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New book: Social policy bonds

from the funding-difficult-goals dept.
Senior Associate WillWare writes "Ronnie Horesh, an economist in New Zealand, has recently published a book on his notion of social policy bonds. The government issues bonds at a low price, redeemable at a high price when a social goal has been accomplished. This allows the government to set and fund social agendas while leaving the details of implementation to the free market."

12 Responses to “New book: Social policy bonds”

  1. WillWare Says:

    funding open-source software development

    Chris Rasch (who, unrelatedly but interestingly, was involved with some really incredible work in cryonics a couple years back) has written an interesting essay on software completion bonds, a modification of the social policy bond idea, intended to promote the development of open source software. He compares this with some of the bounty/prize ideas already in practice (Free Sofware Bazaar, Cosource, SourceXchange) and shows that these actively discourage cooperation among competitors for prizes, creating unnecessary and unproductive schisms among open-source programmers. Software completion bonds would encourage cooperation since all bond-holders would win simultaneously as soon as any one of them completed the piece of software.

  2. MarkGubrud Says:

    How many things are wrong with this picture?

    Here we go again with another attempt to shore up the ideology which fetishizes "the market" as the answer to everything. It is an ideology in decline; no less a capitalist than George Soros has denounced "market fundamentalism" as an enemy of "the open society."

    Horesh's paper starts off with the surprising admission that in spite of "Deregulation of Western economies and the freer operation of self-interest… the less well off have gained little, and many social objectives remain as remote as ever." A less-clever fellow might think that meant perhaps there is still a need for collective decisionmaking and action through the mechanisms of democratic governance. But to Horesh, "this is because self-interest plays too small a role in the solution of social problems." His proposal to increase that role shows how far ideologues will go to avoid rethinking fundamental assumptions when their cherished beliefs fail the reality test.

    Social Policy Bonds would be issued by government, and would be redeemable for a fixed sum only when the specified social objective has been achieved.

    Right. And how do we decide what the social objectives are? What "fixed sums" to offer (presumably from taxation) for their achievement? How we will know when they have been achieved? Or when to conclude that the scheme isn't working?

    Horesh doesn't answer these questions, he only says the goals "must be capable of being quantified" and that "Careful thought will have to be given" to defining them. But how many social problems can be quantified without any arguments about the way they should be weighted and measured? Careful thought? By whom? Presumably the same politicians, bureaucrats and yahoo public that Libertarians consider incapable of careful thought, unbiased decisionmaking and rational collective action.

    Horesh's scheme doesn't solve anything, it only introduces a new, irrelevant layer of ideological correctness. This can only impede the implementation of what would still be old-fasioned government action. It would sever the link of political responsibility for outcomes, while creating new opportunities for private manipulation and abuse. After all, the most cost-effective way to "solve" a social problem might be to engineer a PR campaign declaring it solved. And the holder of an unpaid bond for a "solved" problem would be an aggrieved party.

    Horesh suggests his approach could somehow solve the problems of crime, unemployment, public health, housing, education and pollution, but he doesn't say how. He doesn't have any actual solutions to these "problems," just the notion that somehow this bond thing will find the otherwise-elusive solutions. Let's take another look at the list.

    Crime. So what would the bondholders do, create private police forces, courts and jails? Teach everyone to obey the law? Equalize wealth and opportunity to eliminate resentment and desperation?

    Unemployment. Maybe the most cost-effective solution would be to take out a contract on Alan Greenspan and anyone else who, with his hands on the economy's throttle, places the interests of bankers and bondholders above those of workers and entrepreneurs.

    This points to a more general problem with Horesh's thinking: he seems oblivious to the fact that many, perhaps most, social problems reflect conflicts of interest that either generate these problems or impede their solution. Often these are conflicts between the powerful and the less powerful, class conflicts. How would privatizing social responsibility facilitate the resolution of such issues? The answer is obvious: it would only provide a way for the powerful to checkmate social initiatives and for the government to duck responsibility.

    Pollution. See paragraph above.

    Housing, Health, Education. Why are these problems at all? One answer only: inequality. The people affected are not the same as those with their hands on the pursestrings. It costs money to provide quality housing, health care, and education to those who can't afford these things on their own. Where would this money come from in Horesh's scheme? From the value of the bonds? That means from taxpayers. Circle closed.

  3. WillWare Says:

    Re:How many things are wrong with this picture?

    I will invite Dr. Horesh to participate in this forum, and no doubt his responses will be more carefully considered than mine. But I'll throw out a few comments in the meanwhile.

