23 May 2017

Economics and politics: closing the gaps

Elisabeth Jacobs, in an essay, about Thomas Piketty's book Capital in the Twenty-First Century, says that politics is 'everywhere and nowhere' in his book. The reviewer points out that:
A focus on efficiency is unobjectionable in a world in which political and institutional stability can be taken for granted, much less so in a world in which it cannot. ... [E]conomists set themselves too easy, too useless a task if they can describe how capitalism works only when politics is unchanging. A new anthology of essays reconsiders Thomas Piketty’s “Capital”, the 'Economist', 20 May
Quite so. I've questioned the limited purview of the economics profession before. Economists find it safer to describe the world as it is, and to try (and usually fail) to predict what's going to happen to certain macro-economic variables. (There are exceptions of course.) The gap between economics and useful endeavours mirrors that between politicians and the concerns of the citizens they are supposed to represent.

In both cases, I think Social Policy Bonds could help close the gap. A bond regime would take as its starting point broad goals that are meaningful to a population: goals that are inextricably linked to our well-being and that we can understand. And because we can understand outcomes such as improved health, or nuclear peace, we can participate in assigning their priorities. (Economists could, perhaps, make a useful contribution here.) Such participation will give us more understanding of the trade-offs that inevitably need to be made. We might not see our own priorities replicated exactly in those  that society chooses to target, but we shall have been consulted, and so have far more buy-in, than under any of the current policymaking systems.

I think that lack of buy-in goes a long way in explaining why our political systems are failing, perhaps catastrophically. The gaps between policymakers and citizens; between the rich, the bureaucrats, media, academics, and ordinary people, are growing ever larger. Consultation about the outcomes we wish to see would start to close these gaps. Injecting the market's efficiencies and incentives to bring about those outcomes with optimal efficiency, would take that process a step further. The ultimate goal would be a politics that improves all our well-being, making for a more healthy, more prosperous and peaceful, more contented and cohesive society. A Social Policy Bond regime, I believe, could achieve all that.

19 May 2017

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.

13 May 2017

Bribes for peace

A headline from Mailonline:
Could $175bn pay for the removal of Kim Jong-un? Huge bribes of $30m may be enough to convince North Korea's top officials to abandon their dictator, says expert by Julian Robinson, 12 May
I'm happy to see that the judicious use of financial incentives to achieve a desirable social outcome is at least being considered by one academic. The piece continues:
In his bookStop North Korea!: A Radical New Approach to Solving the North Korea Standoff, [Professor Shepherd] Iverson imagines a scenario where the top tiers of North Korea's power elite could be bribed to ensure a peaceful transition.
I've made similar suggestions myself: under a Social Policy Bond regime targeting, say, Middle East peace, bribes could be paid to troublemakers, but only if bondholders think that to be one of the most efficient ways of ensuring peace. As I'm sure Professor Iverson would agree, while the fanatics themselves are unlikely to be moved by lavish cash handouts, their enablers and supporters are another story.

This particular type of activity is one that neatly illuminates one of the less obvious advantages of a Social Policy Bond regime: whereas governments would find it politically impossible to pay such bribes, and whereas if they were anyway to offer such payments, there would very likely be a counterproductive reaction, holders of Social Policy Bonds need suffer no such qualms. Even if the bonds were issued and backed by some government or combination of governments, bondholders are not agents of government. It's entirely up to bondholders to decide how best to achieve the targeted goal, and if bribery is the most effective way of doing so, then that's how they'll do it. Notions of justice and fairness may have to be suspended but, in the case of North Korea (and others), avoiding catastrophe should be our highest priority.

05 May 2017

I don't know

'I don't know.' How often do we hear this from policymakers? Ask them how they plan to reduce crime, improve the environment or grow the economy and they will talk about things to do with funding allocations, institutional structures, laws, regulations and processes. They will never say 'I don't know.' We could even ask them how they intend to bring peace to the Middle East, to reduce the chances of a nuclear exchange, or to deal with climate change...and they'd still come up with superficially adequate responses. Responses, though, not answers.

