Cead mile failte romhat – one hundred thousand greetings to you from Dublin. My UMKC economics department colleague and I are presenting ideas on how Ireland could respond to its banking, budget, and financial crises.
This is the second part of my series of articles on benefit-cost analysis, prompted by a discussion at CIFA’s recent ninth annual meeting in Monaco. This part focuses on the logic employed by the nation’s leading advocate of requiring benefit-cost tests before allowing any regulatory actions. Governor Daniels (R. Indiana) previously served as President Bush’s Director of the Office of Management and Budget (OMB). In 2002, OMB Director Daniels explained to a Competitive Enterprise Institute (CEI) audience why formal benefit-cost analyses by OMB mirrored “everyday life.”
“We need to remind people, that cost benefit analysis is part of everyday life. Perhaps you’ve heard of the couple out dining one evening, when a lovely, much younger lady passed by the table and visibly winked at the husband. His wife, not missing a thing, said, “Who was that?” After some hemming and hawing, he finally confesses: it’s his mistress. She said, “That’s it! I always feared and suspected. It’s over, I want a divorce.” “Now dear, not so fast. You [do] realize if that happens, no more diamonds on your birthday, fewer of those shopping trips to New York, what about the country club charge account?” About that time, another couple passed by and she said, “Isn’t that your friend Jim from the office?” He said, “Yes.” “Well who’s that young woman with him?” “Well, that’s Jim’s mistress.” She says, “Aha! Ours is prettier.” [laughter]”
Mitchell E. Daniels, Jr., Competitive Enterprise Institute Speech, 05/22/2002
Again, one cannot compete with unintentional self-parody. Daniels chose a metaphor to defend benefit-cost tests that lays bare many of the worst aspects of formal benefit-cost tests by economists. Daniels delights in his tale of how an unfaithful, rich, powerful, and older man cheats on his wife, humiliates her in public, and essentially prostitutes his wife and his mistress. Perhaps the worst aspect – and here Daniels is simultaneously acute and clueless – is the wife’s use of the word “ours.” When elites use their dominant power to exploit and corrupt less powerful people they also seek to impose a false construct on their victims that makes them appear to be beneficiaries rather than victims. The macho male meme is that his domineering control of his wife’s life and decisions constitutes “protecting” his wife. She is supposed to perceive and express a debt of gratitude rather than resentment to her oppressor.
The wife in Daniels’ ode to benefit-cost tests is not looking for a “three-way.” She gains nothing from the mistress except the humiliation of having the affair rubbed publicly in her face. Her husband is not interested in her. She is simply useful to his career in certain social roles. He wants to avoid an expensive divorce that might hurt his social standing. He is willing to cheat on the woman with whom he has exchanged the most sacred vows and shared the closest relationship. He is someone who makes it clear he cares only about his pleasure — shareholders, creditors, and customers are simply suckers to be looted. His wife may well know about how he cheated them and the IRS. Elite husbands that cheat have special reasons to fear the fury of a woman scorned, deceived, humiliated, and divorced. So what is this “ours” nonsense? The “lovely, much younger woman” is her husband’s mistress. The husband’s complete degradation of his wife occurs if he can use his power and wealth to cause her to come to view the “lovely, much younger woman” as “our” mistress.
Daniels’ decision to use this degrading illustration as his exemplar of benefit-cost analysis is also unintentionally revealing about absurd applications of such analyses in which they create the illusion of rational decision-making but recurrently produce tragedy. First, why did the wife have only two choices – accede to the husband’s taking of a mistress or seek a divorce that would cause her a dramatic loss of wealth? The husband could have ended his affair or he could have agreed to a divorce in which he provided her with far greater support. She could have remained married but taken a lover. (Would the husband have viewed him as “our” lover?) OMB economists can frame the alternatives considered (and excluded) to secure the result of the benefit-cost “test” that they desire. Second, for most women, the critical factors that they would weigh in deciding how to respond to learning that their husband had taken a mistress would be impossible to quantify. Do they have kids? What will be the effects of the divorce on them? Would the harm to the kids be reduced if they were older? Does she want to try to save the marriage? How probable is it that he will end the affair and become faithful to her? Does she love him? Can she live and her children live independently without his income and assets?
