Tag Archives: Policy

Who Wants Social Insurance?

During the Biden administration, we will hear many argue that we should hand out more benefits to more people. Now when we economists argue for policy, we usually make economic efficiency arguments. So it is worth noting that for many of these policies, the main economic efficiency rationale for such handouts is “social insurance”. We are already seeing related arguments regarding pandemic relief and school loan forgiveness.

The “social insurance” argument posits a scenario where many people would have wanted to buy private insurance against big risks that they (or their descendants) face, but private insurance markets failed to offer such insurance. And thus the government should step in and produce the effect that such insurance would have produced, which is to pay certain people in certain situations, and tax everyone else to pay for it.

Now it is certainly true that insurers don’t offer all possible kinds of insurance. This can be due to legal restrictions, transaction costs, and information asymmetries. But it can also be due to limited demand. What if most people don’t actually want the insurance that “social insurance” would provide?

We already see many puzzling patterns in common insurance choices. Insurance was long illegal most everywhere, but then in the 1800s the first big retail success of insurance was life insurance sold to husbands as a way to signal devotion to their wives. Today, people often insure small risks like a new piece of electronics breaking, but fail to insure many of the largest risks in their lives, like failures at school, career, or marriage. And when I’ve asked students if they want to insure against such big risks, most usually say no, they don’t.

To explore this further, I did some Twitter polls on willingness to pay for 15 kinds of risks. Here are those risks, sorted by the fraction of respondents who says they would find value in fairly-priced insurance:

Note that only a majority favors private insurance for the top six items, and private insurance is in fact available for all of these today. Note also that these results are from the 3rd version of these polls that I tried. I found smaller fractions wanting insurance in the 2nd and 1st sets.

Of course people aren’t always honest in polls; maybe they really do want to insure far more risks than they say. And the fact that people often push political systems for “social insurance” policies is supporting evidence. But equally plausible, I think, is the theory that many really just want to use government to induce transfers, but when those folks are economists they try to justify such plans using econ efficiency lingo.

A clean test would be for the government to offer fairly-priced insurance against many risks, to ensure that no market failures prevents the availability of such insurance. Or even to subsidize such insurance. If there were actually a market failure preventing such insurance, that seems the most direct way to fix the problem. Yet we almost never see proposals like this; people almost always just push for more handouts. I wonder why.

Added 9a: The usual insurance “market failures” are:

  1. Moral hazard – which government can only fix if it can see more private acts than can private insurers.
  2. Adverse selection – which can be solved by requiring purchase of private insurance, and whose existence requires the opposite correlation between risk level and insurance quantity than the one we usually see,
  3. Scale economics – which private insurers might also achieve if not forbidden by antitrust rules.

To get private long term insurance, we could let kids sign insurance contracts when young, or empower their parents or grandparents to agree on their behalf. Note that today parents could, but usually do not, implement partial poverty insurance by insisting that their richer kids transfer to their poorer kids. As more than half of of national income variance is of this within-family form, this could achieve more than half of the gains possible from poverty insurance within a nation. And parents are much better placed than government to adjust for moral hazard of varying child efforts.

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Abstract Views Are Coming

Two years ago I predicted that the future will eventually take a long view:

If competition continues for long enough, eventually our world should contain units that do care about the distant future, and are capable of planning effectively over long timescales. And eventually these units should have enough of a competitive advantage to dominate. … The future not being neglected seems such a wonderfully good outcome that I’m tempted to call the “Long View Day” when this starts one of the most important future dates.

Today I predict that the future will also eventually take a more abstract view, also to its benefit. Let me explain.

Recently I posted on how while we don’t have a world government today, we do now have a close substitute: a strong culture of oft-talking world elites, that can and does successfully pressure authorities everywhere to adopt their consensus regulation opinions. This is much like how in forager bands, the prestigious would gossip to form a consensus plan, which everyone would follow.

This “world forager elite”, as I called them, includes experts, but often overrules them in their areas of expertise. And on the many topics for which this elite doesn’t bother to form a consensus, other institutions and powers are allowed to made key decisions.

The quality of their judgements depends on how able and knowledgeable is this global elite, and on how long and carefully they deliberate on each topic. And these parameters are in turn influenced by the types of topics on which they choose to have opinions, and on how thinly they spread themselves across the many topics they consider.

And this is where abstraction has great potential. For example, in order of increasing generality these elites could form opinions on the particular kinds of straws offered in a particular London restaurant, or on plastic straws in general at all restaurants, or on all kinds of straws used everywhere, on how to set taxes and subsidies for plastic and paper for all food use, or on how to set policy on all plastic and paper taxes and subsidies.

