Outcomes, not algorithms, should define policy goals

There are sound reasons for being disdainful of quantitative targets in policymaking - something that forms the very basis of Social Policy Bonds. But, perhaps unfortunately, in our highly aggregated, complex, societies, the alternative to targeting broad, explicit and, most important, meaningful goals is to target narrow, opaque goals that are devoid of meaning in that they do nothing to improve social well-being. The current Economist does a good job of illustrating the problems of consequences of using narrow, short-term, incoherent targets (what I have called Mickey Mouse micro-targets):

They produce perverse results when people focus excessively on them. They tempt managers to manipulate numbers. The obsession with measurement diverts people from useful activity to filling in forms. The [UK] department of health provided a fine example of the first when it penalised hospitals whose emergency departments took too long to treat patients after ambulances had dropped them off. Hospitals responded by keeping patients waiting in ambulances rather than in emergency departments. The [London] Metropolitan Police illustrated the second, after it linked pay and promotion to achieving a crime-reduction target. A police whistle-blower told a parliamentary committee that downgrading or underreporting crime had become “an ingrained part of police culture”. The universities to which A-level students are struggling to get admitted provide an example of the third. Tenure and promotion are awarded on the basis of the production of articles (which can be measured) rather than teaching (which can’t), so students suffer.  How the British government rules by algorithm, the 'Economist', 22 August 

The most important quality of a target is that it should be in itself, or be inextricably linked to, things that we actually want to achieve. In other words, they should not merely have (perhaps) been associated with social well-being in the past. They should be outcomes that are meaningful to ordinary people, because that's what matters most and that is what will encourage people's engagement with policymaking and hence our buy-in to policies that affect us. They need to be broad, so that achieving one target does not come at the expense of other social goals. The alternative? Well, it is what we have now: indicators defined not by society, but by vested interests within organizations who suspect that broad, meaningful targets - indicators of actual, meaningful outcomes - would threaten their way of doing things, their status, or indeed their existence.

Nuclear peace: dogs and cats would also win

Nuclear war is as likely as ever, says former defense secretary William Perry

America’s nuclear weapons are thousands of times more powerful than the bombs that destroyed Hiroshima and Nagasaki 75 years ago. They’re on hair-trigger alert: ready to be set off by a false alarm, computer malfunction, or by human error. President Trump has the sole authority to start a war that would end civilization as we know it. KCRW, 31 July

That's really all we need to know, though the whole interview is worth a read. Nuclear proliferation demands a multiplicity of approaches. It's probably at least as great a threat to our survival as climate change, but there's no single, over-arching way of dealing with it. Government is especially bad at dealing with issues like this, where solutions are unlikely to come from the limited repertoire of command and control bureaucracy. Unless Government identifies solutions that it can implement, it's discouraged and tends not to follow through. It lacks the imagination to conceive of non-bureaucratic solutions, and it's not keen on relinquishing control. The result is our current perilous position.


Government cannot solve the problem, but it could set in place a system of incentives that would encourage a solution - or rather, the necessarily diverse and adaptive array of partial solutions. Government could recognise that, while it doesn't have all the answers, it can at least mobilise the private sector to come up with solutions. Collectively, we have the brainpower and the desire: look at the ingenuity and resources that go into analysing the pet food market, for instance. Or, worse, perhaps, see where even more of our best intellectual resources end up: in the, arguably parasitic, financial services sector. To divert some of our talents away from almost-useless (or worse) activities into reducing the probability of a nuclear conflict would, you might think, be worthwhile. Government could do this by issuing something along the lines of Nuclear Peace Bonds. It would define a set of nuclear peace targets, and back the bonds with rewards to be paid after specified periods during which a nuclear exchange does not occur. Bondholders would be motivated to bring about nuclear peace by whatever means they see as being efficient. They would not be limited to the solutions or activities that only government can implement. With a decent monetary incentive they could bring in our undoubted, boundless ingenuity to remove what is probably one of the greatest threats to our survival. If we're misanthropes, with a gloomy view our own species, its worth keeping in mind that nuclear peace would benefit our dogs and cats too.

