Policy Analysis: Cost-Benefit Analysis and Ethical Analysis

1. Policy Analysis: Cost-Benefit Analysis and Ethical Analysis

2. How Much do Government Programs Cost? • How much is a billion dollars? • How much is a trillion? • What is the budget of the University of Houston? ?

3. UH System Budget and Allocation • 2013--$1.5 Billion • UH----$1.1 Billion • UHCL--$104 million • UHD---$152 million • UHV---$78 million

4. UH System Budget: 2013-$1.5 Billion

5. Some Additional Budgets • City of Houston—2013--$4.2 billion • HISD—2013--$1.5 billion • State of Texas –2012/2013--$182 billion • Houston Police Department-2012-$600 million • Texas Prison Budget—2012-$6.3 billion • Department of Defense—2012--$645 billion • U.S. Department of Education-2012-$70 billion • Federal budget –2013--$3.8 trillion

6. F/A-18 Hornet--$94 million each

7. V-22 Osprey--$118 million each

8. VH-71 Kestrel--$241million

9. Armored Vehicle $1.6 million each

10. C17A Globemaster III $328 Million Each

11. Global Hawk Block 30--$66 million—the Air Force does not want more

12. F-22 Raptor $350 million each—Air Force does not want more

13. M1A1 Abrams Tank—Army Does not want more—Congress insists/$91 billion for 33 What is Public Policy?

14. B-2 Spirit $2.4 billion each

15. Missile $66 million each

16. Aircraft Carrier-$10 Billion

17. Expensive Medical Procedures • Intestine Transplant $1,121,800 • Heart Transplant $787,700 • Bone Marrow Transplant $676,800 • Lung Transplant $657,800 • Liver Transplant $523,400 • Open Heart Surgery $324,000 • Do you think people need insurance?

18. Expensive Prescription Drugs-Higher in America than any other Country • Makena—reduces the risk of early labor in pregnant women --$690 per dose ($14,000) over course of pregnancy • Soliris--$409,500 a year (bleeding disorders) • Elaprase--$375,000 a year (cancer drug) • Foloyn--$360,000 a year (cancer drug) • Copaxone $1,700 per injection (MS drug)

19. Public Knowledge • Despite some media coverage of the high costs of military equipment, prescription drugs, or prisons the public does not know much, if anything, about these costs. • The public does not know how tax dollars are spent, why some of the products purchased by government cost so much, or who profits. • The public does not understand the decision-making dynamics in Washington, D.C. that results in these expensive public expenditures.

20. How Should we make spending decisions? • Two modes of analyzing policy choices... • Cost-benefit analysis • based on economic logic that assumes that the best policies are those that create the greatest net benefit for society • Ethical analysis • looks at other means of justifying policy choices and contrasts those to the economic methods

21. Cost-Benefit Analysis The fundamental principle of cost-benefit analysis is that any project undertaken should produce a benefit for society greater than its cost C-B analysis assumes that when several projects promise to yield positive net benefits, and all cannot be undertaken because of limited resources, the project that creates the greatest net benefit to the society should be selected The technique is perhaps most applicable to capital projects, such as building highways, dams, and public transportation projects, and conservation projects.

22. Cost-Benefit Analysis—looking at the money The costs and benefits of a project are all compared along the single measure of money, and those projects that create the greatest net benefit are deemed superior On that single dimension, cost-benefit analysis might provide an answer as to whether a project is desirable or not, whereas other methods might produce more ambiguous results

23. Principles of Cost-Benefit Analysis—welfare economics • A principal concept underlying cost-benefit analysis comes from the tradition in welfare economics that has sought to develop an acceptable social welfare function, or a socially desirable means for making collective policy decisions • The main question is • how can societies take the numerous and often conflicting views of citizens and generate the policy choices that are the most acceptable to the society?

24. Principles of Cost-Benefit Analysis—the Consumer’s surplus • A second fundamental idea underlying cost-benefit analysis is the consumer’s surplus • this is the amount of money a consumer is willing to pay for a given product, minus the amount she or he must actually pay • for example, the government’s investment in a new superhighway that reduces the cost to consumers of driving the same number of miles – in time, in gasoline, and in potential loss of life and property – creates a consumer surplus • and because the time, gasoline, and lives saved by the new highway may be used for other increased production, the actual savings represent a minimum definition of the improvement to society resulting from the new highway

25. Principles of Cost-Benefit Analysis—Opportunity Costs • The term “opportunity costs” means that any resource used in one project cannot be used in another • for example, the concrete, steel, and labor used to build a superhighway cannot be used to build a new dam • projects are also compared, implicitly if not explicitly, with taking no action and allowing the money to remain in the hands of individual citizens

26. Principles of Cost-Benefit Analysis—Effects over Time • The analyst must also be concerned with the range of effects of the proposed program and the point at which the analysis disregards effects as being too remote for consideration • for example, building a municipal waste incinerator in Detroit might have pronounced effects in Canada • There are also long and short-term costs • policymakers must be certain that the long-term costs and benefits, as well as the short-term consequences, are positive

27. How Realistic is this process in Government decision-making? • Do members of Congress regularly ask themselves if it would be better to spend more money on education, and less on defense? • Do members of Congress often decide that expenditures will not produce real results for many years, but the cost is still an important investment (e.g., education)?

