Amsterdam

Conversation with Amsterdammers reveals much discontent with the way the Dutch Government allocates resources, particularly welfare. The attitude, by no means unique to the Netherlands, seems to be "because it's not perfect, I'm justified in going on the dole/ripping off the system/ripping off the rich/being permanently miserable".

My take on all this is that the problem is the wide and growing gap between people and their government. The gap is not going to close, I believe, until politicians express their goals in terms of outcomes that mean something to real people. Currently government goals are usually derived from an ideology, expressed as funding programmes for public agencies, or surreptitiously determined by the narrow interests of private corporations. Politicians are overwhelmingly ideologues or lawyers, skilled (or able to employ those who are skilled) with words and argument, but removed from the concerns of natural persons. Government should be about delivering outcomes for people, not about representing corporate interests, whether private or public. Social Policy Bonds, by inextricably linking policy goals to meaningful outcomes, would help to close the gap between government and people.

'Better than Kyoto'

'The Economist' pinched the title of my book on Climate Stability Bonds for its lead article on Kyoto. Its artticle is subtitled 'America should use the G8 summit to embrace carbon trading'. But I question that. Carbon trading may well be the most efficient way to reduce anthropogenic carbon dioxide emissions. But there is no evidence to say it's the most efficient way of stabilising the climate. What about removing carbon dioxide from the atmosphere? Shooting up mirrors into the atmosphere? Cyanobacteria that convert a carbon dioxide atmosphere into one dominated by oxygen? All unlikely to be the sole solution, but not necessarily more unlikely than Kyoto, which puts all our eggs into the one basket. 'Better than Kyoto' means looking at all potential solutions not just the one favoured by 1990s science. Climate Stability Bonds would give incentives to people to investigate all possible solutions and to look for the most efficient. Carbon trading, and Kyoto itself, are dangerous distractions from this goal.

Back in the UK

...after a few very pleasant days in Prague. I stayed at a modest hotel in Zizkov, a working class district two tram stops to the east of the city centre. At first I was apprehensive about the area, but it did not take much walking around to realise, or be reminded that, 'working class' does not necessarily mean menacing, nihilistic and drug-ridden as it seems to in the UK and increasingly in New Zealand, but can be synonymous with pride and dignity. Passing through customs at the airport back in the UK there are signs headed 'Assaults on Staff' warning us that anyone who beats up a customs official will be prosecuted. The authorities see no need to translate these into languages other than English.

Prague

In Prague, where memories of what happens when Government gets very far out of line are still prominent and sobering. A front page story in todayś International Herald Tribune quotes a Jiang Yhaohua, a Communist Party secretary for the township of Zegou, in Zhejiang in China

No matter how smart we are, we officials have limited information. The easiest way to avoid mistakes is by having more democratic decisions.

Impressive humility, and letś hope it portends a way forward for acting on complex problems such as crime, climate change, and violent political conflict, where officials, politicians and experts, however dedicated and well-meaning, are failing. A Social Policy Bond regime would democratise the finding of solutions to these problems by letting people decide both on the priorities they would give to problems, and the best ways of solving them.

UK

In the UK, where policy seems to be determined by anything other than outcomes and the state is enlarging its role by default. There is a serious effort to extend school opening hours to 0800-1800 so that both parents can more easily go out to work. Part of the motivation for this is doubtless the resulting increase in income tax revenues. In Spain, a controversial new law, will force men to do their share of housework. The legislation will oblige men to "share domestic responsibilities". Recalcitrant husbands will face the wrath of the courts in divorce proceedings.

Here in old Europe the first impulse of anybody facing any sort of problem is to blame the government and then to look to the government for a solution. Government doesn't mind intervening too much, because that is its raison d'etre, but the result is an enfeebled population, yet more dependence on governnment, and government enthusiastically going way beyond its competence.

A Social Policy Bond regime would clarify what government is about. Poverty and planet-threatening environmental problems would probably be given higher priority than the shortfall in baby-sitting services for double-income families. The state would probably not intervene when it comes to who does the vaccum-cleaning. I say 'probably' because the government's priorities would be determined by people, and they would choose outcomes that are meaningful to them. There may be many who think the government should run mass childcare establishments as an end in itself, but I suspect the state drifts into these activities through inertia rather than a as rational attempt to address the concerns of its citizens.

Old Europe

In the UK briefly, where the political hot topic of the day is road pricing. The same confusion about the difference between ends and means of policy that bedevils other policy areas is rife in transport too. First, traffic congestion is seen as an urgent problem that needs to be solved, rather than a symptom of deeper problems. Second, there is no agreement on what would constitute a successful solution. Presumably, uncongested roads. But that could be achieved by halving the road network, and raising costs of motoring so that road travel were cut by 95 per cent. We'd then have fewer roads, sure, but they'd be traffic free.

