Wednesday, July 21, 2010

Cost-cost analysis

Social programs are often attacked on the grounds that they are wasteful: they may be giving out money to people who don't need it, and/or create perverse incentives. For example, unemployment and welfare benefits are attacked on the grounds that they create a disincentive to work. For another example, few years ago the New York City government stopped issuing rent vouchers to residents of its homeless shelters, arguing that doing so was causing people who didn't really need shelters to use them as a ticket to subsidized rent. Now the most common objection to this line of attack that I hear is a flat out denial that things like that even take place. The defenders of a social program will argue that no perverse incentives are created, ever, and that absolutely everyone who is receiving a government subsidy needs it desperately. In other words, the most commonly encountered policy debate runs a little something like this:

A: This policy has costs, therefore it should be discontinued.

B: You're lying; this policy has no costs whatsoever.

It's hard not to notice that both sides are missing the point rather badly. They're only talking about costs; no one is saying anything about benefits. Policy's worth should be evaluated based on whether its societal benefits outweigh its societal costs, not based on whether or not it has any societal costs. Of course a policy will have costs. Everything does. Of course there are people collecting welfare or unemployment who choose not to work precisely because they are collecting welfare or unemployment. My point is that the question of whether or not those people exist is not relevant at all. The relevant question is how many such people are there, as compared to people who want work but can't find it, and who use welfare or unemployment as a means of survival.

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