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Why Costs and Benefits Matter in the Debt Ceiling Debate

Author: John Roman

| Posted: August 1st, 2011

When asked how to make an important decision, Ben Franklin suggested tallying up the costs of the various options and their benefits and picking the option whose benefits outweigh costs.

Now imagine making an important decision without even considering the benefits.

That is exactly what is happening with Washington’s debt showdown. The focus is exclusively on costs. Without a serious discussion of the benefits of government activities, there is no possibility that rational, evidence-based policies will result.

A guiding principle of good government, after all, is to do things that work and not to do things that don’t work.

We now have a government that violates that principle day after day. It does so by not even considering whether programs and policies are effective.

Do you remember acid rain? Remember high-rise public housing teeming with violence and hopelessness? Or how about gang wars, the crack epidemic, lead paint, and lead gas?

These problems and many others have been largely solved by governmental intervention. And not by all of government. Just by that tiny slice with the innocuous label of “non-defense domestic discretionary spending.” You know, the part of the budget that has been the “slash point” of the Washington wrangling.

Such spending is responsible for safer medicine, safer streets, safer schools, safer workplaces, safer food, cleaner air, cleaner water, better public housing, fairer business practices, a fairer legal system, and a more efficient transportation system.

How has government achieved these objectives? For starters, regulation. Many environmental and safety victories have been won by fighting against what economists call “negative externalities”—a fancy phrase for the public paying for something it does not want, often something harmful.

When, for example, a factory produces toxic waste  that it does not pay to clean up, the public bears those costs, not to mention the costs of related health risks. Worse, because the waste’s costs are not included in the original product’s price, more of the product is made (along with more toxic waste) than should be. I think virtually everyone would agree that government has a role in regulating against negative externalities.

Second, spurring innovation. Many advanced technologies and medical breakthroughs started with government-funded research and development. Non-defense domestic discretionary spending has also spurred innovations to better serve at-risk populations: the homeless, the mentally ill, substance users, high-risk youth, and many others. These developments, in turn, have reduced crime and improved the quality of life for most, if not all, Americans.

Third, government passes money to the states to fund cops, teachers, firefighters, and many other critical people.

Is the private sector going to step in and fill the gaps if government funding is cut? Hardly. According to the Foundation Center, all private U.S. philanthropies combined gave $45.7 billion in 2009, which is a rounding error in the current debate.

So, where do we go from here? To keep from reversing the positive trends and to address the social and economic problems that remain, the way forward is through rational, evidence-based policymaking buttressed by top-to-bottom cost-benefit analysis. The current debate heads in exactly the wrong direction. What we need is more of a focus on benefits, cost-effective governance, and rigorous, objective decisionmaking.

Federal spending—especially the non-defense domestic discretionary kind—has produced tremendous benefits for the American people. It is always cheaper in the short-run to do less. But it is not necessarily less costly. And certainly not more beneficial.

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Filed under: Government, Washington DC
1 Comment »

One Comment on “Why Costs and Benefits Matter in the Debt Ceiling Debate”

  1. 1 Zach said at 9:21 pm on August 1st, 2011:

    John, thanks for this compelling insight. I think you’re right – how could good policy come from this? TaxVox blogger William Gale doesn’t think it did…http://taxvox.taxpolicycenter.org/2011/08/01/the-budget-deal/


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