Simple goals - sanitation, basic education, satisfying the nutritional needs of children etc - are those for which cause and effect are easy to identify, don't vary much over space, and don't change much over time. A benign and reasonably efficient government knows how to achieve these things. The more complex problems, though - including how to bring about benign and efficient government where it is absent - require a range of approaches to be tried, with only the most efficient being implemented. This is something policymakers don't do very well. Probably no single conventional organisation can do it well, beholden as they are to fixed world views, and the interests (monetary, ideological) of their supporters and employees.

I don't know how to bring about world peace, nor improve a nation's health, nor prevent or mitigate disasters, man-made or natural. I offer no solutions, but I do think that the Social Policy Bond concept is a way of encouraging people to find solutions: a way that channels the market's efficiencies and incentives into all the processes necessary to discover and implement the optimal mix of approaches to solving our complex problems. So, when asked how to solve the world's problems, I answer 'I don't know. However...'

28 April 2017

We need countervailing incentives in science

Dr Malcolm Kendrick writes about what he learned at medical school:
[N]ot only were certain key facts wrong, there seemed to be a co-ordinated effort to attack anyone who dared to challenge them. Tim Noakes found not guilty - of something or other, blog post by Dr Malcolm Kendrick, 26 April
Dr Kendrick picks two cases spanning forty years. The first was John Yudkin, the founder of the nutrition department at the University of London’s Queen Elizabeth College, who ' did not believe that saturated fat was to blame for heart disease, the idea at the centre of the diet-hypothesis. .... In 1972 Yudkin wrote the book ‘Pure white and deadly’ in which he outlined why sugar was the probable cause of heart disease, not fat(s). He was then ruthlessly attacked.' Dr Kendrick quotes from the (UK) Daily Telegraph:
Yudkin was “uninvited” to international conferences. Others he organised were cancelled at the last minute, after pressure from sponsors, including, on one occasion, Coca-Cola. When he did contribute, papers he gave attacking sugar were omitted from publications. The British Nutrition Foundation, one of whose sponsors was Tate&Lyle, never invited anyone from Yudkin’s internationally acclaimed department to sit on its committees. Even Queen Elizabeth College reneged on a promise to allow the professor to use its research facilities when he retired in 1970 (to write Pure, White and Deadly). Only after a letter from Yudkin’s solicitor was he offered a small room in a separate building. John Yudkin: the man who tried to warn us about sugar
Similar treatment has been dished out to Professor Tim Noakes, 'a very well-known proponent of the high fat, low carb (HFLC) diet, as a way to treat obesity and type II diabetes – and improve athletes’ performance.'

As Dr Kendrick says:
[A]ny scientist looking on gets a very clear message. If you say things we don’t like, we will attack you and drag you through court and make your life a living hell for three years. Now, that is how you silence people, just as they silenced Yudkin nearly forty years ago.
It's not really news that nutritionists and, indeed all scientists, are heavily influenced by whoever funds their research. But it is news of which we need constantly to be reminded. The stakes - the funding involved and the absolute number of people's lives involved - are high: perhaps higher than they have ever been. And what does need emphasis is that nobody under the current system has incentives to change things. Certainly not in ways that reward their success in doing so.

This is where Social Policy Bonds targeting the broad health of all a country's citizens could enter the picture. The bonds would introduce a source of funding that rewards people who improve society's health: not those who head institutions that purportedly improve health, or whose research budget depends on vested interests. Health Bonds would allocate funding purely on the basis of which approaches to improving society's health will bring about the most improvement per dollar spent. They would reward efficiency in achieving society's health goals. You would think that any multi-billion dollar government health budget would be doing that anyway. But, as in so much of the way policymaking is conducted even amongst western democracies, government and big business have interests that differ from, and are often in conflict with, those of ordinary people and smaller enterprises. They can get away with doing so by keeping our focus on nebulous and irrelevant arcana, such as Mickey Mouse micro-targets. Under a bond regime dissenting experts would be given a fair hearing. That would not only be in the interests of bondholders: it would be in the interests of society.

