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Leaders on both sides evaluate policy through an Econ 101 lens, but cost-efficiency isn't the best measurement of effective policy

Paul Constant   

Leaders on both sides evaluate policy through an Econ 101 lens, but cost-efficiency isn't the best measurement of effective policy
  • Paul Constant is a writer at Civic Ventures and the cohost of the "Pitchfork Economics" podcast.
  • He spoke with sociologist Elizabeth Popp Berman who says it's okay to spend big on policy that improves the lives of millions.

In her new book "Thinking Like an Economist," University of Michigan sociologist Elizabeth Popp Berman argues that leaders in both political parties tend to view proposed policies through an economics framework, such as measuring a policy's return on investment as though it's a profit-driven company's program — and she argues that this framework has actually damaged the effectiveness of policy.

On the latest episode of Pitchfork Economics, Popp Berman explained that the entire apparatus surrounding the crafting and passing of policy into law — from legislators to advocacy organizations to the media — measures prospective policy against "basic concepts like efficiency, trade-offs, weighing costs and benefits — these very simple ways of framing problems that you would learn in introductory economics."

The problem is that while efficiency is a core tenet in most Econ 101 classes, not every government program is — or should be — efficient.

Take, for instance, Republican President Richard Nixon's 1970 appeal to Congress to create the Environmental Protection Agency and the National Oceanic and Atmospheric Administration. In it, Nixon spoke plainly about environmental conservation as a moral issue, "a profound commitment to the rescue of our natural environment, and the preservation of the Earth as a place both habitable by and hospitable to man," Nixon wrote.

The EPA was created at a time when it was clear that environmental regulation was needed to protect the public good at any cost. But now, environmental legislation is primarily discussed, by leaders from the right and the left, in terms of its impact on the economy. A package of laws that a leader of Nixon's era would likely have discussed primarily as a matter of saving the world from disaster has become an economic dispute, allowing partisan actors to quibble endlessly over the total numbers of jobs created and the impact to GDP.

Popp Berman points to a specific moment in which economics became the main metric to measure proposed legislation: "Public policy schools were very explicitly created to do this. They didn't exist until the late 1960s," she said. The birth of these graduate programs created a need to standardize and quantify public policy, and cost effectiveness is a concrete measurement. As a result, she says, public policy schools tend to systematically compare the cost-effectiveness of different public policy programs, with the most efficient, affordable programs winning out.

In the intervening years, this way of thinking has gradually spread throughout every level of the lawmaking process, and "it's a way of thinking that feels very natural to us now," Popp Berman explained.

What's lost when we focus on cost efficiency

Unfortunately, that economic lens has shrunk the possibility of what legislation can do. As Popp Berman said, "If you argue that efficiency should be your central goal of policy-making, you're really very rarely going to argue for policies that are universal."

Popp Berman wrote her book because she saw public policy shrink in effectiveness over the course of her lifetime, and she believes that "there are morally compelling reasons to try to achieve things with government," like the oncoming climate catastrophe. Huge, ambitious programs and policies enacted in the early-to-mid 20th century — like Medicare — are still around today for a reason, she argues.

Democrats passed Medicare in 1965, and the policy still enjoys broad bipartisan support in large part because it's a universal program available to every American over 65. But in discussions about healthcare now, the ubiquitous economic lens favors policies that "involve cost sharing or means testing, that are trying to discourage overuse of medical care."

You can see a similar argument unfolding right now over student loan debt cancellation, with some Democrats instead calling for more cost-effective educational student savings accounts or using economic claims to argue for means-testing debt forgiveness so it's not universal. By the time a solution emerges from the morass of economic debate — if it in fact emerges at all — it's so watered-down that it hardly appeals to anyone.

Of course, America's enormous military budget is a reminder that we don't put every policy option through rigorous efficiency testing. Popp Berman urges leaders to aim similarly high with their social policies, adding that leaders "don't necessarily have to immediately step back when somebody says, 'Okay, but is it cost-effective?'"

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 can't be measured by strict, immediate 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 much more efficient than a modest policy run through a cost-benefit analysis algorithm.