    Measurement of social progress is not objectively measurable: It turns out that in developing countries, there is a good measure of general social progress, which is infant mortality. Out of 1000 babies born alive, infant mortality is the number who do not survive to their first birthday. IMR correlates well with other measures of social progress in developing nations, such as literacy, availability of education to women, etc., and is used by several existing charitable organizations. An IMR of 50 represents a pretty fair cut-off between poor countries and developed countries. This pertains to conditions that, as Americans, we would consider desperate issues of survival.

    In our own society, the obvious glaring problems of massive starvation have been solved, so we're more concerned with relatively subtle problems. It's certainly possible that no good measure exists, but SPBs probably won't fail any worse than any other policy disasters we've tried.

    Bear in mind that the current approach to social policy has been failing steadily for almost seventy years. SPBs are such a recent proposal that they have not yet been tried at all, to my knowledge. Certainly the government would face a learning curve in wielding them effectively, and early attempts would expose misjudgements in the appropriate choice of success measures. I think it would be fair to cut the early experiments a little slack.

    The government should not be involved at all: It is in fact possible to privatize this idea entirely, and I have discussed the matter with Dr. Horesh in an email. Given the cooperation of a widely trusted escrow agent, an unknown individual can issue his own bond, having placed his money in escrow with the agent, who is trusted by the rest of the market to dispense it correctly. I know people who donate to charity, and this private version strikes me as fairly equivalent to (and in fact probably more efficient than) normal charitable contributions to the United Way or UNICEF or whatever.

    Dr. Horesh disagreed with me that full privatization would be a good idea. He feels that most people won't donate after-tax income to such a scheme. If the public some day accepts that privatized SPBs are equivalent to normal donations, and given the fact that normal donations do happen today, I'd expect that private SPBs would happen eventually. Dr. Horesh also pointed out that governments typically have much more money to throw at problems than individuals do. True, but they got that money from taxpayers in the first place, so the real question here is over what 260 million Americans individually regard as disposable income versus what the federal government regards as disposable income.

    Some social problems are simply insoluble: You are presuming that your imagination places limits on human inventiveness everywhere. Maybe you're correct that crime is an insoluble problem, but given that we'll throw money at it anyway, we might as well try an approach that might be more efficient. If it's truly insoluble as you say, then SPBs represent no worse a waste than any other attempt at law enforcement, including the current situation.

    Social problems result from irresolvable conflicts of interest: I don't see in SPBs any solution to the problem of conflicts of interest. Your suspicions that powerful people will distort the reporting of success measures is entirely plausible. The only response that occurs to me is that current social policies are equally affected by these problems. In this sense, I don't see SPBs as a step backward in this regard.

    One last point, you write: How would privatizing social responsibility facilitate the resolution of such issues? SPBs are not about privatizing social responsibility (except in the fully privatized case I mentioned earlier). They only privatize the implementation of social policy, not its definition. To the extent that it's a good idea to trust politicians with setting the social agenda, SPBs preserve that.

  4. ronniehoresh Says:

    Re:How many things are wrong with this picture?

    First, thanks to all posters for their views positive and negative, on the Social Policy Bond (SPB)idea. I will briefly try to answer some of Mark Gubrud's points.

    "[H]ow many social problems can be quantified without any arguments about the way they should be weighted and measured?"

    I have two points to make here. First, I believe SPBs, and most government activity, should be concentrated on helping the poor, where I think there is a strong correlation between measurable indicators and human well-being. At the lowest levels of income, education, nutrition, for example,it is quite clear that more of such things as income, literacy, and calories + nutrients would help people directly and unambiguously. My other point is: what is the alternative Mark is implicitly postulating? A society in which no social goals are tackled because it's too complicated to measure things? Perhaps that's what we have at the moment. When government spends 30-40% of national income and we still have real poverty, malnutrition, and illiteracy in 11- or 15- year olds, then either government is getting its priorities wrong, or it's part of the problem. I take Mark's point that many things of real value are difficult to define [and I say so in the chapter 'Government and happinness' in my book]. But, to repeat, for the most disadvantaged people, there is a strong correlation between measurable indicators and well-being. I don't know what the "collective decisionmaking and action through the mechanisms of democratic governance" that Mark advocates means, nor how it would be different from the current approach, which is clearly failing.

    "[H]ow do we decide what the social objectives are?" Again, I'm not sure what alternative Mark has in mind. My scheme is about targeting outcomes, which I should have thought are easier to decide than the haphazard array of institutions, people, activities and programmes that are currently targeted. I don't think Mark fully understands my idea when he says that it will "sever the link of political responsibility for outcomes". We have no such link at present. The bonds, because they are focused on outcomes, would create a link between political responsibility and outcomes.