22 April 2017

Reinforcement learning and the public sector

Will Knight writes about reinforcement learning:
Reinforcement learning is a way of making a computer learn through experience to make a series of decisions that yield positive outcomes—even without any prior knowledge of how its actions will affect its immediate environment. A software-based tutor, for example, would alter its activities in response to how students perform on tests after using it. Reinforcement Learning, Will Knight, 'MIT Technology Review', March/April
It's the same approach practised by the computer called DeepMind, which 'mastered the impossibly complex board game Go and beat one of the best human players in the world in a high-profile match last year.' It's also, at least in theory, the basis of our economic system: the learning process that is supposed to go on through the creative destruction of business enterprises that fail to adapt to changing circumstances. As applied to driverless cars, 'the software governing the cars’ behavior wasn’t programmed in the conventional sense at all.' The software learns through trial and error.

Large corporations and their friends in government have seen to it that competitive markets play a lesser role than they should in determining our economic prospects. Corporations succeed today not so much through competing in markets, but more by manipulating the legislative and regulatory environment, and participating in effective cartels with other powerful players, both private- and public-sector. But the principle - that of survival of the most adapted, and the most quick to adapt - has generated enormous material wealth, and continues to operate, though more to the benefit of the already-wealthy than to ordinary people.

With its record of success, why isn't reinforcement learning, or competition to find the best approaches, allowed to operate in the public sector. That is, why don't we allow competition to solve our social problems? It's partly for  historical reasons. When governments began to take an interest in the welfare of ordinary people, solutions to their basic problems were fairly easy to identify. Requirements for things like sanitation, elementary education, a police force, fire engines and hospitals were - and are - difficult to argue against. But as society has grown more complex so too have our social and environmental problems. How, for example, do we go about reducing crime, improving our (already relatively high) levels of physical health, improving our mental well-being, or ending war? No obvious solutions leap to mind.

Which is where Social Policy Bonds could enter the picture. Rather than let public-sector organisations have a monopoly on trying to deal with these problems, a bond regime would, in effect, contract out finding the best solutions to the private sector. A goal such as eliminating war is going to need the exploration, deployment and refinement of a multitude of potential approaches. More than that, though, it's going to need to reward the most effective of these approaches and to terminate the useless ones. There are well-meaning organisations working to end war, but the people working for them are not rewarded for their success. There are no built-in incentives for the organisations to find optimal solutions, nor for inefficient organisations to be dissolved if their efforts prove futile or counterproductive. The result is that the challenges humanity faces, including environmental calamities or nuclear proliferation, are nowhere near being effectively met. But, unlike computers learning how to drive cars, or businesses operating in competitive markets, our failed approaches and ineffectual organisations aren't terminated. Sometimes, in fact, our politicians pump even more money into them.

Social Policy Bonds would change that. They would channel the market's incentives and efficiencies into the discovery and implementation of diverse, adaptive and, above all, efficient approaches to our social and environmental problems, including those, like war, that many of us have concluded have no solution. Our current system places responsibility for the solution of our problems in the hands of large, usually monopolistic, organisations that face little competition and have no incentive to try diverse approaches. There's certainly no reinforcement learning. It is because of its ability to stimulate diverse, adaptive approaches that a Social Policy Bond regime could succeed where existing policies have failed.

15 April 2017

What are governments for?

