Ezra has a post on the curious privilege of economists to weigh in on policy issues seemingly well outside their field. He’s right; dismal scientists basically get a free pass to talk about any policy question, and they’re often looked to as experts on issues not necessarily related to their immediate areas of research.
I don’t think this is that difficult to understand. Economists essentially have a monopoly on the methodology of public decision making. The cost-benefit analysis is the beginning and end of many policy questions, and it’s highly economic in nature. You assume certain parameters — growth rates and such — tot up costs and benefits, choose a discount rate, and determine how much current people should be willing to pay or invest to achieve certain future goal. Future goal can be nearly anything: completed highway project, x number of jobs created, y percentage of the population insured, z billions of dollars in climate change costs averted.
Policymakers want to know what the benefits of any particular project are worth. Economists can give them a simple, easy to understand answer. They can occupy an op-ed slot and write things like, “Such-and-such project is a bad investment. It will deliver far less in benefits than it will cost in spending. Here are the numbers to prove it.” That’s very difficult to argue with.
You can see this at work in an interesting back and forth between Robert Pindyck and Martin Weitzman on climate change policy, described here. Pindyck takes the down-the-line approach to the problem, estimating the future costs of warming and the benefits of policy action and determining that we should spend at most 2.5% of world income to slow or halt climate change. Weitzman, on the other hand, says that this is nuts. By tweaking just one or two variables, he says, you get wildly different outcomes. Simply by concluding that it matters whether the world ends in 400 years or not (irrelevant in Pindyck’s approach), one can then compute that up to 99% of income could reasonably be spent to avert warming. Cost-benefit analysis just doesn’t make sense in the context of climate change, Weitzman declares.
Well, this just about makes Pindyck’s head explode. He begins warning that abandoning cost-benefit analysis will “cede the debate to radical environmentalists.” This seems absurd, but it does get at a difficult question — if we can’t use cost-benefit, how do we make these decisions? How in hell do we figure out which trade-offs are sound ones and which are damaging to society on net? To the economist, and indeed to many policymakers, eliminating cost-benefit analysis is like depriving them of language — how can you discuss the problem without it?
In fact, we really have no other way of wrestling with these issues. One can argue by moral imperative — that we don’t have the right to impose serious costs on others — but we still must determine how much compensation or preventative action those others are owed, and from where the resources to pay or take action should be drawn. These questions involve trade-offs, which must be weighed in some fashion, and so again we find ourselves turning to economists.
What this says to me is that we must rely on economists and on cost-benefit analysis, but we must not rely exclusively on those things. When an economist declares that we should spend no more than 2.5% of income to slow or halt warming, that’s a data point worth considering, but it’s not the only data point worth considering. Other things — moral responsibilities and acknowledged uncertainties, for instance — should be taken into account. This will surely drive many economists nuts. But if you were lost in a forest with an imperfect map, you wouldn’t guide yourself by looking at that map and nothing else. You’d keep your eyes on the terrain around you, to make sure you weren’t blundering into any obviously dangerous situation. The map is a guide only, and it should be understood as such.