Assume that the wife is initially so desirous of continuing to avoid the end of: “diamonds on your birthday, fewer of those shopping trips to New York, [and] … the country club charge account?” that she decides not to divorce him. How long can this last? As the husband and mistress become even more open about their sexual relationship, and as the mistress increasingly receives the jewels and shopping trips and maxes out the country club charge account – will the wife view the relationship as a “net benefit” and the mistress as “ours”? As she is progressively humiliated in front of her children, relatives, and friends by the relationship will she view the relationship as a net benefit? I think virtually all of us believe that the scenario that Daniels’ sets up as the optimal decision derived from benefit-cost analysis will end badly and harm her and kids severely. In the end, economic benefits and costs are rarely as important as human views of love, respect, and dignity. Formal benefit-cost tests run by economists are typically driven by the economic benefits and costs rather than the aspects of life more important to humans. This creates a systematic bias that makes benefit-cost tests more likely than not to produce the wrong answer as to net benefits.
Next week’s column explores Daniel’s application of benefit-cost analysis to science, morality, consumer protection regulation, and the financial crisis.
Very well-put Bill. One of the big problems involved in applying cost-benefit analysis is that economics tries to measure both in monetary or financial terms rather than in non-monetary value. This introduces a catastrophic error for two reasons. First, non-monetary value is fundamental to human beings, not monetary value. And second, that means that monetary costs and benefits must be translated into non-monetary terms to do real cost-benefit analysis. Economics offers no knowledge when it comes to either measuring non-monetary value or translating amounts of money lost or gained into those terms. And it also provides no way of getting at or measuring intrinsic values like love, moral obligation, ethics, justice, or fairness.In fact, all my experience with economists over many years is that rather than face measurement problems with respect to intrinsic value, they do all they can to avoid facing such problems in their models, and considering intrinsic value measurement in their projects. As a result, economics can't offer real cost-benefit analysis, and neither can Mitch Daniels.
Cost Benefit analysis by corporate interests never include externalities
Your readers surely appreciate Mitch Daniel's 'cute', self-serving metaphor:'As the husband and mistress become even more open about their sexual relationship, and as the mistress increasingly receives the jewels and shopping trips and maxes out the country club charge account – will the wife view the relationship as a “net benefit” and the mistress as “ours”? As she is progressively humiliated in front of her children, relatives, and friends by the relationship will she view the relationship as a net benefit? I think virtually all of us believe that the scenario that Daniels’ sets up as the optimal decision derived from benefit-cost analysis will end badly and harm her and kids severely. In the end, economic benefits and costs are rarely as important as human views of love, respect, and dignity. Formal benefit-cost tests run by economists are typically driven by the economic benefits and costs rather than the aspects of life more important to humans. This creates a systematic bias that makes benefit-cost tests more likely than not to produce the wrong answer as to net benefits.'By now, most are aware of the strategies employed by the elite strategists to prostitute the members of the think tanks and teaching institutions, however, I thought I would provide a link to an interesting blog which touches on the strategies employed by the Koch family to ensure that the elite continue to enjoy the fruits of their subterfuges:Economists For Sale Jim Luke @ 8:30 pmhttp://econproph.com/2011/05/11/economists-for-sale/With the big bucks, it is possible to overcome any potential obstacle; so much, for the lack of curiosity prevailing in the good ole USA!
I am appalled that a person as immoral as Bill Black uses the word "moral." Morality is allowing consumers and producers the freedom to do business as they choose. It is not about 'love' or 'fairness.' Inane ideas such as love and fairness are how we get corporatism and regulations. Remember, the market is not a great regulator. It is just much better than Bill Black and his ilk.
Mitch is almost as good at understanding and relating to women as Newt.Someone should ask his current wife how she likes the idea of "them" having "their" mistress.
Economics offers no knowledge when it comes to either measuring non-monetary value or translating amounts of money lost or gained into those terms.Not true. You just find out what people will pay. Which is the whole point of the joke. Take currently illegal drugs as another instance.