George Monbiot quotes from Kate Raworth's Doughnut Economics, saying that:
[E]conomics in the 20th Century “lost the desire to articulate its goals.” It aspired to be a science of human behaviour: a science based on a deeply flawed portrait of humanity. The dominant model – “rational economic man”, self-interested, isolated, calculating – says more about the nature of economists than it does about other humans. The loss of an explicit objective allowed the discipline to be captured by a proxy goal: endless growth. Circle of life, George Monbiot, 13 April
I've inveighed for years against the de facto goal of governments everywhere which, in the absence of clear, explicit goals, has become economic growth, expressed as the rate of increase of Gross Domestic Product, or GDP per capita. The grievous effects of this mistargeting on income and wealth distribution, the environment, and much else, are now becoming apparent. More recently, I've asked What are economists for? Governments as well as economists have lost their way. As Raworth says, they do not think in terms of explicit goals that are meaningful to ordinary people. They are pre-occupied with process and complexity:
The Dodd-Frank bill, like Obamacare, is tyranny by complexity. Consider the Glass-Steagall Act, at 37 pages in length, and the 2,319-page monstrosity of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Charles Hugh Smith, 6 April
The only people who follow and understand our policymaking system are those politicians, bureaucrats, academics, lawyers and lobbyists who receive monetary rewards, sometimes vast, for doing so. The 'rational economic man' just happens to be the person who, in our sad attempts to purchase things that used to be supplied by the commons, maximises economic activity: that is, GDP. I think most people now see the flaws in targeting GDP as if it were an end in itself, but we are less united over what to do about it. My suggestion is that we start to express our policy goals in terms of broad, verifiable, explicit outcomes that are meaningful to ordinary people. Social Policy Bonds could do this, and inject the market's incentives and efficiencies into the achievement of those outcomes.

Under a Social Policy Bond regime, governments could still do what they are good at: raising revenue to achieve our social and environmental goals. And, though it would be a departure for most of them, they could learn to articulate these goals, as expressed and debated by the people they are supposed to represent. They could even, through government-financed bodies, help achieve these goals, but only if, through the Social Policy Bond mechanism, bondholders have confidence in their ability to do so more efficiently than other investors in the bonds. The current model which as Raworth points out, is dominant - that of 'rational economic man' - assumes and entrenches a paradigm that undervalues and often conflicts with community, the environment, small enterprises, and ordinary people's mental well-being. The short-term interests, as measured by accountants, of large organisations, both public- and private-sector, are privileged at the expense of the the rest of us. Social Policy Bonds would change that, right from the start, by posing the question that we cannot continue to evade: what are governments for?

06 April 2017

The European Union: just like every other organisation

From Nigel Farage's recent speech to the European Union Parliament:
Eighty-five percent of the global economy is outside the EU. if you wish to have no deal [with the UK] it is not us that will be hurt. ... A return to tariffs will risk the jobs of hundreds of thousands of people living in the EU. What you are saying is that you want to put the interests of the European Union above that of your citizens and your companies. Nigel Farage, 5 April
 Earlier in the same speech Mr Farage also pointed out that in 1973 the UK voted to stay in the European Economic Community; not a political union. The speech neatly illustrates two principles which I deem axiomatic:
  • Every organisation, be it a church, trade union, university, government or whatever, will always seek to overplay its hand. 
  • Every organisation will, sooner or later, forget its founding ideals and its stated objectives, and devote its energies to self-perpetuation.
In the private sector there is, or should be, the discipline of the market and competition, though we increasingly see larger companies winning out over small businesses not through fair compeition but via manipulation or subversion of the market.

Social Policy Bonds would lead to a new type of organisation: one whose goals would exactly coincide with those of society. That's one feature that would differentiate them from all other organisations in history. The other is that the goals of the organisation would either themselves be, or be inextricably linked to, society's well-being. Every activity of a coalition of holders of Social Policy Bonds would be undertaken with exactly one objective in mind: to maximise the efficiency with which society's targeted social or environmental goal is achieved. The activities, structure and composition of the organisation would be entirely subordinated to that one objective.

The difference between a Social Policy Bond regime, and any other current policymaking system, is stark. Under a bond regime governments would do what they do best (democratic governments anyway): that is, articulate society's goals and raise the revenue for their achievement. Then they'd, in effect, contract out the achievement of these goals to new organisations whose interests are exactly those of society. Their focus, and their striving for efficiency, are built into the Social Policy Bond mechanism. All society would benefit.

My reasons for voting for Brexit are given here. For more on Social Policy Bonds see the overview papers linked to here.