The higher they go up this abstraction ladder, they more that elites can economize on their efforts, to deal with many issues all at once. Yes, it can take more work to reason more abstractly, and there can be more ways to go wrong. And it often helps to first think about concrete examples, and then try to generalize to more abstract conclusions. But abstraction also helps to avoid biases that push us toward arbitrarily treat fundamentally similar things differently. And abstraction can better encompass indirect effects often neglected by concrete analysis. It is certainly my long experience as a social scientist and intellectual that abstraction often pays huge dividends.

So why don’t elites reason more abstractly now? Because they are mostly amateurs who do not understand most topics well enough to abstract them. And because they tend to focus on topics with strong moral colors, for which there is often an expectation of “automatic norms”, wherein we are just supposed to intuit norms without too much explicit analysis.

In the future, I expect us to have smarter better-trained better-selected elites (such as ems), who thus know more basics of more different fields, and are more able to reason abstractly about them. This has been the long term historical trend. Instead of thinking concrete issues through for themselves, and then overruling experts when they disagree, elites are more likely to focus on how manage experts and give them better incentives, so they can instead trust expert judgements. This should produce better judgements about what to regulate how, and what to leave alone how.

The future will take longer, and more abstract, views. And thus make more sensible decisions. Finally.

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The World Forager Elite

My last post was on Where’s My Flying Car?, which argues that changing US attitudes created a tsunami of reluctance and regulation that killed nuclear power, planes, and ate the future that could have been. This explanation, however, has a problem: if there are many dozens of nations, how can regulation in one nation kill a tech? Why would regulatory choices be so strongly correlated across nations? If nations compete, won’t one nation forgoing a tech advantage make others all the more eager to try it?

Now as nuclear power tech is close to nuclear weapon tech, maybe major powers exerted strong pressures re how others pursued nuclear power. Also, those techs are high and require large scales, limiting how many nations could feasibly do them differently.

But we also see high global correlation for many other kinds of regulation. For example, as Hazlett explains, the US started out with a reasonable property approach to spectrum, but then Hoover broke that on purpose, to create a problem he could solve via nationalization, thereby gaining political power that helped him become U.S. president. Pretty much all other nations then copied this bad US approach, instead of the better prior property approach, and kept doing so for many decades.

The world has mostly copied bad US approaches to over-regulating planes as well. We also see regulatory convergence in topics like human cloning; many had speculated that China would be defy the consensus elsewhere against it, but that turned out not to be true. Public prediction markets on interesting topics seems to be blocked by regulations almost everywhere, and insider trading laws are most everywhere an obstacle to internal corporate markets.

Back in February we saw a dramatic example of world regulatory coordination. Around the world public health authorities were talking about treating this virus like they had treated all the others in the last few decades. But then world elites talked a lot, and suddenly they all agreed that this virus must be treated differently, such as with lockdowns and masks. Most public health authorities quickly caved, and then most of the world adopted the same policies. Contrarian alternatives like variolation, challenge trials, and cheap fast lower-reliability tests have also been rejected everywhere; small experiments have not even been allowed.

One possible explanation for all this convergence is that regulators are just following what is obviously the best policy. But if you dig into the details you will quickly see that the usual policies are not at all obviously right. Often, they seem obviously wrong. And having all the regulatory bodies suddenly change at once, even when no new strong evidence appeared, seems especially telling.

It seems to me that we instead have a strong world culture of regulators, driven by a stronger world culture of elites. Elites all over the world talk, and then form a consensus, and then authorities everywhere are pressured into following that consensus. Regulators most everywhere are quite reluctant to deviate from what most other regulators are doing; they’ll be blamed far more for failures if they deviate. If elites talk some more, and change their consensus, then authorities must then change their polices. On topic X, the usual experts on X are part of that conversation, but often elites overrule them, or choose contrarians from among them, and insist on something other than what most X experts recommend.

This looks a lot like the ancient forager system of conflict resolution within bands. Forager bands would gossip about a problem, come to a consensus about what to do, and then everyone would just do that. Because each one would lose status if they didn’t. In this system, there were no formal rules, and on the surface everyone had an equal say, though in fact some people had a lot more prestige and thus a lot more influence.

This world system also looks new – I doubt this description applied as well to the world centuries or millennia ago, even within smaller regions. So this looks like another way in which our world has become more forager-like over the last few centuries, as we’ve felt more rich and safe. Big world wars probably cut into this feeling, so there was probably a big jump in the few decades after WWII, helping to explain the big change in attitudes ~1970.

Elites like to talk about this system as if it were “democratic”, so that any faction that opposes it “undermines democracy”. And it is true that this system isn’t run by a central command structure. But it is also far from egalitarian. It embodies a huge inequality of influence, even if individuals within it claim that they are mainly driven by trying to help the world, or “the little guy”.