    Mark says that I have no solutions for the problems I discuss. That's true. The bonds are about encouraging new, diverse and efficient solutions. The current way of dealing with social problems is random and inefficient and has perverse incentives built into it. It doesn't encourage innovation or diversity and is not helping those who most need help. Mark, please read my work again, and you will see that just because I suggest a bigger role for markets does not mean I am against social justice and helping the poor.

    Regards to all. Ronnie Horesh [just plain 'Mr' incidentally.]

    Market solutions for social problems
    Market solutions for environmental problems
    http://www.geocities.com/socialpbonds

  5. MarkGubrud Says:

    Re:How many things are wrong with this picture?

    At the lowest levels of income, education, nutrition, for example,it is quite clear that more of such things as income, literacy, and calories + nutrients would help people directly and unambiguously.

    Then, assuming you care about this, and I believe you do, you should be an advocate for programs that provide income (preferably in connection with work) and food and that teach literacy. Government programs funded by tax revenues. That is what you are proposing, anyway, only through the dubious mechanism your SPBs. These bonds are to be paid by the government, no? Who else would pay them? How are we going to decide the price? We already have programs that provide these sorts of goods and services. They are woefully underfunded and thus necessarily inadequate. They are subjected to all sorts of hamstringing restrictions by right-wing legislators obsessed with punishing "welfare queens". Any proposal to increase funding for such programs is greeted with jeers and howls from the Republican side of the aisle. Your privatization plan might be enough to overcome the ideological resistance, indifference and greed, but I doubt it extremely. Most likely it would become a mechanism for impoverishing social action even further ("SPBs will be so efficient we won't have to spend so much money").

    When government spends 30-40% of national income and we still have real poverty, malnutrition, and illiteracy in 11- or 15- year olds, then either government is getting its priorities wrong, or it's part of the problem.

    Which do you think it is? How much "national income" is actually directed to the redress of "real poverty [and] malnutrition"? How does "welfare" spending compare with the payment of unearned income (profits, rents, capital gainst) to the rich? You mention illiteracy. Here in the US we don't have much of a national education budget; schools are funded by the local districts, resulting in what Jonathan Kozol called "Savage Inequalities". Are your SPBs going to be used to achieve a reorganization of public school funding in the US? Or what?

    for the most disadvantaged people, there is a strong correlation between measurable indicators and well-being

    I agree. It is the Right which claims otherwise. Again and again we are told that it is impossible to objectively determine the needs and interests of "individuals," and so the best thing is to leave them to their own devices. They teach this in schools as "the law of unintended consequences." The argument is wrong, but it is made vigorously enough to impede and cloud debate about the specifics of any social issue and draw it to a stalemate.

    don't know what the "collective decisionmaking and action through the mechanisms of democratic governance" that Mark advocates means, nor how it would be different from the current approach, which is clearly failing.

    Social action through government-run or endowed institutions is failing only because it has been strangled by the ideological counterattack of those whose primary concern is property (which has succeeded mainly due to corporate control of the mass media) and the influence of money in politics. Simply put, our public institutions are for the most part starved for funding. Where this isn't true, as in the military, in wealthy districts, or building highways and airports, government actually works pretty well.

    "[H]ow do we decide what the social objectives are?" Again, I'm not sure what alternative Mark has in mind.

    My answer to this is the same as yours. But you want to pretend that your SPBs will make it easy for everyone to agree what the objectives are and how much money should be spent (or offered) for their accomplishment. I see no reason to believe this will be true. I don't think your idea has legs anyway, but I think that any attempt to enact it would only be used as a substitute for direct action and it would be ineffective for two reasons:

    1) To begin with, the bonds would be undervalued.

    2) No matter what values were offered, SPBs would fail, because their holders would not unite behind any sort of coherent program to accomplish the specified goals. You say [of social problems]:

    a wide variety of approaches to their solution is essential. SPBs will encourage and reward the most efficient of these approaches

    But your mechanism would reward all efforts, especially the "most efficient approach" of no effort at all. You discuss the free-rider problem, but do not give any convincing solution. What incentive does a bondholder have to spend money or make an effort to achieve a social goal that others are already close to fulfilling? The likelihood of a large number of free-rider bonds, plus the absence of a mechanism for earnest bondholders to agree to a common strategy, guarantees massive inefficiency, at best, and more likely stagnation and failure.

    I don't think Mark fully understands my idea when he says that it will "sever the link of political responsibility for outcomes". We have no such link at present.

