PLY: Two diverging articles today, one pro SIB, the other rather anti..both worth reading:
It is one of the curious ironies of history that ideas which tend to destroy also help to rebuild. Innovative financial instruments played a key role in the 2007-2008 financial crisis that not only dented economic growth worldwide, but also hit government revenue streams making fewer resources available for health care spending.
Roughly five years after the crisis, social impact bonds (SIBs) – a new financial instrument – hold promise to fund a raft of innovative social service delivery models via private capital.
Though SIBs are still in the early development phase, they could play a niche role in relieving burdened state health care budgets and financing innovative preventive health schemes in both the US and UK.
PLY: A balanced and logical article. Indeed some financial innovations have not worked, just as innovations in many other parts of engineering and life have not but “to throw the baby out with the bathwater” would be foolish and to that end the Academic Health Economist demonstrates benefits to SIBs that if used proportionately in the modern era of budgetary constraint, will help society.
Gina Raimondo “kicked off” her campaign for Governor yesterday, and wouldn’t you know it, but the centerpiece of her policy proposals will be a new invention of Goldman Sachs, the “social impact” bond.
What, you might ask, is a social impact bond? The idea is that some great source of capital like, oh, I don’t know, Goldman Sachs, lends some community millions of dollars to improve early-childhood education.
Perhaps they build a new pre-K facility, or even use the money to pay some teacher salaries. A wealth of evidence shows that this kind of investment pays a return of sorts because the kids who enjoy this better education are less likely to become teen parents or teen lawbreakers.
It stands to reason, therefore, that the community so enriched by this investment can repay the bond by sending to Goldman Sachs the money that would have been spent on the welfare or jail that those teens didn’t need. How’s that for a win-win?
PLY: Alas I think the author here is perhaps a bit blinded by the Goldman Sachs involvement in SIBs and a general distaste for bankers. Bankers aren’t all bad, although I do believe they have behaved overall abominably for some years now. However to see SIBs all from the demand side is to miss the core problem: the supply of money for government to maintain services at high standards in the west simply is not around – hence SIBs as an innovative financing solution…