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The price of everything

Far from leading to better results, cost-benefit analysis too often provides a bogus rationale for bad decisions, says John Kay
Well spent: the Victoria Line was a snip at £100m
© PA/PA ARCHIVE/PA IMAGES

The Cost-Benefit Revolution by Cass Sunstein (MIT Press, £22)

Is cost-benefit analysis a useful tool of policy that has transformed the quality of public decisionmaking? Or is it a pseudo-scientific cover for irrational decisions?

The Trump moment is an unfortunate time for Cass Sunstein, the distinguished American constitutional lawyer, to publish a treatise arguing in favour of the first proposition. In the last 50 years, he explains, the United States has undergone a revolution. “No gun was fired. No lives were lost… Nonetheless, it happened.” As a result, he asserts, “in terms of saving money and saving lives, the cost-benefit revolution has produced immeasurable improvements.”

If this was a revolution, it was one most of those living through it missed. Throughout history people have totted up the pluses and minuses of public and private decisions. Benjamin Franklin advocated “prudential algebra.” Charles Darwin famously listed the pros and cons of marriage. What makes cost-benefit analysis distinctive is the presumption that everything that might be pertinent to the decision can be quantified by drawing on ideas such as “opportunity cost” (what resources or time might otherwise be used to do), externalities (advantages and disadvantages that are not captured in the market price) and discounting (the extent to which upfront advantages are given more value than those further down the road).

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About Prospect Magazine

In Prospect’s April issue: Mark Damazer, the former controller of BBC Radio 4, tells the inside story of how the BBC has tried—and sometimes failed—to cover the political crisis that overshadows everything else. Elsewhere in the issue: Playwright and screenwriter James Graham profiles John Bercow, the Speaker of the House of Commons, as he takes centre-stage in the unfolding Brexit drama and Tom Clark examines the Independent Group and argues that they could well shake up the established political tribes. Also, Jennifer Williams highlights the growing gap between the haves and have-nots in Manchester—a city that is simultaneously experiencing a housing boom and a homelessness crisis.