Damn foolish things

Thomas Laqueur reviews The Sleepwalkers: How Europe Went to War in 1914, by Christopher Clark:

Many actors (the crowned heads of Europe, military men, diplomats, politicians and others), each with their own objectives, acting as rationally and irrationally as humans are wont to act, made decisions that foreclosed on others and collectively led the world into an unimaginable and un-imaged war. Some damn foolish thing, Thomas Laqueur, 'London Review of Books', dated 5 December

Millions of ordinary people had a vital interest in World War One not happening. Even when multiplied by what might have been thought a very low probability of its actually occurring, this should have represented a strong coalition in favour of peace. But there was no way this overwhelming wish for peace could have expressed itself. In those days the disconnect between policymakers and ordinary people was even wider than it is now. Calamitously, war broke out as the accumulated result of the perceived short-term interests of a tiny group of monarchs, aristocrats and generals.

The situation hasn't changed that much. Short-term goals predominate still amongst politicians and the military. Corporations have more power than monarchs and aristocrats these days, but are at least as adept at ignoring or manipulating public opinion. To paraphrase Otto von Bismarck: it's no stretch to imagine a catastrophic war breaking out nowadays over some damn fool thing in the East China Sea, or the Korean peninsular or the India/Pakistan border or ....

One way of making effective our wish to avoid another calamity would be to issue Conflict Reduction Bonds. Governments, philanthropists, NGOs or ordinary members of the public could all contribute to the funding of such bonds, which would be redeemable only after a sustained period of no major political conflict. In so doing, we would monetise our wish for peace, and act as a counterweight to the forces that, deliberately or not, propel countries into catastrophic wars or civil wars. There's nothing inevitable about war: it happens because people react, if not rationally, at least humanly, to the incentives on offer. Conflict Reduction Bonds, by rewarding people for achieving peace, could tip the scales in the other direction, and lead to what must surely be one of mankind's most noble goals: the ending, for all time, of war.

The great divergence, continued

It's not just that our western democratic governments stand apart from ordinary citizens, but that the gap grows every larger. Jim Newell writes about a US Senator, Jim DeMint, who is retiring to head up a think tank:

The whole curious DeMint affair bespeaks the ongoing shift of power in Washington away from the people’s business—and toward the ideological donor class....  At places like CAP, AEI, Heritage, and many of the other approximately 1,812 American think tanks, policy studies are still part of the operation, but their most vital public role is to act as partisan hacks for whichever side of the major-party duopoly they’re associated with. And the conservative think tanks are now reliable dispensers of ideological discipline on the right: they do exactly what is best in the short term for the Republican Party at all times and punish anyone who dissents. Good Enough for Government: WorkConservatism in the tank, Jim Newell, 'The Baffler', No. 23

Perhaps this sort of patronage-based corruption is built into any sort of policymaking system with which ordinary people cannot identify, whether that happens because government is too big, too remote, or its machinations too obscure. A government acting on a large scale need not necessarily be remote from or unconcerned with the well-being of its citizens. There are essential projects that require such a government: sanitation for example, or other major infrastructural works. But it does seem to be inevitable that interest groups, including big business and government agencies, interpose themselves between people and their government taking advantage of public funds in ways that are damaging to the public interest, self-enriching and therefore - because money buys votes - self-entrenching. Once that happens, elections become ever less meaningful; ordinary people become alienated from the political process and cynical.  Or worse.

One way of reconnecting people with the policymaking process might be direct democracy; frequent referenda along Swiss lines. Another might be to become familiar with expressing all policy goals in terms of outcomes that are meaningful to ordinary people, and to reward achievement of these outcomes, whoever achieves them and only once they have been achieved and sustained. By doing this, we could avoid today's corrupt favouritism of corporations or government bodies and de-emphasise the roles of political parties and their supporting donors and ideologues. Worthy though these aims might be in themselves, an outcome-based regime would, more positively, stimulate diverse, adaptive solutions to our urgent and large-scale social and environmental problems.

That's where Social Policy Bonds could enter the picture. They offer a way of achieving outcomes that rewards efficiency in achieving social goals above all other considerations. They inject market incentives into the solution of our social problems, impartially, with cost-effectiveness being the sole criterion for one approach being rewarded rather than another. A bond regime, because it would be efficient at achieveing social goals, and because its aims and means would be comprehensible to people other than politicians, bureaucrats, corporate lobbyists and think tank ideologues, could close the ever-widening gap between citizens and their government.