    I agree the link is not strong enough, but in principle politicians are responsible for the success or failure of programs they propose or endorse. However, your SPBs would serve as a way to deflect calls for social action: "We already issued a bond for that, so let's wait for the private sector to come up with a solution." Politicians would be able to take credit for issuing SPBs without having to actually solve problems. The SPB values might not be high enough, the whole idea might not work at all, but it would take years before anyone would be able to say so. Meanwhile, the government would be off the hook; any money spent to directly address the problems would be a subsidy to SPB holders, and an unacceptable interference in the market.

    Ronnie, I believe that you are motivated by sincere concern about unsolved social problems, but your ability to respond to these concerns is constrained by your commitment to Libertarian ideology. You think you have found a way to reconcile these. But your proposal does not even make sense in terms of the economics of self-interest. I am very doubtful that this idea will ever get as far as, say, Milton Friedman's education vouchers. It might get you a cubicle at Cato or a chair endowed by a right-wing foundation. Meanwhile, it may also serve as another Libertarian catechism to the effect that "Every problem has a solution in terms of markets" if only the rest of us weren't so stubborn and dumb. In other words, it will help to shore up the very ideology that has worked so effectively to undermine public institutions and prevent the redress of the "social problems" you are concerned about.

    Since you asked what I would propose, let me make it clear that I accept much of the logic in favor of market-based solutions, private initiative and decentralized decisionmaking. Huge government programs run from the top down often don't work well, especially when hamstrung with restrictions and paperwork imposed by hostile, penny-pinching legislators. On the other hand, the inefficiency of government is much overstated, and that of private business much understated. Consider, for example, the fact that profit, advertising, and management impose about a 30% burden of overhead on private insurance plans, compared with about 3% for similar government-run programs.

    I would favor what is called "market socialism," i.e. government as the payer, private enterprises as the providers, and whenever possible, the individuals to be served as the choosers. There is no substitute for the old-fashioned idea of redistribution. Capitalism concentrates wealth, and government has got to be in the business of taxing the rich and spending to help the poor. But the best way for the spending to be done is by stimulating the private sector. Low unemployment can be fostered simply by adopting pro-growth central bank policies, as opposed to the excessively inflation-averse policies now in effect. Government spending for diverse purposes is also very helpful. I would like more public works, more parks, better services. I would like a national single-payer health insurance program, and an overall expansion of health care services, education, environmental protection, and scientific research, at the expense of economic activities which are of less value to people, but greater immediate profit to the corporations that currently dominate our society.

  6. MarkGubrud Says:

    Re:How many things are wrong with this picture?

    Will, thank you for taking this forward by inviting Ronnie Horesh to respond to my criticisms. Here I will respond to some of your points.

    First of all, I agree with you that social problems and social progress are measurable, but the problem is that those opposed to social action endlessly insist that they are not objectively measurable and endlessly argue about how the measurements should be done and what exactly should be measured. In reality, there is a lot of room for argument, and it is necessary to accept less-than-perfect definitions and measures. But when people are opposed to progress, they can always come up with objections and alternatives. Ronnie's SPBs won't solve this problem.

    the current approach to social policy has been failing steadily for almost seventy years

    Not true. The New Deal was a partial success, partial only because it was cut, slashed and blocked by Republicans in the Congress and the Supreme Court. What was really a huge success was the massive government spending for the war effort, and later the Cold War. Americans benefited massively from the limited "socialism" of those years, which began to be eroded in the postwar period with attacks on the foundational collective-bargaining laws and to fall apart in the 1960s as the government shifted from spending to tax-cutting as the basic stimulus policy, and which collapsed with the right-wing resurgence of the 1980s after the stagnation of the 1970s. Nevertheless, the strong labor laws and social security programs enacted during the Depression gave middle-class prosperity to a generation of industrial workers, the civil-rights and Great Society programs of the 1960s brought limited gains to the poor and to minorities, and the environmental and occupational-safety laws enacted in the 1970s have led to great improvements in those areas.

    Progress has been fitful and halting due to the resistance of propertied interests, and since the 1980s, the collapse of middle-class solidarity in favor of rampant and often delusional greed among the young and possibly upward-mobile.

    The persistence of poverty belies the number of families who have managed to climb out of it, the persistence of pollution belies the controls that have been put in place and the partial cleanup that has been accomplished, and so on, but the failure is not due to any flaw in the project, but rather to the impediments and limitations that have been placed on it.

    It is in fact possible to privatize this idea entirely…an unknown individual can issue his own bond, having placed his money in escrow with the agent, who is trusted by the rest of the market to dispense it correctly

    I see a thousand points of light. Maybe you can get a multimillionaire to put up a multimillion toward the day whn "crime will be solved". That'll get a small notice in daily papers across the country, and a multimillion giggles.

