Why Economists Aren't Experts on What Is a Cost or Benefit

In the comments below, Robin Hanson writes:

I can't imagine what you are thinking in saying economists have no competence to say what is a cost or benefit. That seems to me to be one of the things we know best. And the market interest rate clearly gives the opportunity cost of resources spend in the future. You complain about cost-benefit analysis, but seem to have nothing to offer in its place.

I will help you imagine! I am thinking that the meanings of “cost” and “benefit” are either contested, due to diversity in reasonable evaluative standards, or their meanings are stipulated for technical purposes.

If the meaning is plural and contested, economists have no special comptence to decide between the different evaluative standards underlying different meanings of “cost” and “benefit”. Economists are people, and people can make arguments and exchange reasons for an against various evaluative standards, but economists do this as people with a conception of value, not as economists.

If the meanings are stipulated to make a kind of a toy analysis tractable or determinate, that's fine. But then the toy analysis has force only for those who already accept the stipulated meaning of the terms.

I have to get on the plane, but when I get home, I'll say something about policy evaluation that takes evaluative pluralism seriously.

Economic Expertise and Moral Mathematics

Ryan Avent, following up on Ezra's post on the policy prestige of economists in general and benefit/cost analysis in particular, writes:

[I]f we can’t use cost-benefit, how do we make these decisions? How in hell do we figure out which trade-offs are sound ones and which are damaging to society on net? To the economist, and indeed to many policymakers, eliminating cost-benefit analysis is like depriving them of language — how can you discuss the problem without it?

In fact, we really have no other way of wrestling with these issues. One can argue by moral imperative — that we don’t have the right to impose serious costs on others — but we still must determine how much compensation or preventative action those others are owed, and from where the resources to pay or take action should be drawn. These questions involve trade-offs, which must be weighed in some fashion, and so again we find ourselves turning to economists.

Why do we turn to economists again?

I agree that it is impossible to think intelligently about policy without some minimum of economic literacy. But the economist has no competence whatsoever to tell us, say, the appropriate discount rate to apply to future costs and benefits, to take one important example. I've heard philosophical arguments to the effect that the discount rate for future welfare should be zero and that the discount rate should approach infinity as we consider the welfare of furture beings with whom there is no possibility of reciprocity. The funny thing is that I think people get the implications of discount rates wrong, and that both zero and infinity point to more or less maximizing growth. A zero discount rate plus a basic grasp of the relationship between technology and growth plus a reasonable projection of the current trend of technological progress implies an obligation to maximize economic growth rates with no concern whatsoever to avoid the incidence of future externalities of current activity. This is an economic argument, but it is also something rather more. Likewise, an infinite discount rate implies that we should do the best we can for our children and grandchildren, and leave it to our grandchildren to worry about their grandchildren. If we're doing something now that might hurt people none of us will coexist with 100 years, then so what?

Of course, neither of these arguments will convince Ryan or Ezra. I'm sure we disagree both about the discount rate, which is not itself an economic question, and about the implications of the discount rate, which is only a partially economic question. And I think it gets even worse: economists have almost no competence whatsoever in telling us what counts as a cost or a benefit. That's pretty important, isn't it?

So why do we give so much weight to the opinions of economists?

The Party of Nixon

Read Fabio Rojas' illuminating post on the centrality of Nixonite networks and their priorities within the GOP for well over a half-century. Highlights:

[T]he narrative about Goldwater as the guiding light of the post-war GOP is wrong. Nixon, and his allies, have driven the agenda since the late 1940s. Other Republicans (Eisenhower, Goldwater, Regan) represented factions who, at most, were allowed a seat at the table created by Nixon.


The Nixon network (him and former staffers/appointees) have been in control of the presidency or vice presidency every time the GOP has won the national election. Furthermore, this network has controlled key national security positions very often in GOP administrations.


[T]he consistent theme, going back to the late 40s, is that the Nixon wing has been, almost without major exception, in favor of international interventionism. The GOP seems to have approved of nearly every American projection of power overseas, no matter which party is behind it. It’s fairly rare for policy makers in this orbit to call for pull backs in military interventions or to admit that any significant projection of force was a mistake. This view, of course, requires continual expansion of the executive branch’s power.


[C]onservative politics was not “reborn” after the Goldwater campaign in 1964 and cemented by Reagan. Instead, the Nixonites allowed this new ideological trend to be the face of the party, but they retained control over the institutional functions of the party, as evidenced by Nixon’s resurgence. This observation explains a lot of other puzzling feature of Republican politics. This is not the party of small government, it’s the party of national security. The party of individual liberty and self-reliance is actually the party of “enhanced interrogation.” The idea tying it together is national security, with superficial appeals to whatever helps win the election.

This sounds about right to me. The free marketeers and the culture warriors are useful idiots thrown a bone from time to time to keep the Nixonite establishment entrenched. Moreover, I'd say the U.S. national security apparatus remains shot through with the Cold War Nixonite ethos of Hard-Headed Big Boys Who Keep the World Safe. If the will of the herd and their elected windbags are behind with the program, great. If not, too bad. Even (especially?) Democratic executives are flattered by all the secret briefings, etc. and the gravity of Hard-Headed Big-Boy World-Saving responsibilities into sticking with the program. You can fight the permanent national security apparatus and get nothing in return other than a reputation as a giant pussy existential threat to America who is going destroy us all, or you can let the apparatus publicly act like you're in charge of it while it more or less runs itself, allowing you to focus on the trivial issues you care about, like nationalizing things and raising taxes. Cheney wiping the floor with Obama over torture is a sad sign that it's all still just churning along. The message, I take it, is that the damn hippy kids can appoint bisexual robot Latinas to the Supreme Court and tell GM to make cars that run on fairy kisses as long as they know the Serious People will continue to control the power that matters. All signs point to Obama going along, which, as Nixon knew, is what you can expect from self-impressed Ivy League assholes.

A bit of a digression there. Anyway, read Fabio's post. Nixonites delenda est!