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.

Fossil fuel subsidies

Two brief excerpts from the International Energy Agency's publication, World Energy Outlook 2016, highlight what happens when there's no guiding strategic vision for our planet's future:

The value of fossil-fuel consumption subsidies dropped in 2015 to $325 billion, from almost $500 billion the previous year. ... Subsidies to renewables are around $150 billion today. World Energy Outlook 2016, Executive Summary; link to pdf here

The drop owes something to what the publication calls a 'subsidy reform process' but also to lower fossil-fuel prices. As well as these billions, there are, of course, subsidies for the exploration, development and production of fossil fuels. These are difficult to assess because of the “lack of transparency in government and company accounts, and limited information on off-budget subsidies to producers" source. It's easy to see how these subsidies arose, and why they persist. What is more difficult to discern is how our policymaking systems can do anything to address them. Large corporations have immense political power, partly funded by the very subsidies whose withdrawal they can effectively resist. The multitude of smaller interests, those of ordinary people and the environment, have little weight in our policymaking system.

There's nothing new in such an analysis, but what I can offer is a means by which we can aggregate and represent the interests of the vast majority of human beings - now and in the future - who don't benefit from energy subsidies and who suffer from the environmental depredations they cause. We could issue Social Policy Bonds that target for improvement the health of humans, plants and animals. Backed by national governments, the bonds would channel the market's incentives and efficiencies into improving the environmental well-being of the entire planet. Large corporations could still make money doing what they do now, but they'd find it less profitable. They might instead re-focus their resources into more environmentally beneficial areas. The way the bonds work means that bondholders would pick the lowest-hanging fruit first. In other words, they would maximise the environmental improvement per dollar spent.

But perhaps most important of all, Social Policy Bonds would clarify what we, as a species, wish to see. The current arrangement, the one that subordinates mankind and the planet to the narrow, short-term interests of large corporations, came about without consulting the rest of us. It thrives because the policymaking process is opaque to ordinary people, concentrating as it does on legalisms, institutional structures and, as we see with energy subsidies, obscure funding arrangements. A Social Policy Bond regime would change that. Because the bonds' starting point would be social and environmental outcomes, the public could participate in the policymaking process. So, if we wanted to donate billions of our taxes to large energy corporations we could still do so under a bond regime. I doubt that we'd choose to do that, but if we did we'd be doing so with our eyes open.

For more about environmental applications of the Social Policy Bond principle see here.

The EU: killing its citizens and destroying rainforests

Craig Sams writes, in a letter to the New Scientist:

... In 1993 my company Whole Earth Foods launched a trans-fat-free spread, branded Superspread. Other manufacturers objected to our advertising: the Advertising Standards Authority banned it, effectively killing our product. We presented the ASA with the medical evidence, which was abundant 23 years ago. They accepted its validity but said we violated their code because we were “appealing to fear” by suggesting trans fats could damage your heart health. When Denmark banned trans fats the food industry replaced them with coconut and palm fats, and the EU was faced with a rapeseed oil glut, as that was the oil that was mostly hydrogenated. So the Renewable Transport Fuels Obligation required rapeseed oil to be blended with diesel. That requirement overshot. So we are now deforesting Indonesia to grow palm oil to make up the quota for vegetable oil in diesel. If there is anything to be learned from this tragic fiasco that continues to cost tens of thousands of lives annually and blights many more with ill health, it is that agricultural policy should never trump health policy. The tragic fiasco of trans fats, letter to the 'New Scientist', 16 October

In short, the European Union couldn't care less about the health of its subjects, and helps destroy Indonesian rainforests. It keeps on doing it. And there are no mechanisms in place either to stop the insanity, nor to make the decision makers accountable, nor even to identify the decision makers, still less to get rid of them. That's why I voted for Brexit, and hope that this whole tragic experiment, which began so nobly, gets dragged behind the barn and killed with an ax.

Why I voted for Brexit

Some colleagues and friends were surprised by my voting for Britain to leave the European Union. I have tried to explain my reasons to them but, invariably, disappointingly, revealingly, they choose to ignore my arguments. It's not lack of interest in the topic: it's that they just know they're right. I agree with them that the European project began as a noble, well-intentioned and extremely successful way of anchoring democracy and helping keep the peace in Europe. I also value its helping to free trade within Europe and its promoting democracy in eastern Europe. Where we differ is that they think the EU retains its noble character and continues to be a force for good. I disagree and these are my reasons why.