    Maybe you're correct that crime is an insoluble problem

    I didn't say these problems are "insoluble," exactly. But it is often not a matter of coming up with some magic formula. Take crime, for example. First of all, what type of crime are you talking about, the $20 billion/yr. worth of street crime, or the $200 billion/yr. of corporate crime? I guess I don't really have to ask. So, why are there so many muggers and burglars downtown? I'll not give a pat answer, but do you really think there is a simple solution? What kind of people turn to this way of life, and why? What on Earth is the holder of a "Social Policy Bond" going to do about it? Talk about "human inventiveness" is just ducking the issue. It's a deep, structural problem which is not going to be solved in one generation and not without hurting somebody's interests.

    Your suspicions that powerful people will distort the reporting of success measures is entirely plausible. The only response that occurs to me is that current social policies are equally affected by these problems.

    Thanks for the thoughtful reply, but it seems to me that while currently you have all kinds of people distorting social facts for political reasons, the SPBs would add powerful financial motives for specific people to manufacture and propagate distortions. So in that regard, the situation could be worse. You might say that the manager of a government program has a similar incentive to boast of success where there has been little or none. That might be true, but as a public servant she is subject to all sorts of oversight and liabilities for such false reporting. But a private party would be free to say absolutely anything and pay to have it trumpeted on the airwaves until everyone was repeating it over lunch.

    SPBs are not about privatizing social responsibility

    The point is, they are another way to try to get the government out of social action. If we issue bonds to "solve a problem," then we have to wait for the initiative to work. SPBs would be used, if at all, as political cover in conjunction with slashes in social programs. Afterward, the existence of the bonds (and the liability of the government to repay them) would be used to deflect calls for a return to social action.

  7. ronniehoresh Says:

    Re:How many things are wrong with this picture?

    Thanks Mark for your further thoughts on Social Policy Bonds.

    You say programmes designed to help the poor, malnourished and illiterate have been hamstrung by right-wing legislators obsessed with punishing "welfare queens". This may be the case in the US, but there are poor and malnourished and illiterate people in most of the developed countries, few of which suffer from the extremist attitudes toward welfare we see in the US. I believe the real problems are inefficiency and the wasteful diversion of expenditure into corporate welfare and other programmes benefiting mainly big business and the better-off. I would include subsidised roading and other infrastructure development in this. It may not be important here, but I don't think the programmes are hijacked so much as that they create vested interests, and that to withdraw programmes after, for instance, they've been capitalised into asset values, threatens these vested interests. These vested interests include the programme administrators. Like a drug habit, such programmes are far harder to get rid of than to start. The answer, I believe, is to tie government expenditure inextricably to outcomes – not to activities, programmes, outputs, bodies [public or private] or people. I wonder whether you agree with this? I am not questioning the integrity of the people who operate government programmes, only the system and its built-in perverse incentives: public sector operators, for instance, become redundant or find their budgets cut if they are too successful. They are rarely rewarded in ways correlated with their success in achieving outcomes [regardless of whether these outcomes are Mickey Mouse or not].

    So I agree with you that very little national income is used to address real poverty and malnutrition. The poor are invoked to justify spending on projects that don't help them at all. You say I 'pretend that [my] SPBs will make it easy for everyone to agree what [society's] objectives are'. You don't agree with this, but I think there is a wide consensus about most social objectives, especially those targeted at the most disadvantaged. There is certainly consensus in the form of 'crime should be reduced at the lowest cost per taxpayer dollar', even if the final objective [how much crime, or unemployment or pollution is acceptable?] is open to debate. Where the Bonds come in is that they are a mechanism for ensuring the maximum return per taxpayer's dollar outlay. They also supply information on this ratio that is transparent and constantly updated. Because of this information, and on grounds of efficiency, then, I believe the Bonds score heavily over programme- or activity- based funding. Once the returns per taxpayer dollar [and their trends] to the various programmes are known, so are the trade-offs and people can decide on social goals in ways in an informed and constructive manner. I actually think this sort of information can blur the distinction between politician and public, as we could all take an interest in social goals once there are objective measures of how much it costs to achieve them. I go into this in more detail in my book.