28. Reality • Do members of Congress regularly ignore pleading by powerful special interests that support their campaigns to allocate spending toward more beneficial public needs? • Do members of Congress vote against spending in their own congressional district because all the evidence proves that the expenditure is wasteful?

29. The Final Analysis • Answering these questions does not suggest that all public spending is suspect • or that cost-benefit analysis does not guide some decision-making • or that decision-making based on C-B is always used rationally • What the evidence does tell us is that the decision-making process is influenced by a lot more that C-B. What is Public Policy?

30. Obvious problems • Often we do not really know the costs or benefits of expenditures because the costs and benefits are difficult or impossible to accurately calculate. • Often the costs are understated by interest groups to improve the chances of getting the legislation passed, or benefits are exaggerated. • Often groups want policies adopted that pass the costs of their actions on to someone else.

31. Benefits may be long-term • For example, better education systems for low-income children might make a large difference in their ability to compete in the 21st century. • Additionally, better education systems for low-income children might lower the crime rate and costs of crime and imprisonment.

32. Think about how we calculate the costs of crime • What do we count? • A. Loss of property • B. Costs of police • C. Costs of courts, judges and other personnel • D. Costs of jails and prisons • F. Medical costs of victims—long and short term • G. Psychological costs to victims

33. Medical benefits for the elderly • Where do we draw the line? • One option would be to place no limits on expenditures for the elderly, always employing the maximum medical options to improve the quality and life of the aged regardless of their age or the quality of their lives. • Can we do this?

34. Another Approach: Ethical Analysis of Public Policy • The concept behind cost-benefit analysis –producing the greatest net benefit to society – is admirable • but the approach tends to reduce all dimensions of policy to a common economic one, even though a variety of other values may be equally important for determining the proper course of government action

35. Fundamental Value Premises • The main difficulty in ethical analysis of policy is finding principles that can consistently produce acceptable decisions for a number of different situations... • words such as justice, equity, and good are tossed about in rather cavalier fashion in debates over public policies • the analyst must attempt to systematize his or her values and learn to apply them consistently • the policy analyst therefore must be a moral actor as well as a technician

36. Fundamental Value Premises • Five important value premises for making policy decisions... • The Preservation of Life • The Preservation of Individual Autonomy • Truthfulness • Fairness • The Concept of Desert

37. Preservation of Life • The preservation of human life is embodied in Judeo-Christian ethics and also in all codes of professional ethics • Conflicts arise in application • One conflict exists between identifiable lives and statistical lives... • the “mountain-climber syndrome”: saving many lives in the future can be compromised because money is spent when a single life is immediately threatened

38. Preservation of Life • What criteria should be used when all lives are identifiable and allocation decisions must be made? • Who will contribute the most to the community? • Who has the greatest number of remaining years of life? • Which individuals will return to active, useful lives? • Is the disease, condition, or situation self-inflicted? • What does self-inflicted mean? • How do we calculate over eating, smoking, drugs or alcohol into the equation?

39. The Preservation of Individual Autonomy • Each should be free to make decisions about his or her own life • this principle underlies a considerable body of conservative political thought, which assumes that the interests of the individual are, everything else being equal, more important than those of the society as a whole • it also assumes that individuals may at times select alternatives that many other people, and society as a whole acting through government, might deem unacceptable • thus child labor, sweatshops, and extremely long working hours at low wages were all justified at one time because they preserved the right of the individual to “choose” his or her own working conditions

40. Truthfulness • When one person lies to another, the liar deprives the other person of the ability to make rational and informed decisions • in times of war officials may need to lie, or at a minimum withhold information, for security reasons or to maintain morale, but even that largely justifiable behavior will tend to undermine the legitimacy of a democratic system • other white lies told to the public involve withholding information that might cause panic or other responses that are potentially very dangerous • a special category of lying is the withholding of information by public officials to protect their own careers • (e. g., Weapons of Mass Destruction in Iraq)

41. Fairness • What is “fair treatment of citizens”? • to a conservative, for example, fairness means allowing individuals maximum opportunity to exercise their own abilities and to keep what they earn in the marketplace through those abilities. Conservatives, of course, tend to think that this principle should not include a woman’s right to abortion, gay marriage, freedom of religion, etc. • the familiar Marxist doctrine, “From each according to his abilities to each according to his needs” suggests a very different standard of fairness, implying that all members of the society, provided they are willing to contribute their own abilities (however limited), are entitled to have their material needs satisfied • Is there a balance here?

42. The Concept of Desert • What does a citizen deserve as a member of the society, and what does the individual deserve as a human being with particular needs and virtues? • The debate over health care often raises the question of whether citizens have a right to health care, and if they do, to what level of health care. • Do children have special rights and deserve more services and protections despite the wealth of their parents? • How should immigrants and their families be treated? If the parents are employed, should the family have health care?