The great divergence

Only 40% of citizens in the mostly-rich countries of the Organisation for Economic Co-operation and Development expressed confidence in their national governments in 2012, down five percentage points from 2007. Eroding trust in government, 'The Economist', 15 November

 Brazilian Roberto Unger is a leading political philosopher and an advocate of progressive politics.He has taught at Harvard Law School for about 40 years and US President Barack Obama was one of his students in the 1980s. "There is no project in the United States responsive to the needs and aspirations of the broad working class majority of the country," said Mr Unger. Obama's law professor on his failures as president, Quote from BBC 'Hardtalk' programme, 15 November

It's not really surprising. Our governments have every incentive to respond more to corporate donors than to ordinary people. Big business and government have interests that grow ever further apart from those of the public and small businesses. They can get away with this because policymaking focuses on funding, institutional structures, legalistic debate and arguments about inputs, outputs or activities. Everything except meaningful outcomes in fact.

There is another way. A Social Policy Bond regime would subordinate all debate and decison-making to outcomes: what social and environmental goals should we be aiming for, and how much are they worth? These answers to these fundamental questions, ignored by the current system, would inform every project, every initiative and activity, launched under a bond regime. Apart from the incentives and efficiencies that the market for Social Policy Bonds would stimulate, the aims of the bonds would be explicit and clear to everybody. People might disagree about their relative priority, but they would know exactly what their government was trying to accomplish. Ordinary people could participate in policymaking and would engage with the inevitable trade-offs that have to be made when it comes to allocating society's scarce resources.

As a result, and crucially, we'd buy in to policy goals; perhaps not wholeheartedly but certainly more than we do today. Without such buy in, it's difficult to see how our governments, with their priorities so different from ours, are ever going to engage with the crucial social and environmental problems of our time, let alone solve them.

A world safe for high-frequency trading

Our boundless ingenuity, our immense technological knowledge: where are they being directed? Towards solving the problems that plague humanity? I refer to things like the piling up of nuclear weapons, catastrophic environmental disasters, murderous religious fanatiscism.... Well, no. Some, perhaps, most, of our best brains are going into answering this sort of question:

How will regulations impact the way traders are capturing alpha? Would there be restrictions that can possibly harm algorithmic trading?  ... What is the outlook for the markets when all participants engage in the arms race of super smart algorithms? Where will institutional and retail investors find opportunities? Conversely, could we imagine a world without high-frequency trading?

Yes, we are all relieved to know that the High Frequency Trading Leaders Forum 2013 - you know, the one that 'Every Trader and Quant in London is Talking About' - is to be held in London on 5 December. These traders and quants are some of the most brainy people there are. Hitched up to supercomputers these geniuses make a lot of money for themselves and their employers.

I can't condemn these people, whatever the net results of their collective actions. These people are reacting rationally to the incentives on offer. It's the incentives that are perverse. If people can make enough cash to bring up a family by shaving off one millisecond per financial transaction more than the next guy, then that is what they will strive to do. It just strikes one as sad that we don't have systems in place that would channel these bread-winners' undoubted immense ingenuity into more socially useful activities.

That's where Social Policy Bonds come in. Their tradability means that a bond regime can target broad, long-term goals that require diverse, adaptive approaches the nature of which we cannot currently conceive. The existing policymaking system deals with these goals, which include things like avoiding catastrophic disasters, stabilising the climate or even improving world or national health, haphazardly, if at all.

Of course, quants and other high-earners possibly do contribute more to tax revenues than ordinary people  - especially if they are badly advised. But, as we can see, governments generally don't do a great job at deploying this revenue to deal with long-term, large-scale problems, like avoidance of conflict or climate change. Again, their incentives to do so are minimal and mostly focus on power; retaining it, or acquiring more of it.

A Social Policy Bond regime would allow us to target broad global and national goals explicitly, while channeling the market's efficiencies into the best use of our limited resources. Given that the survival of the planet itself is under threat, I think the case for such targeting is a strong one, even if we have to give up high-frequency trading to get there.