    You say that '[p]oliticians would be able to take credit for issuing SPBs without having to actually solve problems'. I am sure you realise that politicians already take the credit for raising spending on various loosely labelled things like 'health' or 'education', and that there is little accountability under the current system for how this is spent. Politicians gain credit under the current system by increasing spending, without reference to outcomes. If the bonds are targeting sensible outcomes and bondholders become richer as a result of the government helping achieve the outcome what is the problem? Do you think people don't become rich these days as a result of government pork-barrelling that helps nobody and actually hurts people? I don't think the suggestions in your last para, in themselves, offer much hope of improvement over the current system. You say government has 'got to be in the business of taxing the rich and spending to help the poor'. I think the government should help the poor and provide a tightly woven safety net. You say 'the best way for [government spending to help the poor] is by stimulating the private sector.' I agree, but find it hard to square this up with your views on SPBs. Incentives are important and the Bonds are a way of channeling market incentives into helping the poor. How would you stimulate the private sector?

    I think government should spend to help the poor, the illiterate, the unhealthy and the unemployed. Is this 'Libertarian ideology'? I favour markets for their efficiency, not because of ideology, and I am in favour of targeting well-defined outcomes that unambiguously help the poor, not spending on vague concepts. I work in agriculture policy so I know how spending on things other than outcomes, allegedly to help the poor, quickly gets diverted into helping mainly the rich, the bureaucrats and the fraudsters.
    All the best. Ronnie Horesh
    – Market solutions for social problems Market solutions for environmental problems http://www.geocities.com/socialpbonds

  8. MarkGubrud Says:

    Re:How many things are wrong with this picture?

    I believe the real problems are inefficiency and the wasteful diversion of expenditure into corporate welfare and other programmes benefiting mainly big business and the better-off.

    There is certainly a lot of this, much more than welfare for the poor.

    vested interests include the programme administrators.

    Such bureaucrats are very politically expendable. But the workforce at the base, as well as the larger economies they support, do represent an important constituency.

    The answer, I believe, is to tie government expenditure inextricably to outcomes

    You can argue for more emphasis on auditing outcomes, but social programs are already attacked for not producing results, even when they either have not had a chance to work yet, or when they really are producing results for the individuals served but are too small and underfunded to wipe out social problems wholesale.

    perverse incentives: public sector operators, for instance, become redundant or find their budgets cut if they are too successful.

    That's just theory; I don't believe it is true in reality and I defy you to produce documented examples where bureaucrats have sabotaged social programs in order to sustain the existence of social problems so that their budgets won't be cut. In reality, everyone wants their programs to produce success; that is what will lead to budget enhancement and career advancement, not the reverse.

    There is certainly consensus in the form of 'crime should be reduced at the lowest cost per taxpayer dollar'

    So shoot all suspects. Can't do that, I suppose, but we might suspend civil liberties and establish an unrestrained police state. Another approach consistent with your prescription would be to abolish the police and courts and corrections system altogether and simply let the rich provide their own security. These may all seem extreme proposals, but your criterion would seem to forbid any attempt to eliminate the causes of crime. I don't see your consensus.

    politicians already take the credit for raising spending on various loosely labelled things like 'health' or 'education', and that there is little accountability under the current system for how this is spent.

    On the contrary, government spending is extraordinarily well accounted. But your point is that the politicians are held to account only through the electoral process. Of course, even if the voters don't follow all the details, journalists and critics and interested parties do, and all of this gets mixed in at election time. But I agree, it is a very imperfect system. I don't agree that you have come up with a better one.

    If the bonds are targeting sensible outcomes and bondholders become richer as a result of the government helping achieve the outcome what is the problem?

    The problem is that you would just put out these bonds and wait for private individuals to convince themselves that they can make a good return by doing something. I don't think it would work, but I do think it would be used as a reason for the government not to actively try to do anything.

    How would you stimulate the private sector?

    Low interest rates, and high government spending on health, education, welfare, research, the commons and public works. Also strong labor and environmental protection law, and a trade policy that supports these goals internationally.

    I think government should spend to help the poor, the illiterate, the unhealthy and the unemployed. Is this 'Libertarian ideology'?

    You are trying to put it into a package that the market fundamentalists might find more palatable. I think they would only coopt your idea to bolster the belief that markets are the answer to everything, or as an argument against proactive government programs.

    I work in agriculture policy so I know how spending on things other than outcomes, allegedly to help the poor, quickly gets diverted into helping mainly the rich, the bureaucrats and the fraudsters

    You wrote that agricultural policy was keeping products from New Zealand out of European markets. I wondered if it had occurred to you that the goal of this policy might not be to ensure cheap sheep for poor Europeans but rather to prevent the destruction of small farming in Europe? That reflects social values and political interests at odds with market fundamentalism. If the European social democracies choose to do this, who are you to tell them it's wrong?

    I agree there is waste, fraud and abuse in the public sector, but there is lots more in the private sector and I see plenty of possibilities for it in the scheme you've proposed. Still, I believe your motives are sincere and I wish you the best of luck.

