emissions per bus journey', which has nothing to do with 'a reduction in total greenhouse gas emissions'. I'd go further and say that instead of targeting greenhouse gas emissions, we should clarify exactly what we want to achieve: a halt to climate change? Or a reduction of the frequency and severity of adverse climatic events? Either way, national targets, let alone bus journey targets, are useless. Without a broad, global, specification of our goals, we'd have...well, what we have now: targets for reductions in local emissions of greenhouse gases that are politically divisive, expensive, have no buy-in, and are failing even in their stated aim:

Global average abundances of the major, well-mixed, long-lived greenhouse gases - carbon dioxide, methane, nitrous oxide, CFC-12 and CFC-11 - from the NOAA [US National Oceanic and Atmospheric Administration] global air sampling network since the beginning of 1979. These five gases account for about 96% of the effective radiative forcing by long-lived greenhouse gases since 1750. The remaining 4% is contributed by 17 other halogenated gases including HCFC-22 and HFC-134a, for which NOAA observations are also shown here. Source

My suggestions are that we first clarify whether we want to target the climate itself, or the effects of adverse climatic events on plant, animal and human life. Next, I suggest we issue Climate Stability Bonds that would specify exactly the goals that what we want to achieve, at a global level and over the very long term, and then reward the people who achieve them. I envisage that our goals would take the form targets for many variables, including those measuring features of the climate, and biological, physical, financial and social variables, all of which would have to fall into an acceptable range before the bonds could be redeemed. There are many posts relating to these suggestions on this blog, as well as links to my writings on the subject here. 

What do we really want?

Guy Standing, in a letter to the Financial Times, argues that, contrary to what statistics appear to be saying, inequality in the UK has, in fact, risen. As well as pointing out that official income statistics, by ignoring the very highest and lowest earners, tend to underestimate inequality, he writes: 

For most of the 20th century, state benefits represented a rising share of workers' social income. ...But, since the 1980s [they] have withered to a fraction of the average wage.... The same applies to community benefits, which come from the commons. The commons includes ...parks, libraries, childcare, allotments, a subsidised justice sytem, schooling. Most are worth a lot, and are withering. Guy Standing, letter published in the 'Financial Times', 13 January 2025

As well '[w]ealth relative to GDP has soared' and 'stronger property rights means [sic] a rising share of GDP goes to owners of physical, financial and intellectual property.'

To me, this points to the need to develop and target indicators that are inextricably correlated with societal well-being. Statistical measures of financial inequality, as Mr Standing writes, fails this test. It matters because, in the absence of coherent policymaking, badly thought out indicators become a de facto targets. Probably the most important such measure is GDP; its flaws as an indicator of well-being are well known but governments worldwide target it implicitly and explicitly ('economic growth'), though it has no necessary link to well-being and, indeed, can show an increase even as there is more activity that conflicts with well-being.

It is, perhaps, regrettable that, on the national and global levels, we require numerical indicators to get an idea of what's really happening. But, accepting that, we need to develop broad measures that are inextricably linked to whatever we actually want to measure; these we can then explicitly target. Targeting outcomes, rather than the alleged means of achieving them, would add some much-needed transparency to the policymaking process. Stability too: broad social and environmental goals are more stable over time than the many different policy approaches ostensibly aimed at achieving them. This matters because most of our broad social and environmental goals will necessarily take many years to achieve. We might also clarify whether supposed goals such as 'reduced inequality' are ends in themselves or rather a less precise way of targeting a perhaps more noble aim: the elimination of poverty.

Social Policy Bonds are one way in which we can focus on outcomes rather than, as now, personalities, funding arrangements, sound bites and ideologies, when making policy. They would oblige us to clarify what we really want to achieve. And, as well as their being explicit and transparent, they would inject market incentives into the achievement of our goals. Opinions will differ, but a big plus of targeting outcomes is that they can be understood by ordinary citizens, and so can generate public engagement and, hence, public buy-in: an important but currently neglected aspect of policymaking.

'The outcomes were terrible but the process was immaculate'

'The outcomes were terrible but the process was immaculate'

Social Policy Bonds aim to achieve social and environmental goals as efficiently as possible. For many years, I've written about how politicians and the public are distracted, cynically or otherwise, from these goals to the supposed ways of achieving them (see here, here, here and here for some random examples). So we fuss over funding arrangements or the composition and structure of the bodies whose ostensible remit is to help achieve these goals, but whose over-arching objective is almost invariably self perpetuation. When it comes to politics, we focus on the politicians: their personalities, their looks, soundbites, what they may have said when they were decades younger. In short: anything except the outcomes we want to see. The current Economist looks at how Britain uses process, often in the form of committees of enquiry, as a delaying mechanism: 'When the choice is between doing and discussing, British politicians instinctively opt for the latter.' 