First, as I wrote here and here: the persistence of the Common Agricultural Policy, in the face of four decades of its environmental depredations, its raising of food prices for European families (by around 17%), and its subsidies to the extremely wealthy:

Greenpeace analysed the top recipients of CAP subsidies in the UK for the first time. Some 16 of the top 100 are owned or controlled by individuals or families who feature on the 2016 [UK's] Sunday Times rich list, receiving a total of £10.6m last year in “single payment scheme” subsidies alone, and £13.4m in total farm subsidies.... The Queen, aristocrats and Saudi prince among recipients of EU farm subsidies, the 'Guardian', 29 September

Worse than all this is the CAP's crippling of trade opportunities for Africa, with the tragic results that we are seeing in the Mediterranean. Some would say that the EU's refugee crisis is largely self-inflicted. Bad karma.

Now the EU, again led by France, wants to do to Latin America what it did to Africa:

But 13 European countries, led by France, want to scupper the talks [about a trade pact] because their farmers are scared of Mercosur [a trading bloc whose core countries are Brazil, Argentina, Paraguay and Uruguay], the world’s most competitive producer of grains and meat. They forced the EU to withdraw, at the last minute, proposed tariffs cuts on beef. A trade pact between the blocks would make shopping cheaper for 750m consumers. Mercosur's missed boat, the 'Economist', 14 May

This is no small matter: the Common Agricultural Policy, still swallows up 40 percent of the EU budget. The EU has had 40 years to solve the CAP problem, but it has failed. The persistence of the CAP, in the face of all the evidence of its destructive insanity shows very clearly that the EU is systemically incapable of reforming itself.

The EU's Common Fisheries Policy is another disaster, also with grave environmental implications.

The EU, meaning Brussels bureaucrats, knows the CFP is crazy. Top European Commission officials say the current quota system is indefensible. The problem is that certain key national governments, eg, France, Italy, Greece, Malta, Poland (it is a long list), are adamantly opposed to any reforms that would lead to wholesale restructuring and consolidation of fishing fleets. Britain and the EU, Bagehot's notebook, 13 January 2011

Again, the real problem is not simply that the CFP is deranged, corrupt and environmentally disastrous. It is that, even knowing this and having known it for decades, the decision-makers at the EU won't reform it. Worst of all we, the common people, cannot even identify who's making these decisions; still less boot them out of office.

Nor are the Eurocrats addressing the problems caused by a common currency - including high unemployment in southern Europe - or immigration.

I regard these two statements as axiomatic:

• Big government is remote government, and 
• People in power always overplay their hand. No exceptions. 

The EU has morphed into an unaccountable, anti-democratic, opaque, self-interested, coercive body. Its structure and activities are creating precisely those most poisonous forms of nationalism that it was supposed to eradicate. The consequences of this threaten to negate all the undoubted good that European integration has brought about.

Divorce is always painful but sometimes it's necessary. Relationships, however glorious their beginning, frequently turn sour or abusive. Brexit might just be the shock that stimulates the EU to reform itself. I hope that happens, but I wouldn't bet on it.

Impediments to a radical transformation

My 27 August post pointed out the advantages of making Social Impact Bonds tradeable. In other words, of issuing Social Policy Bonds rather than SIBs. Why then have Social Policy Bonds, to my knowledge, not yet been issued?

One reason is that Social Policy Bonds work best on a large scale and over long time periods during which resources can most readily find their optimal deployment. I've pointed out the necessarily narrow scope of Social Impact Bonds here and here. Because SIBs cannot be traded, their ownership is restricted to a specified (small) number of service providers with an inescapably short time horizon as compared with the long time usually needed to solve important social and environmental problems. But SIBs' restricted scope acts as reassurance to policymakers in general, and the bonds' issuers in particular: it gives them control over who shall undertake the activities that help achieve the targeted goal. Yes, the bonds do reward more efficient performance, but only for specified service providers.

Social Policy Bonds, in contrast, work best when service providers are subject to creative destruction: the impetus that rewards successful firms and winnows out failures. It's a discipline rarely seen in the provision of social services which, being very often government agencies, are immune from penalty for poor performance (and often, if too successful, will face a reduction in funding, or even dissolution). The time period required for the solution of most major social problems will necessarily be long; longer in most cases than the planning horizon of existing service providers and probably, in the case of very remote goals (world peace, for instance) longer than most people's life expectancy. The creative destruction that will be a necessary byproduct of efforts to solve these large-scale problems discourages existing service providers, be they government or non-governmental organisations of any type, from advocating for, or themselves issuing Social Policy Bonds. Existing bodies, in this view, are impeding the achievement of some of humanity's most urgent goals, not so much through any active lobbying on their part, but because of an understandable wish not to jeopardise their survival.

