Cost-Benefit Analysis as a Failure to Learn from the Past
Broughel, James / 2020. "Cost-Benefit Analysis as a Failure to Learn from the Past." The Journal of Private Enterprise 35(1) Spring: 105-113.
10 Pages Posted: 12 Nov 2019 Last revised: 20 Feb 2020
Date Written: February 19, 2020
This short note argues that cost-benefit analysis (CBA), a tool employed by professional economists to evaluate the welfare consequences of public policies, embodies a variety of failures to heed the warnings of famous classical liberal economists. CBA attributes characteristics of individuals to society, fails to adequately account for the “unseen” consequences of policy, wipes out the future with a social discount rate as if “in the long run we are all dead,” and is an example of how the pursuit of mathematical logic can lead to failures of common sense. As a result of these problems, CBA offers a useful teaching device for students, demonstrating how even modern-day economists at the top of their profession continue to make basic errors pointed out by economists generations ago. CBA in this context is best thought of as a failure to learn from the past.
Keywords: cost-benefit analysis, social welfare function, social discount rate, shadow price of capital
JEL Classification: A2, B1, B2, D6, H43, I3, K2
Suggested Citation: Suggested Citation