Applying the concept to health

Emma Walmsley writes:

[T]he world needs to be better prepared for global health threats. ... Antimicrobial resistance is just such a threat.... We risk returning to a time when a simple cut could have lethal consequences and common surgical procedures might be too risky to perform. ... The world needs commitment from pharmaceutical companies and new incentives to attract long-term R&D development. Antimicrobial resistance is the new battle for drug developers, Emma Walmsley, Financial Times (subscription), 14 July

Ms Walmsley goes on to talk about a UK pilot plan to test a subscription model for new antibiotics, and to say that 'exploration of other incentives, such as an intellectual property-based extension voucher, or changes to health technology assessment methods for valuing antibiotics ...are promising options.....'.

This is true, so far as it goes. The problem is that it appears that not enough resources are being allocated to dealing with anti microbial resistance (AMR). Ms Walmsley suggests ways of addressing this. But what's missing is the broader context, with which I believe that the Social Policy Bond concept applied to health could deal with more efficiently.

Whether we are looking at global or national health, we need to know whether putting funds into reducing AMR is the best use of society's scarce health resources. Perhaps funds would be better spent on preparing for epidemics or pandemics. The word better is the key: we need to know where our health pounds or dollars will generate the biggest improvements in health. More precisely, we need people to have incentives to find out this sort of information and, because circumstances, including our scientific knowledge, change rapidly, this has to be done on a continuous basis.

Governments have to make their resource allocation decisions on the basis of data that are necessarily incomplete. How can they know the effect that spending to oppose AMR will have on the overall health of the nation, as compared with allocating the same spending to preparing for epidemics? So, by default, health expenditure is influenced by groups of medical specialists with little incentive or capacity to see improvements in the general health of the nation as an objective. As a result, funding of health depends to a great and varying extent, on the strength of their lobby groups or on their public profile, rather than on what would best meet the needs of society.

The Social Policy Bond concept, applied to health, would change that. I have described how they would work in more detail here. Essentially, they would give a coalition of investors incentives to look for and exploit the most efficient approaches to dealing with society's long-term health problems - on a continuing basis. Health would be defined broadly, using some index of which one component could be Quality Adjusted Life Years. And the goal would be long term. The coalition of investors would be a new type of organisation; one whose structure and composition could change over time, but who could profit with the long (perhaps 50-year) lifetime of the bonds by buying bonds, doing whatever they can to advance toward the targeted goal, then selling their bonds at a higher price.


Especially with health, we need people and governments who can take a long-term view, and have incentives to do so.

Panoptics and experiments

Tim Harford writes: 

From steroids to social policy, what works and what doesn't is often surprising. That is why rigorous experiments in real-world settings are invaluable. The risk of harm and the greater good, Tim Harford, Financial Times (subscription), 27 June

Rigorous experiments are, as Mr Harford points out, more complicated and time consuming than just going with solutions that sound right, or seem obvious. With many of our goals requiring long-term research and experimentation, there are few incentives for people to do these things, and only a tenuous relationship between successful approaches and rewards. There are also few bodies of any kind that are motivated to take a panoptic view; looking, for instance, at efforts to reduce conflict worldwide, and adopt and adapt the more promising ones. There are some who do these things; charities, NGOs, United Nations agencies, perhaps. But they suffer from some or all of these deficiencies:

• they are poorly resourced
• they have their own agenda
• their rewards aren't correlated with their success at achieving meaningful outcomes.

This is not to say that these bodies aren't staffed by hard-working, well-meaning people. For the most part they are. But incentives matter. Take wars and civil wars: reducing such conflict is fine as a career option where job security and a steady income can give people a decent standard of living, regardless of what actually happens to the particular conflict within one's remit. But there is a glaring mismatch between the laudable efforts of these employees and the challenges that conflict, say, poses to human well-being. The potential for catastrophe requires that efforts be stepped up. More intellectual and financial resources are essential. We need the sort of brainpower that currently is devoted to lucrative but socially useless questionable activities such as high-frequency trading or advertising dog-food.