No surprises here

The United Nations says it is “less and less likely” that global greenhouse gas emissions will be low enough by 2020 to stop the atmosphere warming beyond the internationally-agreed safety threshold – 2°C above its pre-industrial level. A report by the UN Environment Programme says current undertakings by world governments to cut emissions fall short of that goal, and emissions “continue to rise rather than decline”. Source

No surprise. If world governments were serious about doing something to moderate climate change, they'd reward people who help moderate climate change. Instead they have agreed on an elaborate, expensive, divisive and ineffectual policy of hand waving. The relationships are too obscure, or can be made to appear so: cutting greenhouse gas emissions might reduce climate change. But it might not. Even if it does, any benefits are likely to be minuscule. The costs are immediate, the benefits obscure and remote. It's not happening and it's not going to happen.

There'd be more popular support for targeting climate change directly. Under a Climate Stability Bond regime we could define our goal in ways that encompass an array of indicators: physical, biological, financial, so that all targeted conditions would have to be satisified and sustained before taxpayers become liable. We could choose to target goals including the reduction of casualties from adverse climatic events - something that ordinary people can understand and with which we can identify.

Apart from being comprehensible, the other big advantage of a bond regime is that it would channel resources into where they will be most effective at achieving our climate targets. It would encourage diverse, adaptive approaches, of the sort that Kyoto, with its fossilized science, cannot. And we are going to need diverse, adaptive approaches: the scientific relationships are too uncertain, and our knowledge expanding so rapidly, that any approach that focuses exclusively on just one variable (like the concentration of the few compounds identified as greenhouse gases twenty years ago) is going to fail. And it would fail even if it enjoyed support that took the form of actually doing something about it.

SPBs, SIBs and SOBs

It's probably too early to say whether the doubts being expressed about Social Investment Bonds (SIBs) are fatal or not, but one thing is clear: at best the bonds will function like performance related contracts. An improvement on most current government approaches, perhaps, but in terms of ambition and potential for real change SIBs fall far short of Social Policy Bonds. They aren't tradeable, which sounds like a mere technical detail but in fact severely limits how useful they can be. I've outlined why here, so in this post I'll just concede that Social Impact Bonds is a better name than Social Policy Bonds.

I'm reminded about why I chose the name Social Policy Bonds by the website linked to in the first link, above. It's a long pdf, which documented the meeting at which I first pubicly presented the bond concept, in 1988. I'd originally used the name Social Objective Bonds, until a colleague read my draft paper and told me exactly what the acronym meant and how widespread it was.

Metrics must be broad

Social Policy Bonds rely heavily on targeting measures of social and environmental well-being. That's a potential problem. Sue Halpern is writing about algorithms and metrics in a different context, but what she says applies to policymaking on behalf of any but the smallest population:

But the real bias inherent in algorithms is that they are, by nature, reductive. They are intended to sift through complicated, seemingly discrete information and make some sort of sense of it, which is the definition of reductive. But it goes further: the infiltration of algorithms into everyday life has brought us to a place where metrics tend to rule. This is true for education, medicine, finance, retailing, employment, and the creative arts. Are we puppets in a wired world, Sue Halpern, 'New York Review of Books', dated 7 November

The potential problem is that the metrics we use in policymaking might not correlate with societal well-being. Unfortunately, the alternative to a coherent, explicit, considered use of metrics in national policymaking is our current system, which features the unsystematic and de facto use of incoherent metrics that are too narrow and short term in their scope to bring about a rational allocation of resources. Applying broad, meaningful metrics to the health sector, say, is going to be far more efficient and welfare-enhancing than targeting a particular disease, just because the scope for efficiency gains is far bigger when resources can shift between different activities according to where they will be most cost effective.

The other problem with narrow metrics, however well meaning, is that they can easily be gamed. Thus:

 Yet indicators of maternal health [in Laos] are worse than in Cambodia ... and levels of malnutrition are atrociously high. To make things look not quite as bad, NGO types say, the government deliberately went around feeding children in villages monitored by the UN for the Millennium Development Goals—until it was found out. The future of Laos: a bleak landscape, 'The Economist', 26 October

Congratulations

Congratulations to Robert Shiller of Yale University, one of the three winners of the 2013 Nobel Prize in Economics. Professor Shiller has over many years encouraged my work on Social Policy Bonds. Back in 1997 I received this letter from him, and more recently he mentioned the bond concept in his 2011 book Finance and the Good Society, and in a brief article about the book.

Mental health

Spiked's Tim Black asks lecturer and psychiatrist Joanna Moncrieff  "'Why are there so many more people being given a diagnosis that demands the prescription of powerful antipsychotics?' Moncrieff is quick to answer: ‘That’s an easy one - it’s the pharmaceutical industry.'"

