macreonomics issue
[{"sender": null, "recipients": ["jeevacation@gmail.com"], "timestamp": "2/10/2011 9:45:51 PM", "subject": "macreonomics issue", "body": "do you think something like this is worthwhile and should i engage?\n\nFor Federal Programs, a Taste of Market Discipline\n\nBy DAVID LEONHARDT\nPublished: February 8, 2011\n\nWouldn’t it be nice if taxpayers could somehow get a refund for government programs that didn’t work?\nInstead, the opposite tends to happen. Programs that fail to make a difference — like many of those that train\nworkers for new jobs — endure indefinitely. Often, policy makers don’t even know which work and which\ndon’t, because rigorous evaluation is rare in government. And competition, which punishes laggards in the\nprivate sector, is typically absent in the public sector.\n\nBut there is some good news on this front. Lately, both American and British policy makers have been thinking\nabout how to bring some of the competitive discipline of the market to government programs, and they have hit\non an intriguing idea.\n\nDavid Cameron’s Conservative government in Britain is already testing it, at a prison 75 miles north of London.\nThe Bloomberg administration in New York is also considering the idea, as is the State of Massachusetts.\nPerhaps most notably, President Obama next week will propose setting aside $100 million for seven such pilot\nprograms, according to an administration official.\n\nThe idea goes by one of two names: pay for success bonds or social impact bonds. Either way, nonprofit groups\nlike foundations pay the initial money for a new program and also oversee it, with government approval. The\ngovernment will reimburse them several years later, possibly with a bonus — but only if agreed-upon\nbenchmarks show that the program is working.\n\nIf it falls short, taxpayers owe nothing.\n\nThe first British test is happening at Her Majesty’s Prison Peterborough, where 60 percent of the prisoners are\nconvicted of another crime within one year of release. Depressingly enough, that recidivism rate is typical for a\nBritish prison.\n\nTo reduce the rate, a nonprofit group named Social Finance is playing a role akin to venture capitalist. It has\nraised about $8 million from investors, including the Rockefeller Foundation. Social Finance also oversees three\nsocial service groups helping former prisoners find work, stay healthy and the like. If any of those groups starts\nto miss its performance goals, it can be replaced.\n\nFor the investors to get their money back starting in 2014 — with interest — the recidivism rate must fall at\nleast 7.5 percent, relative to a control group. If the rate falls 10 percent, the investors will receive the sort of\nreturn that the stock market historically delivers. “It’s been only a few months,” says Tracy Palandjian, who\nrecently opened a new Social Finance office in Boston, “but the numbers are coming in O.K.”\n\nAntony Bugg-Levine of the Rockefeller Foundation told me it had invested in the project for two main reasons.\nOne, it expected to get its money back and then be able to reuse it. Two, if social impact bonds work, they have\nthe potential to attract for-profit investors — and vastly expand the pool of capital that’s available for social\nprograms.\n\nClearly, social impact bonds have limitations. For starters, it’s hard to see how private money could ever pay for\nmultibillion-dollar programs like Medicaid or education.\n\nJust as important, the execution of any bond program will be complicated. It will depend on coming up with the\nright performance measures, which is no small matter. Done wrong, the measures will end up rewarding\nprograms lucky (or clever) enough to enroll participants who are more likely to succeed no matter what."}]