It is the interests of existing organisations, public- and private-sector, and their wish either to control who shall achieve social goals or to survive that, I think, are impediments to the radical transformation of humanity's prospects to which Social Policy Bonds could give rise.

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.

The business of America is lobbying

Broken at the top is a recent Oxfam report which, amongst other findings, reports that:

• From 2008-2014 the 50 largest US companies collectively received $27 in federal loans, loan guarantees and bailouts for every $1 they paid in federal taxes.


• From 2008-2014 these 50 companies spent approximately $2.6 billion on lobbying while receiving nearly $11.2 trillion in federal loans, loan guarantees and bailouts.  


• For every $1 spent on lobbying, these 50 companies collectively received $130 in tax breaks and more than $4,000 in federal loans, loan guarantees and bailouts. Broken at the top, Oxfam, 14 April  

When I talk about Social Policy Bonds I usually emphasise their efficiency. But they have another great advantage: transparency. Expressing policy in terms of targeted outcomes does mean that ordinary people can follow what’s going on - in contrast to the current system. So if society as a whole wanted to subsidise the largest, wealthiest corporations in the land, then we could do so, and we’d be doing so with our eyes open. But if, as seems likely, people would rather see society's scarce resources channelled into helping the most disadvantaged amongst us, then we could issue Social Policy Bonds targeting for improvement broad indicators of our citizens' basic well-being. Health, for instance, or literacy and other basic educational goals.

These are outcomes that are meaningful to ordinary people. Which means we could all participate in the policymaking process. This would be a huge improvement over the current system, which is - deliberately or not - made so obscure that the only people who can follow it closely are those whose ultimate sources of funding are the already wealthy.

Subsidising obesity

Jason Fung writes:

The government is subsidizing, with our own tax dollars, the very foods that are making us obese. Obesity is effectively the result of government policy. Federal subsidies encourage the cultivation of large amounts of corn and wheat, which are processed into many foods. These foods, in turn, become far more affordable, which encourages their consumption. Large-scale consumption of highly processed carbohydrates leads to obesity. The Obesity Code: Unlocking the Secrets of Weight Loss (page 130), Jason Fung, 2016

What have this and other perverse subsidies got to do with Social Policy Bonds? Simply that the relationship between a policy and its effect is obscured by a policymaking process that focuses on supposed ways of achieving desirable outcomes, rather than the outcomes themselves. So, the US (and most other rich countries) justifies agricultural subsidies because they are supposed to protect the 'family farm'. But very little of these subsidies actually go to smaller farms: most of them are capitalized into farmland values, benefiting wealthy landowners, or end up as subsidies to large agribusiness corporates. And, as Dr Fung relates, they conflict with health objectives. They persist because our policymaking process allows the - deliberate or not - obscuring of the real goals of the powerful.

Expressing policy goals as broad outcomes that are meaningful to ordinary people would change this. If people truly wanted their tax payments and higher food prices to fund wealthy aristocrats and agribusiness then a government could achieve the same result without deceiving its citizens. But it's unlikely that the public actually wants to subsidise the very wealthy: it happens only because policymaking is effectively manipulated and disguised by the powerful. Social Policy Bonds would make the real goals of policy clearer to everybody, generating more public participation in the policymaking process and so, importantly, more buy-in.

Society needs more creative destruction

'Creative destruction' is the term coined by Joseph Schumpeter to denote a "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." 

Creative destruction in the private sector essentially means that failing companies go out of business and successful ones survive and prosper. One of the reasons that social problems persist is that creative destruction rarely determines which policies shall be aimed at solving them. Largely for historic reasons, the solution of national and global social problems, including crime, pollution, terrorism and war, has been left to the public sector. That is, to bodies that face no competition and are seldom rewarded in ways that correlate with their success. Indeed, many failing institutions supposedly devoted to solving social problems are likely be penalised for success, by seeing their budgets cut or even their very survival threatened. At some level, for some employees, this perverse incentive is bound to operate, to the detriment of the people they are supposed to serve but to the continued survival of the inefficient institution.

Social Policy Bonds are intended to re-jig these incentives by injecting market incentives into the solution of social problems. A bond regime would direct funding to those approaches that bring about the most benefit, defined in terms of beneficial social impact per taxpayer dollar. Note the word 'approaches': it's the best policy initiatives that are rewarded, not the body that introduces them, which otherwise might well become more interested in self-perpetuation than in achieving targeted social goals.