We need, therefore, a system that offers the possibility of worthwhile gain to people for whom that is a prime motivation. We need to channel their self-interest into solving our biggest problems. We need them to benefit from taking the panoptic view, investigating alternatives, conducting experiments, and implementing and refining potential solutions to our long-term social and environmental problems.

Social Policy Bonds would do this. A bond regime would address the three bullet points above. First, if there is more money to be made by solving our social problems, then  more resources will be devoted to that end. Second, the agenda of investors in Social Policy Bonds that would be redeemed only when explicitly and transparently defined goals such as reducing conflict' (or similar) are achieved, would be exactly the same as those of society. Third, there would be the opportunity to buy bonds when the prospects for achieving the targeted goal are gloomy, to do something to make the prospects brighter, and to sell the bonds at a higher price, even before the goal has actually been achieved. So we can target remote goals, such as the end of world conflict, and still have investors interested in achieving them.

Underlying the approach that investors in Social Policy Bonds would be motivated follow, and one that isn't being done frequently enough today, is to take that panoptic view, and conduct the sorts of experiments that Mr Harford writes about - and that are essential if we are going to come up with the diverse, adaptive solutions to our urgent, long-range, social and environmental problems.

DIY biotech: something else to worry about

Biotech: DIY disaster zone...

...reads the header to an article in today's Financial Times (image at bottom of this page). It's a short article, but a frightening one:

Biotech is now within the grasp of hobbyists who can experiment with home-brewed opiates, DIY biohacks and even a mail order gene-editing kit to double the size of a tree frog. ...Modified microbes could damage ecoystems or trigger antimicrobial resistance.... A 'genetic engineering home lab kit' is marketed for just $1845. Lex, Financial Times (subscription), 24 June

How should we deal the disasters that this, or any other technology, known or unknown, could unleash? We can't anticipate exactly where disasters will come from; our tendency is to let government take the lead. But government has little incentive or capacity to get it right - as we are seeing right now. Perhaps it's too much to expect government, an inherently big, cumbersome organisation, to deal efficiently with unforseeable catastrophes. It doesn't appear to be doing a great job managing even those that we know about but that are happening in ways that do not make television news: things like the always-present potential for a nuclear exchange; or climate change.

Yet there are things that only government can do, and things it does well. Managing disasters that are already happening, and have a readily identifiable cause and effect is one such. Raising the revenue (or, as now, borrowing) on a large enough scale to mitigate disasters is another. But what government cannot, and has no incentive to, do well is deal with complex problems that require diverse, adaptive solutions. Lex says that reinsurer Swiss Re 'reckons there is scope for havoc' arising from amateur biotech, and its dangers appear in the company's annual round-up of emerging risks. Right, and you'd think it would be in insurance companies' interests to do something to forestall such havoc. Maybe it is, in the short term, but if they did too much what would happen to insurance premiums and their revenue? Perhaps quelling brewing calamities wouldn't fit their business model. I don't really know.

But I can offer what I think is a less speculative solution: Disaster Prevention Bonds. These could be backed by government and swelled by contributions from philanthropists, NGOs and the public, and made redeemable only when no major disaster befalls human beings over a period of a decade or more. The type of disaster doesn't have to be foreseen or foreseeable. Backed by sufficiently large funds, the bonds would encourage investors to do whatever is possible to avert major disasters, including being alert to embryonic threats, such as those posed by DIY biotech. Incentives are important. Some people today benefit by doing things that reduce the likelihood of certain, specified disasters. But only specified disasters and, besides, there aren't that many such people, that's partly because the rewards on offer do not correlate with a successful, sustained, disaster-free outcome. That's where Disaster Prevention Bonds could help.