Uncongested roads are not valid as a policy goal for government, because they do not necessarily generate increased social welfare. They may or may not be a means to other ends. The right response from a government is to work out what these other ends are, then to target them. It should let people in a properly regulated market decide on whether and how to travel.

Government, by subsidising road building in previous decades, has made too many people and interest groups too dependent on low cost road transport. It has subsidised the big and global at the expense of the small and local. So any sensible initiative, such as road pricing, is going to be aggressively opposed and the result will be too little, too late. A Social Policy Bond regime would make clear exactly where government funds are going: it would express policy goals in terms of outcomes that mean something to real people rather than paid lobbyists or entrenched interests.

"The EU: regulations R us"

That was my entry for Tim Worstall's competition to design a bumper sticker for the European Union. It won an honourable mention from Tim, but the winners were:

MEP - my other car is a gravy train.

EU being serfed?

Don't Blame Me. I voted for Le Pen.

My own favourites are:

The EU: straighter bananas since 1992, and

The EU: putting the crass into bureaucracy

A European Union without France

A European Union without the French and their emotional insecurities and hangups could be a powerful force for good. For a start, there would be one official language, English, instead of twenty. Then the new EU could set about dismantling the Common Agricultural Policy and other corrupt protectionist scams. Then they could start thrashing out genuine common policies, instead of relexively opposing the US and UK. As it is, the French in the EU are behaving exactly as they do in Canada: blackmailing everyone else until they get what they think is in their interest. Perhaps it's time to call their bluff; encourage them to leave, and get on with the job of creating a genuine European Union, responsive to its people, rather than to the French elite's manipulative skills.

Tax breaks for the rich

Death by a thousand cuts by Michael Graetz and Ian Shapiro tells the story of the successful campaign to repeal inheritance (estate) tax in the US. It is a fascinating story, reviewed here by David Runciman.

The mystery is this: how did the repeal of a tax that applies only to the richest 2 per cent of American families become a cause so popular and so powerful that it steamrollered all the opposition placed in its way?

Part of the answer was the rechristening of the tax as the 'death tax', which implies that the tax was on the hard-working deceased, rather than those wanting to inherit wealth. The tax was also depicted as a form of discrimination,

By the time a few opponents of repeal started to make the case on more principled grounds, arguing that the estate tax was a crucial part of the American conception of giving everyone a fair chance in life, it was already too late. Graetz and Shapiro draw a blunt lesson from all this, designed to send a chill through the hearts of progressive politicians everywhere: ‘In politics, when you’re explaining, you’re losing.’

Social Policy Bonds are more about spending tax revenue than raising it, but this book does illustrate how the complexities of social policy can be readily abused by interest groups acting out of pure self-interest. Exactly the same goes on when lobbyists argue in favour of 'protection' for farmers (for example) that end up as subsidies to wealthy landowners and large agribusiness corporates while everybody else, and the environment, suffer. The true beneficiaries and victims are obscured by the formulation of policy in terms of funding of various projects or vague, mutually conflicting pseudo-objectives. A Social Policy Bond regime, in contrast, makes absolutely clear from the outset who shall benefit from particular policies.

Technorati tag: economics

Entrenching dependence

The European Union has decided to double the amount of taxpayers' money it will give in aid by 2015. The EU mandarins are obviously more comfortable giving other people's money as charity than allowing poor countries to prosper through trade. According to Oxfam:

The financial losses associated with import restrictions in rich countries outweigh the benefits of aid. Import tariffs, the least significant weapon in the protectionist arsenals of rich countries, cost developing countries around $43bn a year. The total costs of all forms of trade barriers – including tariffs, non-tariff barriers, antidumping measures, and product standards – are more than double this amount, rising to over $100bn, or more than double the total sum of development assistance.

The extra aid will amount to $40 billion. If the EU chiefs were genuinely concerned about third world poverty, they would dismantle their corrupt, insane, barriers to agriculture, textiles and clothing. Especially since, as Oxfam continues:

Such figures understate the real impact on the poor. They do not capture the costs of protectionism in terms of reduced opportunities for employment, reduced income for essential goods such as food and health care, or the long-term economic losses associated with restricted opportunities for investment. Nor do they capture the disproportionate impact on very poor households. Because Northern governments impose the most punitive import restrictions on goods produced by the poor, they systematically diminish the potential for trade to act as a catalyst for poverty reduction.

It looks very much as though EU governments are trying to replicate on an international scale the disastrous, enfeebling welfare dependency they have created at home. Perhaps they are more interested in control than prosperity.

Technorati tag Economics