The unfortunate trend is that, rather than social problems becoming more subject to creative destruction, the private sector is becoming less and less subject to it. The current Economist focuses on the US manifestation of this:

The excess cash generated domestically by American firms beyond their investment budgets is running at $800 billion a year, or 4% of GDP. The tax system encourages them to park foreign profits abroad. Abnormally high profits can worsen inequality if they are the result of persistently high prices or depressed wages. ... If steep earnings are not luring in new entrants, that may mean that firms are abusing monopoly positions, or using lobbying to stifle competition. The game may indeed be rigged. The problem with profits, 'the Economist, dated 26 March

Exactly, and it's not only the biggest firms that can abuse government for their own purposes. Farmers do it too, and have been for decades, though it is likely that most benefits that are in the public mind accrue to farmers do in fact go to the biggest landowners and agribusiness corporates.

I believe this trend is unsustainable. The capture of government by big business and its lobbyists, which has led so much inequality, is already provoking a reaction. Let's hope that this leads to a policy environment that will allow creative destruction to play a bigger role in both the public and private sectors. I write about the need for a new protean type of organization, whose composition and activities will be exclusively focused on achieving social goals, here. New technology, including the blockchain, might help bring these organizations into being.

Rewarding the rich and the dead

From the Economist:

According to the [United States] Government Accountability Office, between 2007 and 2011 Uncle Sam paid some $3m in subsidies to 2,300 farms where no crop of any sort was grown. Between 2008 and 2012, $10.6m was paid to farmers who had been dead for over a year. ... [W]ith crop prices now falling, taxpayers are braced to be fleeced again. Milking taxpayers, 'the Economist', 14 February

When government makes so many policy interventions, some of them are going to be bad. A working, viable, democratic, accountable and transparent policymaking system would, we'd hope and expect, weed out bad policies or, with judicious regulation and further intervention, convert them into better policies. But our current policymaking system is incapable of doing that. Instead, bad policies become worse policies, because rather than have mechanisms for getting rid of them they create interest groups who resist change and, as recipients of taxpayer funds, can afford expensive lobbyists to make these policies permanent features of the political landscape. 

So it is with agricultural policy, not only in the US, but in almost all of the developed countries. Forty years ago, or instance, the stupidity of the European Community's Common Agricultural Policy was well established and widely discussed. But very little has changed. These policies hurt consumers in the developed countries by raising food prices. They reward intensive farming with devastating effects on the environment and animal welfare. They penalise third-world countries by putting up barriers to their agricultural exports. They cost billions of dollars and their only beneficiaries, apart from the bureaucrats who administer them, are agribusiness corporates and wealthy landowners. From the same article: 

American farm subsidies are egregiously expensive, harvesting $20 billion a year from taxpayers’ pockets. Most of the money goes to big, rich farmers producing staple commodities such as corn and soyabeans in states such as Iowa.

I wrote about all this 15 years ago. Worth repeating and emphasising is that our policymaking system does not correct its errors. Instead, appallingly wasteful policies persist because they enrich people who lobby against their removal. We have a system that cannot correct errors but rather entrenches them. The current system, in brief, is dysfunctional.

A better alternative would be to focus on outcomes, and reward people for achieving them. People understand outcomes, and policies under an outcome-oriented system would not be subject to the smoke-and-mirrors manipulation that saw measures taken to 'protect the family farm' be transmuted into subsidies for agribusiness and billionaire landowners - alive and dead. Agriculture, of course, is not the only sector that government policy has corrupted in ways that hurt ordinary people, though it is one of those with the longest history of government intervention. Our failure to correct our policy mistakes in agriculture speaks volumes about how unfit is our current policymaking system.

Solution aversion

From 'Duke Today':

A new study from Duke University finds that people will evaluate scientific evidence based on whether they view its policy implications as politically desirable. Denying Problems When We Don’t Like the Solutions, 'Duke Today', 6 November

I think this echoes a more general finding that we use reasoned arguments to justify prior beliefs, rather than base our beliefs on reason. What does this mean for policymaking? That we'd do best if (1) we are explicit and transparent about the outcomes we, as a society, want to see, and then (2) subordinate all activities, government or private sector, to those outcomes. Any other way of doing things, as in the current system, will bring about ... well, what we see now: the corruption of the policymaking process in the service of the not-always-well-hidden agendas of the rich and powerful. So 'helping small farmers' becomes corrupted into massive taxpayer-funded welfare for the very rich and agribusiness. 'Affordable transport' becomes massive subsidies to the fossil fuel industries. Misbehaving five-year olds are re-interpreted as a new market for the pharmaceutical industry. Even more wasteful, stupid and dangerous: 'being strong' becomes massive expenditure on so-called 'defence' and the acquisition of nuclear weapons.