I am grateful to Lex, not only for giving me something to blog about, and all of us something else to worry about, but also for this quote from Eliezer Yudokovsky:

Every eighteen months, the minimum IQ necessary to destroy the world drops by one point.

Sociopathic metrics

It still amazes me how badly metrics are thought out and used. I have railed for years against Mickey Mouse micro-objectives. The problem is that the metrics our governments use are invariably too narrow and short term. It seems that they are chosen because:

• they sound good,
• they are easy to collect,
• they take, as given, current ways of doing things, and
• they take, as given, current institutional structures and responsibilities.

The result though, is even more concisely stated:

• they are useless, or worse.

Useless, in the sense that they do not target outcomes that are meaningful to ordinary people. Worse in that...well, let US writer Matt Taibbi give examples from policing:

In the same way our army in Vietnam got in trouble when it started searching for ways to quantify the success of its occupation, choosing sociopathic metrics like “body counts” and “truck kills,” modern big-​city policing has been corrupted by its lust for summonses, stops, and arrests. It’s made monsters where none needed to exist.Where did policing go wrong?, Matt Taibbi, 2 June

There's no coherence about the construction of such metrics because I suspect, little thought goes into them. Government has become adept at obscuring the policymaking process so that even its stated goals don't work, and its unstated goals go unexamined and unexaminable by anybody other than wealthy interests or the people they employ to follow and influence the process on their behalf.

Social Policy Bonds might not seem the obvious solution to the serious problems this policymaking process has created: a widening gap between government and ordinary citizens, growing levels of inequality and growing cynicism. But, as I have said more fully here, they would impose one discipline that is as essential as it's currently evaded, and that is to agree on broad, long-term, social and environmental goals. We are seeing the result of sociopathic metrics and the arcane policymaking process that has led to their creation; not just in riots and mayhem, but in heightened levels of cynicism and despair. Politics and policymaking have become the ultimate closed shop, closed to ordinary people because we just don't understand it. It's time to open it up and the first step is to ask, not tell, all of us what are our policy priorities?

Who really cares?

The problem with the worldwide protests is simple to state, difficult to solve: giving power to the people who say they'll help groups X and Y doesn't actually help people in groups X and Y. This is one of the few constants of history.

And that is even with the assumption that the leaders or spokespeople for these groups actually mean what they say, and care about the people they purport to represent. I have my doubts about the leaders of the current protests but, even if we assume their good intentions, the probability that they, or the people who shove them aside once their bid for power succeeds, can or will do anything to help their constituency is low. This is not a party political view: just a statement of fact. From the current US President's base to the idealists who fomented revolution in France or Russia...the gap between hopes and reality is wide and deep. There is very little correlation between the stated goals of people wanting power and the post-election or post-revolutionary facts.

Social Policy Bonds, at first sight, might seem a wacky solution to the problems we are all facing. I mean not only such global problems as climate change and threats of nuclear catastrophe, but also problems such as the systemic, self-reinforcing inequalities, between and within countries that should be unacceptable in their own right, as well as posing a threat to democratic political and economic systems that are the least worst in human history, when it comes to maximising the chances of a decent life for the largest number of people.

Social Policy Bonds? A new financial instrument? As if there aren't already enough ways in which the financial sector has invented new ways of obscuring the ways in which it syphons off resources - including some of the world's best mathematical brains - from the rest of society, for its own selfish purposes.

But Social Policy Bonds would be different. Yes, they would use the market's incentives and efficiencies, but they would be doing so to achieve society's goals. Their use of markets is secondary to their first essential element: that of clarifying and targeting our social and environmental goals.A Social Policy Bond regime doesn't need to take an opinion on the more controversial and divisive aspects of policy: how our goals shall be achieved or who shall achieve them. That would be left to investors in the bonds who would be rewarded exactly according to how successful they are in achieving our goals. Under a Social Policy Bond regime, politicians wouldn't be able to obscure the workings of government by making arcane, protracted,self-serving decisions about regulation, or institutional structures and funding—procedures that, you might think, are specifically designed to deter anyone other than powerful interests and their paid agents from following. On the contrary, Social Policy Bonds would target outcomes that are meaningful to ordinary people. On the national level these would include improved health, reduced crime rates, universal literacy. On the global level, the bonds could target nuclear peace, the prevention and mitigation of all kinds of disaster including adverse climatic events or, again universal literacy. The point is that these would be society's goals. Goals that are comprehensible and meaningful; goals that all can help in formulating and prioritising.