28 March 2017

The corruption of science

John Michael Greer writes:
Especially but not only in those branches of science concerned with medicine, pharmacology, and nutrition, the prostitution of the scientific process by business interests has become an open scandal. When a scientist gets behind a podium and makes a statement about the safety or efficacy of a drug, a medical treatment, or what have you, the first question asked by an ever-increasing number of people outside the scientific community these days is “Who’s paying him?” .... These days, in any field where science comes into contact with serious money, scientific studies are increasingly just another dimension of marketing. Dark Age America, John Michael Greer, 2016
It is a scandal, and it's no wonder that we are increasingly cynical about scientists' pronouncements on climate change, diet, or virtually anything else. Science, like politics, has become removed from the concerns of the people it's supposed to serve. The gap between on the one hand government and big business, and on the other ordinary people, grows ever wider. Without deliberate action that's unlikely to change, as many of the reason for the gap are self-reinforcing: more funding means more can be spent on advertising, and lobbying for still more funding and a more favourable - to corporate interests - regulatory environment. Ordinary people don't come into it. The result? Skepticism, cynicism, alienation, and despair. Not all the reasons for the gap can be ascribed to self-interest or malevolence, but it remains an urgent concern. 

My suggestion is that we start to express policy goals in terms of outcomes that are meaningful to ordinary people. Broad, long-term goals such as the improved health of a country's citizens, should guide the activities of all the agents, public- and private-sector that have anything to do with health: not only big pharma, but also the medical profession, agribusiness, retailers, schools, town planners, architects and so on. We cannot solve our health problems simply by spending more on organisations whose sole (stated) interests have to do with health. And just as health is not just a matter for drug companies alone, so crime is not just a matter for the police and the corrections industry. And so on.

Which is why I suggest we issue Social Policy Bonds that would not only target broad, long-term social goals, but also inject the market's incentives and efficiencies into their achievement. Social and environmental goals are more easily understood and more meaningful than the narrow, short-term goals of the bodies that are supposed to be achieving them but end up, as we see in science, spending much of their energy trying to justify their survival and expansion. With more comprehensible, explicit, policy goals, more people would engage with the policymaking process. Our views might be debated and over-ruled, but we'd have a greater understanding of the inevitable trade-offs that resource allocation entails. Importantly too, we'd have buy-in to policies that are not only currently remote from us, but also someitmes conflict with our interests. Most important of all, the goals of a Social Policy Bond regime would be understood by, and linked to, the concerns of all of us. It's a sad indictment that we cannot say that of our current system.

18 March 2017

Social Policy Bonds: the acceptable face of capitalism

Social Policy Bonds have many advantages over conventional policymaking. Mostly, they would be more efficient, as investors would have incentives to achieve society's social and environmental goals quickly and cost-effectively. Clarity and transparency of policy goals are further advantages, arising from the bonds' focus on, and explicit targeting of outcomes rather than the supposed means of achieving them. The question of which goals should be targeted is one that most governments evade or obscure, leaving a vague goal, most commonly 'economic growth', expressed as GDP per capita, to fill the vacuum. For much of history, that goal would have been strongly correlated with the improved well-being of a country's population. Nowadays, though, that correlation appears to be broken, with most of the gains in national wealth and income accruing to a minuscule number of people dubbed 'the elite'. In the US, for instance, the most recent data show that top 1% families captured 52% of total real income growth per family from 2009-2015 (source, pdf). 

Under a Social Policy Bond regime, we could ask whether society sees such inequality as a problem to be targeted directly or, rather, whether our main income goal is the alleviation of poverty. Even if inequality were seen as a problem in itself, it might not be necessary to target it for reduction. This is because Social Policy Bonds would be a means of acquiring wealth with which private gain is strongly correlated with public benefit. Many bondholders would be rich and, if their bonds were redeemed early, they would become richer. But this would be a socially acceptable way of acquiring wealth. Bondholders would become richer only by efficiently and quickly achieving society's targeted social goals. This means of accumulating wealth would allow other, less socially beneficial ways – inheritance, say - to be taxed more heavily. It might even transpire that investors would find achieving society's social goals will be easier than the sort of ethically questionable ways of acquiring wealth that constitute the ever more unacceptable face of capitalism. Social Policy Bonds: a new means of acquiring wealth that actually leads to a more cohesive society? Call them 'the acceptable face of capitalism'.