If we want to support the very wealthiest and most powerful individuals and corporations, why don't we explicitly set out to do so? Why don't political parties promise that when they get into power they will divert resources from the relatively poor to the enormously wealthy? Could it be that such resource transfers would be unpopular?

The answer of course is 'yes', so views about issues such as climate change, or nutrition, or whether depression (for instance) is a chemical imbalance, or whether more armaments improve social well-being are the subjects not of reasoned debate based on the best available information, but means to ends that are usually sectional and mercenary. Interest groups act on what they believe are their narrow interests; their minds are made up, and they take whichever side of a genuine debate best serves their agenda.

It's a haphazard and destructive way of making policy. Social Policy Bonds offer a better approach: let society determine which broad social and environmental goals it wants to see achieved and their relative priority. Government and private-sector bodies would then be rewarded for doing what they can to achieve these goals: and they would have incentives to see and evaluate the scientific evidence in terms of how best they can serve society's interests, not their own. It might not sound revolutionary, and indeed it shouldn't be. But it is.

Who cares about outcomes?

Politicians are skilled at doing the exact opposite of what they make us think they're doing. The policymaking process in the public mind is a tedious discussion of organizational structures, organizational funding, and regulation. The tedium is so ingrained that few of us take a deep interest unless we're being paid to. It's probably deliberate, at some level. So when politicians say they want to cut back on subsidies paid for fossil fuel consumption, it shouldn't really shock us that not only are such subsidies still being paid, they're actually increasing. The International Energy Agency tells us that:

The IEA’s latest estimates indicate that fossil-fuel consumption subsidies worldwide amounted to $544 billion in 2012, up from $523 billion in 2011, with subsidies to oil products representing over half of the total.World Energy Investment Outlook 2014, IEA, June 2014

As pointed out here, this is four times the level of aid given by the OECD's Development Assistance Committee ($134 billion in 2013). 

The moral case for tax avoidance

George Monbiot writes about Scotland's deer-stalking estates and grouse moors:

Though the estates pay next to nothing to the exchequer, and though they practise little that resembles farming, they receive millions in farm subsidies. The new basic payments system the Scottish government is introducing could worsen this injustice. [Andy] Wightman calculates that the ruler of Dubai could receive £439,000 for the estate in Wester Ross he owns; the Duke of Westminster could find himself enriched by £764,000 a year; and the Duke of Roxburgh by £950,000. I'd vote yes to rid Scotland of its feudal landowners, George Monbiot, 'the Guardian', 19 May

It's not so much the wastefulness of such subsidies, nor the environmental devastation they wreak, nor even the lunacy of taking money from ordinary people to subsidise wealthy aristocrats and monarchs. Rather, the issue is the persistence of such stupid, corrupt policies, which have hardly changed in the several decades since they were first exposed and their impacts quantified. We have no systems in place to act on the voluminous evidence of their disastrous (for more than 99 percent of the population) effects. This is one big disadvantage of making policy as if outcomes are irrelevant: nobody has incentives to terminate failed policies. Instead, the beneficiaries of lucrative-but-stupid policies, have every incentive to oppose their withdrawal, and the means by which to do so.

Mr Monbiot goes on to describe the visual impacts:

The hills in many parts look as if they have been camouflaged against military attack, as they have been burned in patches for grouse shooting. It is astonishing, in the 21st century, that people are still allowed to burn mountainsides – destroying their vegetation, roasting their wildlife, vaporising their carbon, creating a telluric eczema of sepia and grey blotches – for any purpose, let alone blasting highland chickens out of the air. Where the hills aren't burnt for grouse they are grazed to the roots by overstocked deer, maintained at vast densities to give the bankers waddling over the moors in tweed pantaloons a chance of shooting one.

Insanity

From Bloomberg Businessweek:

Global fuel subsidies cost as much as $1.9 trillion a year.... In 2011, US subsidies for petroleum products were more than 2 percent of GDP. ...
Egypt spends 9 percent of [its] GDP to keep gasoline prices low. ... The IMF says 61 percent of gasoline subsidies goes to the richest 20 percent of citizens, who own cars....Why fuel subsidies in developing nations are an economic addiction, and The cheap fuel trap, Brendan Greeley, 'Bloomberg Businessweek', dated 17 March

What is it about our policymaking system that perpetuates this insanity? It's clear that the fossil fuel industries are powerful and so can lobby effectively for the subsidised extraction and consumption of their products. And we might not have known, at first, what we know now: that these subsidies transfer funds from the poor to the rich, accelerate the destruction of our environment, and are extremely wasteful. But now that we do know...what then? It's the persistence of these insane subsidies, in the face of decades of evidence of the social and environmental damage they do that is the biggest indictment of our current policymaking system.

