Pur Autre Vie

I'm not wrong, I'm just an asshole

Sunday, May 13, 2012

The Technocratic Temptation

What is there to say about cost-benefit analysis that hasn't already been said about Afghanistan?  It looks bombed out and depleted.

I should make a few qualifications.  First, I am talking about what I regard as "naïve" CBA.  In this view, the policy-maker uses her intuition to come up with plausible policy proposals, and then she quantifies the predicted consequences and uses the results as parameters in some kind of algorithm.  This algorithm spits out numbers that purport to assess the costs and benefits of the alternative policies, and the policy-maker implements the policy with the greatest surplus of benefits over costs.

In truth I suspect that CBA functions more like an institutional check on bureaucracy, in that regulations can be challenged and sometimes struck down on the grounds that the regulator didn't properly implement CBA in assessing the policy.  This is what seems to be going on in Business Roundtable vs. SEC (PDF), though in that case the SEC wasn't strictly charged with implementing CBA (rather the SEC was supposed to consider the rule's effects on efficiency, competition, and capital formation).  Think of Chevron + CBA as a sort of business judgment rule for regulators (deference will be given to regulatory decisions so long as the proper procedures are followed—and CBA specifies the proper procedures).  In this case, CBA may be a way of disciplining regulators, forcing them to gather and confront the data.  The regulatory decision is still arbitrary (and subject to criticism and even statutory repudiation), but it is at least well-informed arbitrariness.  This is what I think CBA actually does, and this is why I think it is probably a good thing on balance.

But let's assume that CBA is implemented in the naïve way, and that it works in the sense that the need to specify arbitrary values in some circumstances doesn't render the output unreliable.  (Maybe the results are not sensitive to the arbitrary values, or arbitrary values yield small differences in policy and those differences don't systematically skew policy in one direction or another.)

My claim is that CBA is only as good as its results, and that there is no basis to conclude that its results are the best policy in any given case or on average (except perhaps in the special case in which the results are judged from the perspective of a person whose values are fully reflected in CBA).  Note that I am not arguing against the use of quantitative analysis in policy-making, and I am not opposed to delegating controversial questions to unelected officials in some circumstances.  I simply think that CBA is valuable only inasmuch as it leads to better results than would otherwise be implemented.  And crucially, "better" cannot be judged from the viewpoint of CBA itself (this would be circular).  "Better" must be judged from the view of the affected constituency, and constituencies tend to have heterogeneous values and interests.  There is no reason to think that you can sterilize an issue of its ideological dimensions by running it through CBA.

The responses to this argument come in two flavors.

First, some CBA advocates essentially say, "DOAN WORRY WE FIXORED IT."  The problem is that, just as a cat fixors your internet cable by chewing through it, CBA proponents have fixored intractable ideological issues not by untangling the Gordian Knot, but by cutting it.  That is, regulators are empowered to resolve the ideological issues by arbitrary means.  This is obviously not a satisfactory solution unless you prefer to substitute the judgment of the regulators for the judgment of the affected constituencies.

Second, some CBA advocates reply that CBA should only be implemented where there is no ideological disagreement.  This is problematic both because CBA is actually implemented in cases in which there is ideological disagreement, and because it is difficult to imagine a policy that does not implicate ideological issues.  An alternative formulation is that elected (or otherwise politically legitimate) policy-makers should specify what is to be maximized, and the regulators should mechanically implement it.  I don't think this is how CBA is practiced anywhere.  (Another problem is that if CBA is a panacea, it is unclear why it shouldn't be adopted for all policy-making.  Indeed, one of my pro-CBA friends has suggested that CBA could be used to set the minimum wage.  I hope we can all agree that there is no level at which the minimum wage would be uncontroversial.)

Here is an example that should clarify my point.  Imagine that regulators gather some data, do some cost-benefit analysis, and conclude that the implicit value of a life in airline safety regulation is $100,000,000 and the implicit value of a life in car safety regulation is $1,000,000.  The regulators respond by tightening car safety regulation.

Now, your task is to persuade your libertarian friend that the regulators have just made the best possible regulatory decision.  Your libertarian friend argues that car safety is not difficult to measure, that car manufacturers compete to make the safest cars and actively market their cars on the basis of safety, and that car safety is one of many variables consumers can consider when choosing the best car for their needs.  Therefore, the optimal level of regulation of car safety is zero, and policy gets worse and worse as regulations get tighter and tighter.  (Your libertarian friend may also argue that airline safety is difficult for consumers to measure because of small sample size and technical complexity, and that airline safety regulation is therefore justified at some nonzero level.  Airlines do not market on the basis of safety, and consumers do not consider safety when buying tickets.)

So if I'm right, you are not going to be able to persuade your libertarian friend that increasing car safety is indisputably the best policy.  If you think you could persuade your libertarian friend to abandon his beliefs or principles in these circumstances, then I'm eager to hear the argument you would use.

The final thing you might say in CBA's defense is that your libertarian friend could always show up at a public hearing and demand that the regulators use a higher estimate of the benefits of "freedom" when running CBA.  That is, CBA is transparent and invites input about how it is to be conducted.  It resolves ideological disputes by being democratically legitimate.

I think this is probably untrue.  First, most people don't know how to "speak the language" of CBA.  A man whose career is about to be ruined by a burdensome regulation may not know which variable needs to be adjusted to get the result he wants.  He just knows that he is about to lose everything.  And in any case, public hearings and comment periods hardly bestow democratic legitimacy on regulation.  Again, it is more a matter of confronting the regulators with information they may not have already grasped.