  9. ronniehoresh Says:

    Re:How many things are wrong with this picture?

    Thanks again Mark, but I can't let this first one go (you knew that, right?):

    You say that the European social democracies' choice to keep cheap food out may reflect their wish to prevent the destruction of small farming. This is the claim of their governments and it is entirely false. The fact is that much of the cost imposed on consumers and taxpayers doesn't actually reach farmers: most leaks out in the form of higher prices for purchased farm inputs, administrative costs and deadweight losses to the economy. The OECD calculates that around 75 per cent is lost in this way. And of the support that does make it to the farmer most is paid in ways correlated to a farmer's output. So 68 per cent of the EU's agricultural support that does go to farmers goes to the largest [by sales] 25 per cent. [In the US 88 per cent goes to the largest 25 per cent.] This support has dramatically increased the concentration of wealth in agriculture and led to the destruction of small farms in Europe and elsewhere.

    Do you think people voluntarily would choose to support their own farmers by paying more for their food? I am sure some would, but many wouldn't and many poor people would much prefer to buy cheaper food. The government doesn't give anyone the choice. The government prohibits people from making that choice by preventing imports from – yes, New Zealand – but also from third world countries. [The same applies to textiles and clothing, the other two sectors that are the traditional route through which countries develop.] Agricultural policy in the developed countries is all about government wasting massive amounts of public funds to support rich landowners at the expense of the poor in their own countries and overseas – all the while claiming to be helping small farmers. It is based entirely on deceit and compulsion. It is precisely this sort of invocation of the poor to maintain massively expensive programmes that actually hurt the poor and benefit the rich [and the fraudsters] that SPBs are intended to stop.

    A couple of other quick points:

    You say: 'I defy you to produce documented examples where bureaucrats have sabotaged social programs in order to sustain the existence of social problems so that their budgets won't be cut.'

    Ok, it's a bit more subtle than that. There is no question that government bodies are under tremendous pressure to make sure they spend all their budget before the end of the financial year. If you ask anyone in government I am sure they will confirm this.

    You suspect that Social Policy Bonds targeting crime could lead to the suspension of civil liberties and a police state, and that '[a]nother approach consistent with [SPBs]would be to abolish the police and courts and corrections system altogether and simply let the rich provide their own security.'

    I do recognise that Social Policy Bonds represent a radical departure from current policy. You will see in my book that I address potential problems of the Bonds, the main one being that they may encourage people to achieve targeted social objectives at the expense of societal well-being in general. I make some suggestions as to how these adverse effects could be anticipated and minimised, but I still advocate cautious trials of the Bonds and, initially, their use in conjunction with existing programmes. The concept needs trials, discussions [like this] and refinement before it can be widely used.

    'I believe your motives are sincere and I wish you the best of luck.' Thanks Mark, and all the best. Ronnie Horesh

    Market solutions for social problems
    Market solutions for environmental problems
    http://www.geocities.com/socialpbonds

  10. MarkGubrud Says:

    Re:How many things are wrong with this picture?

    Thanks, Ronnie, for a good discussion.

    You have more facts at your disposal about ag policy than I do, but I don't agree that they prove it is "entirely false" that preventing the destruction of small farming is a policy goal of the European democracies. At most, they suggest that the policies may not always work as desired by the farmers and consumers whose votes keep them in place.

    much of the cost imposed on consumers and taxpayers doesn't actually reach farmers: most leaks out in the form of higher prices for purchased farm inputs administrative costs and deadweight losses to the economy.

    Does this reflect anything more profound than the fact that farmers' profits are always no more than a small share of the supermarket price? But a small share that is twice as large as a smaller one is enough to make the difference between health and bankruptcy.

    of the support that does make it to the farmer most is paid in ways correlated to a farmer's output. 68 per cent of the EU's agricultural support that does go to farmers goes to the largest [by sales] 25 per cent. [In the US 88 per cent goes to the largest 25 per cent.]

    I notice that your wording implies that it is not strictly proportional, but perhaps at least somewhat progressive. So the policy favors national producers, small producers only somewhat more, and not enough more to overcome the natural tendency toward concentration under capitalism:

    support has dramatically increased the concentration of wealth in agriculture

    Perhaps you have some further facts which demonstrate that it is actually the ill-conceived government policies which are fostering concentration, rather than market forces which have been at work in every part of the industrializing world for the past several hundred years.

    Do you think people voluntarily would choose to support their own farmers by paying more for their food? I am sure some would

    Yup. Food festishism (organic, local, etc.) is hot in today's market.

    many poor people would much prefer to buy cheaper food

    I haven't heard much about malnutrition in Western Europe recently.