Policies as crazy as these get implemented because they sound quite plausible. Reducing the cost of fuel, say, 'stimulates the economy, which creates jobs and benefits everybody'. Nobody bothers to ask why, if we are intent on giving out scarce resources to favoured groups, we don't give them directly to the people we say are going to benefit: poorer people, let's suppose, who can then make their own decisions about the sort of society they want to live in. Our current system takes some plausible-sounding relationship and makes it the basis of policy. That can work well when social and environmental relationships are easy to identify and don't change much over time. It works less well when we are talking about much more complex, intricate relationships, with thousands of variables and time lags. To reduce the negative impacts of climate change, for instance, or to bring about world peace: these are beyond the scope of any organization that first identifies (or claims to) a relationship between cause and effect and then formulates policy accordingly.

The better alternative is to target outcomes directly, and let motivated people work out the best ways of achieving them. These ways will vary dramatically over time and space, the more so for bigger goals. A Social Policy Bond regime would not only target these outcomes and reward people for achieving them; it would also inject the market's incentives and efficiencies, ensuring that they would be achieved in the most cost-effective ways possible.

The old way of making policy has been corrupted, such that we cannot even discontinue our most obvious, spectacularly stupid and destructive subsidy schemes. It's time to target outcomes directly, and contract out the achievement of our social and environmental goals to people who will be rewarded, not because they are powerful or smart or well connected, but because they achieve society's goals most efficiently. 

Place your bets

What is government for? Obviously, it's for distributing taxpayer funds to those who are most in need:

The much-anticipated first film of “The Hobbit” trilogy [could] gross about $3 billion. So how much taxpayer money, would you guess, did Warner Bros. Entertainment Inc. need to produce the films based on the J.R.R. Tolkien book? The answer is zero. The studios are investment companies, and the films are almost certain to be immensely profitable. But now you aren’t thinking like a studio. The real question is: How much taxpayer money can Warner Bros. demand from the government of New Zealand to keep production there (rather than, say, in Australia or the Czech Republic)? That answer turns out to be about $120 million, plus the revision of New Zealand’s labor laws to forbid collective bargaining among film-production contractors, plus the passage of three-strikes Internet-disconnection laws for online copyright infringement, plus enthusiastic and, it turns out, illegal cooperation in the shutdown of the pirate-friendly digital storage site Megaupload and the arrest of its owner, Kim Dotcom. Kill the Hobbit Subsidies to Save Regular Earth, Joe Karaganis, 'Bloomberg View', 4 December 2012

The Government is talking up lavishing taxpayers' dollars on Avatar sequels - but the Treasury has already panned the spending as a turkey. As part of the deal announced yesterday by Prime Minister John Key, two fellow ministers and Avatar director James Cameron, the movies' producers will get at least $125 million in taxpayers' money in return for spending at least $500m making the films in New Zealand. Critical Eye on Avatar Deal, Ben Heather, 17 December 2013

This is government as an investment company: thinking it knows how best to gamble with other people's money. Or it's a desperate attempt by politicians to associate themselves with something glamorous, at the expense of the millions of people who aren't as photogenic, so must pay for government and its whimsical bets. Either way, doling out millions to rich corporations is irresponsible at best, corrupt at worst. Governments can get away with this because they don't formulate policy in terms of outcomes. In our currently policymaking environment it's quite acceptable for politicians to act on the basis that, for instance, cutting back greenhouse gases will solve the climate change problem, or that building more roads will boost economic growth or, indeed, that boosting economic growth will enhance people's well-being.

The days when easily identifiable cause-effect relationships were significant enough to drive policy effectively and efficiently are gone. Society is too complex, the time lags too great, the linkages too murky, for that to work any longer. A better alternative would be to target outcomes, and let motivated people work out how best to achieve them, through adaptive, diverse approaches. A Social Policy Bond would do this and, as well, inject the market's incentives and efficiencies into every stage of every such approach.

For more details, see the SocialGoals.com website which, if you haven't been there recently, has been polished a bit, and now includes, on this page, links to pdf files of all the chapters in my book. 