Second, people go around saying things like, "CBA results in the best possible policy," which tends to silence people who might disagree.  People treat CBA like a science, like an uncontroversial policy tool that only a complete fool would refuse to accept.  If someone challenges CBA, he is likely to be told something like, "I'm frustrated that you're opining about CBA without having a good understanding of it.  There's an extensive literature in which the various objections to CBA are raised and answered."  So CBA is put on a pedestal and its policy prescriptions are shielded from public debate.  CBA is assumed to yield the best possible regulations, and its proponents do not feel the need to produce a shred of evidence in its favor.

This is unjustified.  CBA's inputs are inescapably ideological, and its outputs are no less ideological.  Only if those outputs are better than the alternative is CBA a worthwhile endeavor.

8 Comments:

Blogger Alan said...

My admittedly naive, but strong, support for CBA stems primarily from two beliefs: (i) CBA tends to be better than alternative means of deciding how to make utilitarian regulations (not all regulations are governed by consequentialist laws, and the issue of deciding when a law is sufficiently consequentialist to authorize CBA seems tricky; maybe Congress should specify in regulatory statutes whether the agency charged with enforcing them is required or allowed to engage in CBA); and (ii) the views of "the people" with respect to most broad regulatory issues are vague and utilitarian.

Take car safety and emissions standards. I know very little about them, but my understanding is there are federal regulations governing them, because Congress decided there should be. So yes, a hardcore libertarian may disagree, but the political question of whether to regulate, and roughly to what extent, has been answered by the legislature before the issue of to-CBA-or-not-to-CBA comes into play. Congress may not have done a great job of specifying what the relevant regulatory agency should maximize, but Congress has given the agency some vague, utilitarian direction. The agency's job is to achieve this goal as cost-effectively as possible. Should the agency use CBA to determine the specific safety and emissions requirements it will implement? I feel that the answer in such cases is usually "yes," because the alternative is basically a less instrumentally rational approach to achieving the same ends. "The people" don't really have an opinion on the specifics of car-safety or emissions issues, such as airbag design, gas tank location, or the amount of CO2 each car should be able to expel. Rather, they want roughly some amount of guaranteed safety, and they are willing to pay roughly some amount to get it. It seems that a regulator could either impose its preferences directly, such as by mandating dual airbags in every car, or it could engage in CBA in order to determine which regulations would achieve the most safety bang for the buck. Admittedly, if the regulator engaged in CBA, its preferences would not be completely out of the equation. But it would be constrained by certain rules, such as not arbitrarily discriminating among the weights assigned to the utilities of various types of people (presumably, in a national regulation such as this, everyone's utility would be weighted equally, for practical if not for ideological reasons), and it would have a much better awareness of the trade-offs it could make between cost and safety. The regulator would be able to obtain imperfect, but very useful, answers to questions such as "how many lives would be saved if we required safety feature x in cars of type y, and how much would it cost?" Such answers, assuming the process was worth the candle, are undeniably valuable.

In other words, I think there are many cases in which there is enough underlying ideological agreement that CBA is essentially the "smart way" of being instrumentally rational. After all, there is enough underlying ideological agreement to pass the governing law, which specifies the regulatory ends to some extent, thereby, ideally at least, reflecting the will of the people. Sure, not everyone's beliefs about car safety are the same, and not everyone is affected by car safety regulations in the same way. But that's okay: the democratic process is cool, to some extent, with there being winners and losers. The point is simply that given the existence of a car safety statute like the one described above, there are better and worse ways to go about achieving car safety. CBA seems like a damn good way.

12:40 AM  
Blogger Alan said...

Regarding your airline vs. car safety example, there may very well be utilitarian reasons not to tighten car safety regulations in response to the higher value of life implicit in airline safety regulations. CBA does not inherently take a position on such questions; it does not mandate that we "close the gap" between these values, nor does it mandate where the gap should converge, because it is an instrumental tool. (Once again, given a certain country, value system, etc., CBA may have certain substantive normative commitments, such as not racially discriminating between different people's utility, but these commitments are not inherent in the concept of CBA.) The people may understandably want such gaps to exist. Then again, they may want to do something about them -- often they are striking and senseless, such as with respect to different parts-per-million regulations -- so it certainly helps to learn, through CBA, that such gaps exist and roughly how big they are.

12:40 AM  
Anonymous Joerg Harrison said...

Two thoughts: 1. Given that we all agree on CPA being a purely instrumental tool, the Q. is how often in public policy a purely instrumental tool is appropriate. I think these cases are relatively rare, because (a) there are usually tradeoffs between interests, and there's no "correct" way to make tradeoffs -- the democratic process is not automatically legitimate, esp. from the POV of someone who is getting traded off; (b) arguably people are not esp. utilitarian, and are in fact less utilitarian than they claim to be, b'se real motivations (in-group, whatever) are disparaged. 2. Related to this, I think the inference you use, "the law was passed, therefore there was substantial ideological agreement on the issue," is at all plausible.

The underlying issue that bugs me about CPA -- and generally what Judt calls "economism," I think -- is that a lot of it consists of fudging your normative commitments so you can apply the fanciest new instrumental tools. To my mind this is not a sane thing to do.

9:12 AM  
Anonymous Macca Q. said...

urgh, *do NOT think the inference is plausible

9:13 AM  
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