Cost-effectiveness is not the best measure of government policy

  • Paul Constant is a writer at Civic Ventures and co-host of “Fork Economy” podcast.
  • He spoke with sociologist Elizabeth Popp Berman who says there’s nothing wrong with spending big on policies that improve the lives of millions.
  • Profitability is a fundamental principle in most Econ 101 classrooms – but not all government programs require it.

In his new book “Think like an economist“, Elizabeth Popp Berman, a sociologist at the University of Michigan, argues that leaders of both political parties tend to view proposed policies within an economic framework, such as measuring the return on investment of a policy as if it was a for-profit corporate program – and she argues that this framework actually undermined the effectiveness of the policy.

On the last episode of Fork EconomyPopp Berman explained that the entire apparatus surrounding the making and enactment of policy into law – from legislators to media advocacy organizations – measures forward-looking policy against “basic concepts like the efficiency, trade-offs, weighing costs and benefits – those very simple ways of framing issues you would learn in the introduction to economics.”

The problem is that while efficiency is a core principle in most Econ 101 classrooms, not all government programs are — or should be — efficient.

Take, for example, Republican President Richard Nixon’s speech 1970 Appeal to Congress create the Environmental Protection Agency and the National Oceanic and Atmospheric Administration. In it, Nixon clearly spoke of environmental conservation as a moral issue, “a deep commitment to the rescue of our natural environment and the preservation of Earth as both a habitable and hospitable place for human beings. ‘man,” Nixon wrote.

The EPA was created at a time when it was clear that environmental regulation was necessary to protect the public good at all costs. But now, environmental legislation is mainly discussed, by leaders of the right and left, in terms of impact on the economy. A set of laws that a Nixon-era leader would likely have discussed primarily to save the world from catastrophe has become an economic dispute, allowing partisan actors to quibble endlessly about the total number of jobs created and the impact on GDP.

Popp Berman points to a specific moment when economics became the primary metric for proposed legislation: “Schools of public policy were created very explicitly to do this. did not exist until the late 1960s“, she said. The birth of these graduate programs has created a need to standardize and quantify public policies, and cost-effectiveness is a concrete measure. As a result, she says, the Public policy schools tend to systematically compare the cost-effectiveness of different public policies, with the most effective and affordable programs winning.

In the years that followed, this way of thinking gradually permeated all levels of the legislative process, and “it’s a way of thinking that feels very natural to us now,” Popp Berman explained.

What is lost when we focus on profitability

Unfortunately, this economic lens has narrowed the possibility of what legislation can do. As Popp Berman said, “If you argue that efficiency should be your central goal in policy-making, you’re really very rarely going to advocate policies that are universal.”

Popp Berman wrote her book because she has seen the effectiveness of public policy diminish over her lifetime, and she thinks “there are morally compelling reasons to try to get things done with government”, such as impending climate catastrophe. Huge, ambitious programs and policies enacted in the early to mid-20th century — like Medicare — still exist today for a reason, she argues.

Democrats passed Medicare in 1965, and the policy still enjoys broad bipartisan support largely because it is a universal program available to all Americans over 65. But in current health care discussions, the ubiquitous economic lens favors policies that “involve cost-sharing or testing of means, which attempt to discourage overuse of medical care.”

You can see a similar argument playing out right now over student loan debt forgiveness, with some Democrats calling for more cost-effective measures instead. student savings accounts or using economic claims to defend means-tested debt forgiveness so it’s not universal. By the time a solution emerges from the quagmire of the economic debate – if it does emerge at all – it is so watered down that it hardly appeals to anyone.

Of course America huge military budget is a reminder that we do not put every policy option through rigorous testing for effectiveness. Popp Berman urges leaders to aim just as high with their social policies, adding that leaders “don’t necessarily have to back down immediately when someone says, ‘Okay, but is it profitable? “”

When it comes to government programs, Popp Berman argues, it’s okay to spend big if your policy improves the lives of millions of Americans. And improving the lives of millions of Americans creates positive economic benefits that cannot be measured by hard and fast economic analysis provided by seemingly “impartial” organizations like the Congressional Budget Office, because when more people have better, healthier and more financially stable lives that allow them to fully participate in the economy, we all benefit.

In the long run, bold policies that economically benefit the majority of Americans create a stronger economy and are always far more effective than modest policy driven by a cost-benefit analysis algorithm.


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