It is this aspect of Social Policy Bonds—the articulation and prioritising of our social and environmental goals—that needs to be emphasised if they are going to become acceptable, just as much as their use of markets which, rightly in many cases, have been discredited by their manipulation and subversion to the benefit of the already powerful. After thirty-plus years of advocating Social Policy Bonds, I remain hopeful. Well, put it this way: I certainly can't be hopeful about any of the other policymaking systems currently on offer.
anising society currently on offer.

Crime and alternatives to Punishment

The Economist writes:

Although the general call for "defunding" risks a backlash, the details of redirecting part of the police budget to arms of local government, such as housing or mental health, may make sense. The power of protest and the legacy of George Floyd, the 'Economist' dated 13 June

Right. The best way of dealing with crime, is not necessarily to give more money to the police, or to imprison more people, or to impose more drastic punishments. By 'to deal with crime' I mean: to reduce the crime rate. That is a goal that, I think, most of us can agree on. Other supposed goals are nothing more than surrogate indicators, or the product of sorrow, or anger, or revenge psychology. But if we accept that our goal is to reduce the crime rate, and admit the truth: that we don't have a clue how best to do so...well that is a good starting point.

We don't have a clue because the causes of crime vary from place to place, from person to person, from time to time. The best way of reducing crime in some small town might be to subsidise small businesses - which might be a lot cheaper and less divisive than beefing up the local police force. In another area, at a different time, the most efficient way of reducing crime might be to install surveillance cameras, or lay on free taxis for youths leaving nightclubs, or provide talking therapies rather than antipsychotic medication.... The problem we have is not only that the causes of crime are too complex and dynamic for any single organisation to address. It's that there is no incentive for anybody to take such a broad approach. Everybody—politicians, the police, psychiatrists—has their own agenda. Well meaning, hard working these people may be, but they are not rewarded for their success in dealing with a major social problem. It's far too complicated for any single organisation to deal with. We need diverse, adaptive approaches.

My suggestion is that we apply the Social Policy Bond concept to crime. A short essay on how to do this appears here. The paradigm fits other social and environmental problems. The first task is to clarify and articulate exactly what outcome we are looking to achieve. Because we are not concerned with how our goals shall be achieved, nor with who shall achieve them, we can target long-term goals that have eluded past efforts at achieving them, such as world peace or universal literacy or, indeed, reduced crime rates. The role of government would be to articulate society's goals and raise the revenue to achieve them. But the actual achievement of complex social goals should be done by a coalition of people who are motivated to find the most efficient solution, regardless of how many vested interests they have to undermine to do so. And that is where Social Policy Bonds enter the picture.

To read more, please go to the Social Policy Bonds site. All my papers and book chapters are available there and can be downloaded for no charge.

An honest politician

An honest politician or Why we need to target outcomes

Michael Lind quotes Jean-Claude Juncker.

Jean-Claude Juncker, the prime minister of the tax haven Luxembourg who became the president of the European Commission from 2014 to 2019, described how the European Council systematically expanded its authority by stealth: We decree something, then float it and wait some time to see what happens. If no clamor occurs . . . because most people do not grasp what had been decided, we continue—step by step, until the point of no return is reached. Michael Lind, in an excerpt from his book The New Class War, quoted here.

The quote goes a long way to explaining the wide, and widening, gap between politicians and the people they are supposed to represent. Our policymaking system is just too complex, protracted and boring for anyone other than powerful people, or their paid lobbyists, to follow and influence. That means, on the one side of the gap: politicians, bureaucrats and big business. And on the other, ordinary people and small businesses.