    The government prohibits people from making that choice by preventing imports from – yes, New Zealand – but also from third world countries.

    I'm not a big fan of the idea that third world countries need to be exporting cheap goods for their own benefit, but the logic is particularly perverse when applied to food. Free-trade utopia: Meat and fresh veggies to the markets in Europe and the US, cheap beans and rice for the masses at home. Why don't you kiwis send your lamb chops to Somalia? They'd sure appreciate it.

    You suspect that Social Policy Bonds targeting crime could lead to the suspension of civil liberties and a police state,

    No, you misunderstood. My point was that your claim that there is a consensus that crime should be reduced at the lowest possible cost does not answer my objection that we have no consensus as to how that could or should be done, and it is not obvious how SPBs would create such a consensus. What I suspect about SPBs is that they would not lead to anything at all, but just be a way to leverage a further attack on what remains of social policy.

  11. ronniehoresh Says:

    Re:How many things are wrong with this picture?

    Thanks again Mark for your points:

    I don't agree that …it is "entirely false" that preventing the destruction of small farming is a policy goal of the European democracies.

    It may have been one of the original policy goals, but maintaining that it's still a goal, in the face of decades of evidence that it isn't working, is entirely false. If it were still a goal then governments would provide their small farmers with a lot more assistance than their large farmers. The opposite happens.

    At most, [the facts] suggest that the policies may not always work as desired by the farmers and consumers whose votes keep them in place.

    Exactly! the intentions may have been good at the start – the effects are the opposite of the [stated] goals. Hence Social Policy Bonds' focus on outcomes.

    You ask whether farm policies' very low transfer efficiency [ie most support to 'agriculture' doesn't go to farmers] 'reflect anything more profound than the fact that farmers' profits are always no more than a small share of the supermarket price.' It does: it means that farmers' higher incomes encourage upstream and downstream industries [inc supermarkets] to expand their margins as the farmers have more money to spend. Economic theory and empirical evidence show this quite clearly. [I have some figures showing, for example, how much more identical farm remedies cost in highly assisted Europe than in unassisted New Zealand.] This especially applies to the price of land…

    …Perhaps you have some further facts which demonstrate that it is actually the ill-conceived government policies which are fostering concentration

    Yes; farmland values are far higher than they would be without government support to agriculture. This massively favours big farmers over new entrants to farming when small farms become vacant.

    I haven't heard much about malnutrition in Western Europe recently.

    There are some malnourished people in the very poor parts of some British cities. But there are far more poor people who'd like to pay less for food so that they can spend more on, for example, heating.

    I'm not a big fan of the idea that third world countries need to be exporting cheap goods for their own benefit, but the logic is particularly perverse when applied to food. Free-trade utopia: Meat and fresh veggies to the markets in Europe and the US, cheap beans and rice for the masses at home. Why don't you kiwis send your lamb chops to Somalia? They'd sure appreciate it.

    Nope, I don't follow this. I do think it would be nice if it were up to the third world countries to decide whether they wanted to export food. As it is, the rich world's import barriers don't give them that choice. I think giving people in the third world a chance to export [not just food, but textiles, clothing etc] at least offers them the chance to develop, gives them a stake in a better future, and makes such tragedies as Somalia less likely.

    your claim that there is a consensus that crime should be reduced at the lowest possible cost does not answer my objection that we have no consensus as to how that could or should be done, and it is not obvious how SPBs would create such a consensus.

    I agree with both your points, but don't think it really matters – as long as bondholders don't do anything antisocial. Existing laws would help, but for SPBs to be any help there may have to be additional safeguards to prevent crime [or other targeted outcomes] from being achieved in negative ways. [My book talks about this.] We are never going to get consensus on how social problems should be solved; well, there's no sign of any, and it's probably not worth waiting for such a consensus to appear before tackling crime or other social problems. There is, though, some consensus about desirable outcomes. Let's work on that. Who knows? if Bonds are issued, brilliant, as yet undiscovered, ways of solving these problems may arise, and then there would be consensus on means as well as ends

    All the best. Ronnie Horesh

    Market solutions for social problems Market solutions for environmental problems http://www.geocities.com/socialpbonds

  12. James Brown K. Says:

    They also supply information on this ratio that is transparent and constantly updated. Because of this information, and on grounds of efficiency, then, I believe the Bonds score heavily over programme- or activity- based funding. Once the returns per taxpayer dollar [and their trends] to the various programmes are known, so are the trade-offs and people can decide on social goals in ways in an informed and constructive manner. I actually think this sort of information can blur the distinction between politician and public, as we could all take an interest in social goals once there are objective measures of how much it costs to achieve them.

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