This system seems a big obstacle for my hopes to create better policy institutions driven by expert understanding of institutions, and to get trials to test and develop such things. Because as soon as any policy choice seems important, such by triggering moral feelings, world elite culture feels free to gossip and then pressure authorities to adopt whatever solution their gossip prefers. Experts can only influence policy via their prestige. Very prestigious types of experts, such as in physics, can win, especially on topics about which world elites care little. But otherwise, elite gossip wins, whenever it bothers to generate an opinion.

That is, the global Overton window isn’t much wider than are local Overton windows, and often excludes a lot of valuable options.

Notice that in this kind of world, policy has varied far more across time than across space. Context and fashion change with time, and then elites sometimes change their minds. So perhaps my hopes for policy experiments must wait for the long run. Or for a fall of forager values, such as seems likely in an Age of Em. Alas neither I nor my allies have sufficient prestige to push elites to favor our proposals.

Added 11p: It seems to me that the actual degree of experimentation and variance in policy is far below optimum in this conformist sort of policy world. We are greatly failing to try out as many alternatives as fast as we should to find out what works best. And we are failing to listen enough to our best experts, and instead too often going with the opinions of well-educated but amateur world elites.

Added4p: As John Nye reminds me, in the early years of a new tech, only a few nations in the world may be able to pursue it. They then set the initial standards of regulation. Later, more nations may be able to participate, but risk-averse regulators may feel shy about defying widely adopted initial standards.

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Social Network Games

I’m not very good at social networking, but by now I’m old enough to see the value in many skills that I don’t have. One problem is that you often need to invest in networks many years before you plan to draw on them. Another is that it isn’t at all clear to young nerds, as I was once, what sorts of connections and relations would end up being most valuable later. Especially if you have big doubts about where your career and interests may go.

What if we could create games to show and teach social networking skills? And perhaps even to encourage the creation of useful networks? As nerds like games, we might tempt nerdy kids to play them, and we might subsidize such games as a society, to induce stronger denser social networks. There are plausibly externalities by which we all benefit when we all have longer stronger networks.

The tricky part, of course, is figuring out what exactly should happen in these games. We don’t want them to encourage just any social networks; we want the networks that are actually socially helpful. So we don’t obviously just want to encourage people to have more LinkedIn connections or Facebook friends, or to join and rise within multilevel Ponzi-like marketing systems like Amway. At least we don’t while we remain uncertain about the marginal value of more connections in such systems.

Ideally, we want people to be usefully selective about who they include in their network, and to whom they make referrals. We want to give them incentives to evaluate potential network partners well for suitability in various networking roles. But holding constant such evaluation and selectivity, we also want people to put in the work to collect more network partners.

For example, imagine that we periodically announced prizes shared among everyone in the first network path to connect a person of type X to a person of type Y. Say, a someone with a particular foot problem to someone who knows well how to deal with that problem. From what space of X,Y pairs should we draw for tied prizes to induce the most socially valuable networks?

Being not good at social networking, I’m probably also not good at making such proposals. But I might be better at evaluating such proposals, or more generally at social network game proposals. So please, you of my associates who like inventing games or who understand social networking better, do make such suggestions for I and others to evaluate.

Btw, negative liability would seem to help encourage such networks.

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Occam’s Policy Razor

Nine experiments provide support for promiscuous condemnation: the general tendency to assume that ambiguous actions are immoral. Both cognitive and functional arguments support the idea of promiscuous condemnation. (More)

The world is full of inefficient policies. But why, when many can can simply and clearly explain why such policies are inefficient? The following concrete example suggests a simple explanation:

Logically, it doesn’t seem cruel to offer someone an extra option, if you don’t thereby change their other options. Two thirds of poll respondents agree re this prisoner case. However, 94% also think that the world media would roast any nation who did this, and they’d get away with it. And I agree with these poll respondents in both cases.

Most of the audience of that world media would not be paying close attention, and would not care greatly about truth. They would instead make a quick and shallow calculation: will many find this accusation innately plausible and incendiary enough to stick, and would I like that? If they answer is yes, they add their pitchforks to the mob. That’s the sort of thing I’ve seen with internet mobs lately, and also with prior media mobs.

As most of the world is eager to call the United States an evil empire driven by evil intent, any concrete U.S. support for torture might plausibly be taken as evidence for such evil intent, at least to observers who aren’t paying much attention. So even those who know that in such cases allowing torture can be better policy would avoid supporting it. Add in large U.S. mobs who are also not paying attention, and who might like to accuse U.S. powers of ill intent, and we get our situation where almost no one is willing to seriously suggest that we offer torture substitutes for prison. Even though that would help.