I suppose things could be worse. Well, they are worse: as well as distributing scarce funds from the poor to the rich, government takes from taxpayers to subsidise the destruction of our environment. It makes our involuntary donations to Warner Brothers look like enlightened policy:

The UN Development Programme says rich countries should switch some of the staggering $35 billion a year they spend subsidising fishing on the high seas (through things like cheap fuel and vessel-buy-back programmes) to creating marine reserves—protected areas like national parks. In deep water, 'The Economist', 22 February (subscription)

The system's broken

 The Economist discusses the US Farm Bill, passed on 4 February:

[M]ore than 10,000 policyholders received over $100,000 from crop-insurance subsidies in 2011. The new bill tries to cap the amount that any one farmer can receive; but if the weather is bad, it could lead to higher payouts than planned. Taken together, these subsidies distort behaviour and trade in unhelpful ways. They have created products that make no economic sense in the rest of the world, such as making sugar from corn. As a penalty for keeping cotton subsidies in place, the World Trade Organisation’s rules require the American government to pay $147m a year to compensate farmers in Brazil. A trillion in the trough, 'The Economist', 8 February

It's the persistence for decades of these economically and environmentally disastrous policies that indict our entire policymaking system. Yes, policymakers will make mistakes; all the more reason why we should have systems in place to ensure that failed policies are terminated. But instead, we have the systems that ensure that appalling policies become more and more entrenched because of political inertia, because they subsidise resistance to their termination, or because they become capitalised into high asset values that would create genuine but temporary hardship if they were withdrawn. Governments have a long history of meddling in agriculture; they persist even though it's been known for decades that they are, to put it kindly, irrational.

And corrupt. The Economist continues:

How could Congress write such a law? One answer can be found in the register of political donations. The ten members of the House, nine Republicans and one Democrat, who accepted most money from agriculture lobbyists took in an average of $225,000 in political contributions during 2013, according to Open Secrets, which tracks donations—almost as much as some farmers received in return.

Not much is black or white in politics and policymaking, but as P J O’Rourke put it twenty-three years ago (in Parliament of Whores):

I spent two and a half years examining the American political process. All that time I was looking for a straight forward issue. But everything I investigated – election campaigns, the budget, lawmaking, the court system, bureaucracy, social policy – turned out to be more complicated than I had thought. There were always angles I hadn’t considered, aspects I hadn’t weighed, complexities I’d never dreamed of. Until I got to agriculture. Here at last is a simple problem with a simple solution. Drag the omnibus farm bill behind the barn, and kill it with an ax.

Institutionalised hypocrisy

"The role of citizens, of Christians, of humanity is to take care of each other, but not for Washington to steal from those in the country and give to others in the country.”

These are the words of [US] tea party Congressman Stephen Fincher of Frog Jump, Tennessee [who] argued passionately in favor of ...gut[ting] the federal food stamp program by over $20 billion and push[ing] an estimated two million people—mostly retirees and poor families with kids—further into poverty and hunger.

The reason? Rep. Fincher is a Crusader for small government...but he’s also one of the biggest welfare queens in his home state of Tennessee. According to federal subsidy data compiled by the Environmental Working Group, Stephen Fincher has personally cashed in on $3.5 million in federal farm welfare payments (aka agricultural subsidies) since 1999. Fincher’s average welfare payout comes out to $300,000 annually—200 times bigger than the $1,586.40 an average family in Tennessee receives in food stamp benefits a year. Small Government, Huge Hypocrite, Yasha Levine, nsfwcorp, 28 June

And so it goes on. It's 35 years since the corrupt insanity of farm subsidies was obvious to informed undergraduates; 30 years since the huge cost of these subsidies began to be accurately quantified and promulgated...and yet they persist. Our policymaking system just does not have the mechanisms to terminate failed policies if they are backed by large corporations and, especially, if they take money from the poor to give to the rich. The rich, that is, who can afford to pay people to follow our arcane policymaking process and manipulate policy for the benefit of their paymasters.

We'd stand a better chance of achieving social goals if we clarified policymaking by targeting outcomes: meaningful outcomes that ordinary people can understand, engage with, and influence. One of the advantages of a Social Policy Bond regime is that it would do exactly that: target explicit, transparent, meaningful outcomes and reward people who achieve them. The complexity and obscurity of today's policymaking procedures work in favour only of the corrupt and the hypocritical.