We are not heading toward a more simplified policymaking system. Society and the environment are not becoming easier for the public to comprehend. The trend is toward more complexity and, therefore, more opportunity for powerful interests to influence policy in their favour. The world economy might shrink as a result of, say, the pandemic, or climate change, or some other disaster. But there no indication that the rich and powerful will voluntarily relinquish any of their share. The future, then, might seem to be bleak: even greater inequality and, quite possibly, mass impoverishment.

I suggest that one way of avoiding such a miserable scenario is to re-orientate policymaking in such a way that most of us can understand it. Our current systems emphasise personality, image, spending pledges, legislation and organisational structures.These have in common one thing: they have nothing to do with outcomes that are meaningful to ordinary people.

Social Policy Bonds are a possible way in which we can express our policy goals in ways that people can understand and, in so doing, participate in their formulation and setting their relative priorities. So, for instance, rather than look at the sums spent on a health service, or at the numbers of people tested (or 'tested' - some of the results are spurious) for covid-19, or the quantity of protective (or 'protective'...) equipment acquired by a country, or other micro-targets, we would focus on the health of citizens, and target that for improvement. Social Policy Bonds would work by contracting out the achievement of our health goals to the market - which would include government bodies, so long as they are efficient. But the important first step would be to define our health goals, and let investment flow according to our health targets. My piece here gives more detail.

The great advantages of Social Policy Bonds are twofold. One, the market will reward only the most efficient approaches to achieving society's health goals. Two, a bond regime would require that we have explicit, transparent, broad, long-term goals that would be understood, and contributed to, by any members of the public who wish to get involved. That, perhaps even more than greater efficiency, would be a worthwhile benefit. It would certainly help avoid the cynicism of a Juncker, and the outrage that his world view—widespread I am sure among our leaders—ought to elicit.

The Coronovirus Bailout alternative: how it might work

My previous post was a letter published in the Financial Times, which suggested that instead of disbursing covid-19 bailout funds to businesses, the UK Government could instead issue coupons to people entitling them to spend the equivalent per capita sum in particular expenditure categories. Here I will sketch out some broad outlines as to how this scheme might work.

Guiding principles

• Aim for what’s best for the country.
• Aim to compensate sectors for losses incurred.
• Aim to give consumers choice about which businesses to support within each expenditure category.

The starting point is the sums that Government would otherwise spend on bailing out businesses hit my covid-19. 

Categories are broad, partly for simplicity, partly because coupon-holders should be able to choose between providers of services. Coupon-holders can choose within categories. All coupons are tradeable and exchangable. I would assume that all businesses have barcode or QR scanners but that many consumers don't.

• I suggest as examples of categories: 
• Air travel
• Surface travel
• Personal services (hair, nails, massage, body-piercing, tattoos, any similar one-to-one service) 
• Hospitality 
• Private healthcare, including dentistry

Expenditure statistics per UK household for 2019 are given here. To some extent categories will be decided by the statistics available. 

Example: The ONS says each UK household spends £51.30* per week on restaurants and hotels. Rather than try to assess and then compensate each business for any lost income, I suggest giving each household coupons worth 104 times £51.30* = £5335 to be spent on restaurants and hotels, within the UK, within the next two years. 

*Bear in mind that the UK Government's aim is to compensate UK business, so a sum representing expenditure on overseas hospitality would have to be subtracted from the £51.30 

There are other aspects that would need discussion. In particular, the entitlements of each household should be broken down to adults and children. 

The scheme would be more complex and more contentious than the likely government plan of direct compensation to big business. But, in my view, if properly done, its advantages could outweigh the disadvantages. The advantages, as outline in my previous post, are mainly that it would stimlate competition, and help small businesses. It would also benefit consumers who aren't interested in, for example, air travel who could swap their coupons for a smaller amount of cash or for other services that they want or need. Under this scheme, an adult could exchange their air travel coupon for a coupon for childcare or private dentistry.