Similar theories can explain many other inefficient policies, such as laws against prostitution, gambling, and recreational drugs. We might know that such policies are ineffective and harmful, and yet not be able to bring ourselves to publicly support ending such bans, for fear of being accused of bad intent. This account might even explain policies to punish the rich, big business, and foreigners. The more that contrary policies could be spun to distracted observers as showing evil intent, the more likely such inefficient policies are to be adopted.

Is there any solution? Consider the example of Congress creating a commission to recommend which U.S. military bases to close, where afterward Congress could only approve or reject the whole list, without making changes. While bills to close individual bases would have been met with fierce difficult-to-overcome opposition, this way to package base closings into a bundle allowed Congress to actually close many inefficient bases.

Also consider how a nation can resist international pressure to imprison one disliked person, or to censor one disliked book. In the first case the nation may plead “we follow a general rule of law, and our law has not yet convicted this person”, while in the second case the nation may plead “We have adopted a general policy of free speech, which limits our ability to ban individual books.”

I see a pattern here: simpler policy spaces, with fewer degrees of freedom, are safer from bias, corruption, special-pleading, and selfish lobbying. A political system choosing from a smaller space of possible policies that will then apply to a large range of situations seems to make more efficient choices.

Think of this as Occam’s Policy Razor. In science, Occam’s Theory Razor says to pick the simplest theory that can fit the data. Doing this can help fractious scientific communities to avoid bias and favoritism in theory choice. Similarly, Occam’s Policy Razor says to limit policy choices to the smallest space of policies which can address the key problems for which policies are needed. More complexity to address complex situation details is mostly not worth the risk. This policy razor may help fractious political communities to avoid bias and favoritism in policy choice.

Yes, I haven’t formalized this much, and this is still a pretty sloppy analysis. And yes, there are in fact many strong criticisms of Occum’s Razor in science. Even so, it feels like there may be something to this. And futarchy seems to me a good example of this principle. In a futarchy with a simple value function based on basic outcomes like population, health, and wealth, then voting on values but betting on beliefs would probably mostly legalize things like prostitution, gambling, recreational drugs, immigration, and big business. It would probably even let prisoners pick torture.

Today we resist world mob disapproval regarding particular people we don’t jail, or particular books we don’t ban, by saying “Look we have worked out general systems to deal with such things, and it isn’t safe for us to give some folks discretion to make exceptions just because a mob somewhere yells”. Under futarchy, we might similarly resist world disapproval of our prostitution, etc. legalization by saying:

Look, we have chosen a simple general system to deal with such things, and we can’t trust giving folks discretion make policy exceptions just because talking heads somewhere scowl. So far our system hasn’t banned those things, and if you don’t like that outcome then participate in our simple general system, to see if you can get your desired changes by working through channels.

By limiting ourselves to simple general choices, we might also tend to make more efficient choices, to our overall benefit.

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A Wonk’s First Question

Imagine you are considering a career as a paid policy wonk. You wonder which policy area to work in, and which institutions to affiliate with. If you want to influence actual policy, rather than just enjoying money and status, your should ask yourself: do those who sponsor or cite efforts in this area do so more to get support for pre-determined conclusions, or more to get info to help them make choices?

Sometimes sponsors and other consumers of a type of policy analysis know what policies they prefer, but seek prestigious cover to help them do it. So they pay and search for policy analyses in the hope of finding the support they need. With enough policy analyses to choose from, they can find ones to support their predetermined conclusions. But they need these prestigious cover analyses to appear, at least to distant observers, to be honest open attempts at discovery. It can’t be obvious that they were designed to support pre-determined conclusions.

At other times, however, sponsors and consumers are actually uncertain, and seek analyses with unpredictable-to-them conclusions to influence their choices. And these are the only cases where your being a policy analyst has a chance of changing real policy outcomes. Such audiences may see your analysis, or be influenced by someone else who has seen them. So for each analysis that you might produce, you should wonder: what are my chances of influencing such an open-minded chooser?

Here are a few clues to consider:

  1. How predictable are the policy conclusions of the most popular policy analysts in this area? High predictability suggests that sponsors reward such consistency, as it aids their efforts to collect support for predetermined conclusions.
  2. How interested are sponsors and other policy consumers in policy analyses done by very prestigious people and institutions, relative to others? The more open they are to products of low prestige analysts, the better the chance they seek information, instead of just prestigious backing for pre-existing conclusions.
  3. How open is this area to funding and otherwise supporting large relevant experiments (or prediction markets)? Or to applying a strong standard theory with standard assumptions, which together often imply specific conclusions? The more that people are willing to endorse the policy implications of such things before their results become known, the more open that area is to unpredictable new information.

It should be possible to collect evidence on how these factors vary across policy areas. Perhaps a simple survey would be sufficient. Might that publicly reveal to all the relative sincerity of different kinds of sponsors and consumers of policy analysis?

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