Creative self-entrenchment

The much-vaunted creative destruction that is supposed to underpin the wealth-generating bits of our economy fails to operate where government is concerned. Rather than terminate failed policies, government has powerful incentives to buy off the vested interests grown already rich from its largesse. Twelve years ago I wrote about the corrupt, insane agricultural policies of the rich world. At that time, the way these policies transfer wealth from the poor to the rich, their waste, their disastrous effects on the environment and animal welfare; all were well known and quantified, not least by the OECD - and had been for years. Yet, as George Monbiot eloquently points out, these policies persist:

It is a source of perpetual wonder that the people of Europe tolerate this robbery. Farm subsidies are the 21st century equivalent of feudal aid: the taxes mediaeval vassals were forced to pay their lords for the privilege of being sat upon. The fat of the land, 26 November

There is no systematic mechanism (pdf) for getting rid of discredited policies. If they are run by government, or any other monopoly, ludicrous policies are more likely to persist, at great cost to the rest of society, than be discontinued. They enrich powerful people, who use a small proportion of government's own largesse to lobby against their withdrawal. This is self-entrenchment and, as government accounts for every more of society's spending, it has hugely distorting, wasteful effects on our economy.

We need instead a system that will terminate failed policies. One that will supply incentives for people to solve problems, rather than to turn up for work for organisations that claim to solve problems. That is where Social Policy Bonds could come in. They would create a coalition of interests whose sole raison d'etre would be to achieve society's goals as efficiently as possible. The bonds would stimulate diverse, adaptive solutions to our social and environmental problems, and they would do so regardless of the identity or provenance of the investors. Under a bond regime, in stark contrast to today's politicians and bureaucrats, people would lose their own money if they persisted in failed projects.

The US election: who cares?

Who cares about the US election circus? More from Predator Nation:

[An] effective response to internal industrial decline [in the US] and foreign challengers required major changes in American government as well as industry. It required major improvements in the educational system, aggressive pressure to force incompetent industries to reform, ... and a variety of regulatory changes. But those measures had no focused, powerful, well-financed interest group to lobby for hem. Charles H Ferguson, Predator Nation, May 2012

What did those powerful interest groups decide to do? Mr Ferguson continues:

...to start using money to get what they wanted. But only what they wanted, individually - not what the country as a whole needed. Indeed, what was good for their company's profits was quite often bad for the nation.

Most voters probably know, at some level, that the politicians have not the slightest interest in the long-term well-being of the nation and its citizens or, rather, that they cannot afford to rule as if they have. The problem is self-reinforcing. It cannot reform itself. The people and the politicians live in different worlds and those worlds are moving away from each other. 

Despite recent interest (here for instance), I have no illusions about the likelihood of Social Policy Bonds being issued by national governments, but I will continue to put the idea forward as a possible solution. A bond regime would target outcomes that are meaningful to ordinary people: things like better health, lower pollution, or reduced risk of disasters, however caused. By focusing relentlessly on outcomes, rather than the current array of vague or unspecified targets, the bonds could shame governments into catering to the needs of all their citizens, rather than the wealthy and powerful. That's because governments would have explicitly and publicly to declare the outcomes that the bonds would target. And, because political debate would centre on these outcomes, rather than activities, outputs, funding arrangements, laws, regulations, personalities and hairstyles, it's far more likely that ordinary people would participate in the policymaking process. Under a bond regime we, the non-powerful, general public could still, as we are now doing, acquiesce in our tax payments being used to bail out a corrupt financial sector, or subsidies huge industrial and agricultural conglomerates and fossil fuel extraction and consumption. But, in that unlikely event we'd at least be doing so with our eyes open. Even that would be an improvement over the current system built, as it is, on deception.

Government by the rich, for the rich

House keeps farm subsidies, cuts food aid as it passes food and farm spending bill 'Washington Post', 16 June

This should be no surprise. We have known for decades that farm subsidies are insane; that they transfer income from the poor to the rich and that they do much to destroy the natural environment and animal welfare. But our corrupt political systems are incapable of stopping them. Much easier to cut food aid to those who count for nothing under the current regime: the poor at home and overseas. This is government for the rich by the rich. It makes a mockery of democracy.

If we made policy as if outcomes mattered, such lunacy would not survive. The tiny number of people who benefit from it can do so only because policymaking is an arcane process focused on procedure, funding, structural and institutional arrangements and other concerns entirely removed from those of ordinary people.

That's where Social Policy Bonds would differ: under a bond regime, projects, funding, and activities would all be orientated towards achieving specified social goals. The connection between policy and targeted outcomes would be explicit and inextricable. The public could engage with policymaking, so goals would have greater buy-in. The current farm subsidy regime is a symptom of a much bigger problem: that of the disconnect between policymakers and the people they represent. Social Policy Bonds, with their focus on meaningful outcomes, could re-connect policy with the public.