That's probably part of the answer. But as the discussion continues it's clear that societal changes are another, possibly more significant, reason.

The withering of old forms of informal social life, the corrosion of the traditional mechanisms of support and struggle, be they based in politics or faith, [have] left the individual in a potentially more helpless position.

Dr Moncrieff sums it up: 'We’ve become a much more atomised society ... one in which suffering and difficulties are located increasingly not in the social world but in the individual. So previously, if someone was depressed, not happy, not coping with life, that was a social or a family problem. But now it’s the individual that needs to be rectified rather than the system around them.’

I know a lot less than Dr Moncrieff or Mr Black about psychiatry and mental health. But my concern is, I think, relevant. It is that we do not have the institutional structures in place that will identify major causes of suffering as they change over time and then do something to alleviate it. Instead we have institutions whose sole concerns are, essentially, self-perpetuation and self-enrichment; any overlap between achievement of their goals and solution of society's problems is coincidental.

Yes, we have drug companies, whose motives and methods are increasingly at odds with society, but who are powerful lobbyists and capable of influencing the regulatory environment in their favour.

But social atomisation involves more than drug companies: it probably has much to do with town planning, transport policy, immigration policy, government welfare schemes and much else besides. The point is that we do not have incentives in place that will encourage people to investigate these - and other possible - causes and do something about them. The reverse, in fact: our de facto and default targeting of GDP as the greatest social goal, and the short-term interests of corporations and politicians, mean that social atomisation is hardly seen as a problem. Big pharma benefits from depression, after all, and it's certainly not in the interests of powerful corporations to question things like the apotheosis of the car or coercive multiculturalism.

In today's policymaking environment it's more profitable to treat depression, however ineffectually, with pills than to look for long-term, possibly more edifying solutions, that could threaten the narrow interests of corporations and their clients in government. It's highly likely that those corporate interests are doing much to create depression in the first place, and it's even more likely that it's in nobody's interest to find out for sure.

A Social Policy Bond regime would work differently. It would certainly not take today's intitutional structure as a given. It would take a serious look at mental health, depression and social atomisation and construct reliable metrics that could be targeted for reduction. Investors in Mental Health Bonds would themselves benefit by looking at all potential causes of and solutions to problems like depression and doing whatever is required to alleviate them. In doing so, their interests and those of wider society would merge - in stark contrast to today's policymaking world.

Nobody asked us

John Lanchester, having seen the UK's GCHQ files, writes about the UK:

...we're moving towards a new kind of society. Britain is already the most spied on, monitored and surveilled democratic society there has ever been. This doesn't seem to have been discussed or debated, and I don't remember ever being asked to vote for it. The Snowden files: why the British public should be worried about GCHQ, John Lanchester, 'The Guardian', 3 October

This is just one critical decision about how we live that is made without reference to voters. Politicians can get away with almost anything they want under the guise of  'national security', just as they can by citing 'economic growth'. Nobody questions these claims, because the relationships between them, the policies they generate, and the outcomes of these policies are too complex, and too bedevilled by time lags, to identify clearly. Once started, the policies create institutions that have sufficient lobbying power to resist reform and grow endlessly.

How would a Social Policy Bond regime deal with 'terrorism'? Most probably, we'd get some perspective on the matter. As Mr Lanchester points out:

Since 9/11, 53 people have been killed by terrorists in the UK. Every one of those deaths is tragic. So is every one of the 26,805 deaths to have occurred on Britain's roads between 2002 and 2012 inclusive, an average of 6.67 deaths a day. ... This means that 12 years of terrorism has killed as many people in the UK as eight days on our roads.

It's not for me to try to divine society's preferences about how we die. But suppose that, away from the aftermath of a terrorist incident, when cool heads prevail, we value a life lost in a road accident - or any other cause - as highly as a life lost to a terrorist incident. We might then decide that instead of creating a vast, expensive, intrusive bureaucracy to reduce premature deaths by a trivial amount, we'd want to channel society's limited resources more efficiently. In that case, we'd issue Social Policy Bonds that target something like 'the avoidance of premature deaths', or an aggregated measure of longevity, perhaps expressed in terms of Quality Adjust Life Years.

Regardless of how much we weight a death due to road accidents against a death due to terrorism, a Social Policy Bond regime would ensure that our preferences are made explicit and transparent, and that our resources would be allocated according to our preferences. Something that obviously, and ominously, is not happening today.