Social Policy Bonds would be completely different. Their starting point would be the social and environmental outcomes that society wants to see. Politicians would retain the power to articulate and prioritise society's wishes, and to raise the revenue that would reward their achievement. But they'd relinquish the power to decide how our goals would be achieved, and which organisations would achieve them. That would be left to investors in the bonds, who would be rewarded for choosing only the most efficient approaches to solving our social problems. Most of our goals are long term in nature: slashing crime rates, reducing unemployment, improving health, for instance at the national level; ending conflict, mitigating the effects of climate change, and improving the environment at the global level. Today's politics, with its focus on politicians, personalities and process, is ill equipped to address our long-term needs. I suggest that Social Policy Bonds could be the way forward. They would lead to the creation of a new sort of organisation, whose sole focus would be on the achievement of our desired outcomes. I hope the article in the Economist (How means conquered ends, 9 January 2025, from which the quotes above are taken) is a portent of a necessary shift of policymakers' focus from means to ends.

Dealing with real or purported doubt about climate change

What should policymakers do when they face a challenge where the evidence appears to indicate a huge, urgent problem - but some purport to be convinced that it's not a real problem and doesn't require any action? I'm thinking here of climate change, but the same conundrum can apply to other challenges. Politics always implies trade-offs, and any attempt to solve a slow-moving, long-term problem will mean that other demands for government funds must go unsatisfied. So it's perhaps inevitable - at least in countries whose citizens' views count - that governments will do what they can to postpone taking effective action. Greenhouse gas emissions have been the focus of policies aimed at dealing with climate change and it's fair to say that the aggregate effect has been nil:

 

'Climate activism became a big public cause about halfway along this graph. Notice any effect?' From Riding the Climate Toboggan, John Michael Greer, 6 September 2023

The policymaking conundrum is a genuine one. Even for politicians who believe that climate change is happening and that we need to address it, the temptation instead to fund health, education and housing and other short-term social needs must be almost irresistible. We could, of course, fund yet more research with the aim of proving beyond all doubt that anthropogenic climate change is happening and that we must do something about it, but some would say that's already being done and that the interest groups opposed to, for example, cutting back on greenhouse gas emissons will always be able generate enough doubt in the minds of the public to ensure that their business can carry on as usual. 

So what can those policymakers who are convinced that climate change is real and urgent do? One approach would be to issue Climate Stability Bonds. The market price of the bonds would embody investors' continous assessments as to the likelihood and magnitude of climate change, and the costs of efforts to deal with it effectively. As such, governments would need take no action beyond articulating society's desired climate outcomes and providing the funding necessary to reward investors for achieving these outcomes. There's a lot more, of course, and there are links to my work on the bonds here, but the important point here is that regardless of whether climate change is happening; regardless of whether enough people believe it's happening, Climate Stability Bonds would stimulate the most efficient ways of achieving our climate goals.

Mediocrity and the lust for power: why politicians aren't going to issue Social Policy Bonds

The Economist writes about the career choices of some of the brightest US students:

Look at where graduates of Harvard, for example, end up. In the 1970s, one in 20 who went straight into the workforce after graduation found jobs in the likes of finance or consulting. By the 1980s, that was up to one in five; in the 1990s, one in four. ...[I]n the past quarter-century there has been an even more pronounced shift: in 2024 fully half of Harvard graduates who entered the workforce took jobs in finance, consulting or technology.... More than before—more even than when your correspondent entered Harvard less than a decade ago—life on campus feels like a fast track to the corporate world. Finance, consulting and tech are gobbling up top students, the Economist, 19 December 2024

Why become a politician? Your past and present private lives will be scrutinised and anything unfavourable that you have done or said will be made public. You and your relatives will need more security. You will lose your anonymity and you won't (legally) make a lot of money. So it's understandable, though regrettable, that most of our top intellects forgo a career in politics for careers that are less exposed, less personally dangerous, and more lucrative. There will always be some who, at least initially, go into politics for noble, idealistic reasons. But it does seem likely that the majority of politicians are only moderately talented people whose main goal is to be close to, and acquire power. That's one reason, in my view, why the remit of governments tends to expand over time. 

It's also one reason why governments are unlikely to be the first to issue Social Policy Bonds. While a bond regime would allow or, indeed, require governments to articulate society's wishes and to raise the revenue for the achievement, the bonds would see private-sector bodies competing with government agencies to be rewarded for actually achieving them. Only the most efficient investors in the bonds would benefit from holding them. Idealistic politicians would perhaps be interested in Social Policy Bonds, and investigate whether the efficiency gains that I foresee would in fact occur, to the benefit of a society's citizens. But today's crop of politicians would be reluctant, I imagine, to consider issuing the bonds unless they had been tried, tested and shown to be successful by private-sector bodies. Since the bonds would work best for goals considered very long term, it's going to be a long time before our politicians would consider issuing them. Even then, they'd struggle to relinquish the power they currently possess, and greatly value, to fund favoured bodies and to let the market make those decisions on the basis of efficiency. Realistically then, I'm hoping some private-sector body, be it a non-governmental organisation, a group of philanthropists, or a charitable foundation, will show some interest in the concept.