In the current issue of The Economists’ Voice, the former Chief Economist for the US General Accounting Office Scott Farrow addresses the uses and abuses of Benefit-Cost Analysis (BCA), also known as Cost-Benefit Analysis. He highlights some common abuses and ways to avoid them. Below you will find a few samples. His short article (only 6 pages) contains many more.
Lie #1. Be selective in your impacts and values
Response: Ask “Are there major elements missing, or too many present in this analysis?”
Lie #2. Confuse the baseline
Response: Ask “What is the basis of comparison? Is that reasonable and is it (almost always) the same for both benefits and costs?”
Lie #3. Count jobs entirely as a benefit
Response: Ask “Are new jobs just being taken away from other location that is included in our calculation?”
I encourage you to read the details and not to forget the advice of British economist Alan Williams who concluded in a marvelous paper in 1972 entitled “Cost-Benefit Analysis: Bastard Science? and/Or Insidious Poison in the Body Politick? that
CBA is not the way to perfect truth, but the world is not a perfect place… I prefer the philosophy embodied in the answer Maurice Chevalier is alleged to have given to an interviewer who asked him how he viewed old age: ‘Well, there is quite a lot wrong with it, but it isn’t so bad when you consider the alternative.’
Outstanding. I was going to post this and will likely use this piece in my policy classes.