My Thoughts on Peters Ch. 17 - Cost-Benefit and Ethical Analysis

So here we are in the final week and back to Peters for his final chapter. In this edition, Peters combines cost-benefit and ethical analysis into a single chapter. While I generally prefer to discuss these two issues separately, I think the combined chapter works for the purposes of this class. This chapter helps serve as a teaser for two 400-level courses we offer (or will be offering) as part of the Public Service and Public Policy major. PAF 471: Public Policy Analysis will be a required course for the public policy concentration and will likely focus on economic models of policy analysis, specifically cost-benefit analysis and quantitative analysis. PAF 460: Public Service Ethics is our required ethics course and will help you navigate current ethical issues in public policy, public administration, and the non-profit sectors. I hope that this chapter sparked your excitement for these courses.

There are other reasons why it may make sense to combine these two chapters. In some ways, cost-benefit analysis can be thought of as a specific type of consequentialist ethics. Consequentialism is just a fancy way of saying "the ends justify the means". Of course, this form of ethics can lead to many actions that we would consider unethical, but it is often used in public policy creation. Basically, cost-benefit analysis is attempting to reach a Pareto Optimal outcome, where no one is made worse off but at least one person is made better off, or a Kaldor-Hicks outcome where society experiences a net-gain. In this case, the ends and the means are quantified so that the ends justify the means if the outcome is a net monetary benefit. Of course, opportunity costs, consumer surpluses, unintended consequences, and net values need to be considered in the calculation you use to determine the costs and benefits. I think Peters does a good job of walking you through these concepts using a basic example of cost-benefit analysis. It is important to note that although we rarely use Pareto Optimality as a goal in policy analysis (because it is usually an impossible standard to meet) it likely works much better as a criterion for ethical analysis. Certainly, ensuring that no one is made worse off by government action is a stronger ethical stance than assuming that the individuals who benefit from government action will somehow compensate those who are burdened by government action.

As Peters points out there are many problems associated with the use of cost-benefit analysis. It requires a lot of assumptions about risk and future circumstances. Small changes in those assumptions can drastically change the predicted net benefit of a program. In a policy world where solutions are often looking for problems, interest groups have substantial power, policymakers are politically motivated, and competition for funds is the primary rule of the game the temptation to make favorable assumptions about the future of one's preferred project is overwhelming. I believe the perception that cost-benefit analysis is preferable to other forms of analysis because it is straightforward is really an incorrect perception. Cost-benefit analysis can be just as subjective as ethical analysis.

Further, while cost-benefit analysis can help us choose projects out of a list, it offers very little normative advice. It cannot answer the question "what should government do?" We have to draw on our cultural and social values for that. Peters' discussion of "ethical analysis" is really about these value questions. After Stone, his recommendations likely seem a little quaint but they are as follows: the preservation of life, the preservation of individual autonomy, truthfulness, fairness, and deservedness. In many ways these parallel with Stone's values of security, liberty, and equity with truthfulness added for good measure. Of course as we saw with Stone, actually defining what these values mean and whose definition we should use is the difficult part.

I agree with Peters assessment that we as policy analysts are over-reliant on cost-benefit analysis because of its apparent objectivity in comparison to ethical analysis. Policymakers are a different story. Some policymakers have become little more than rubber stamps for programs with positive cost-benefit analysis, but currently values seem to be the prominent metric determining whether or not policies proceed through the policy process we discussed during the first few weeks of class. Many of the policies Congress is considering are policies that invoke those tough ethical questions such as Don't Ask, Don't Tell; defunding Planned Parenthood, immigration policies, and even the debate over the deficit. Cost-benefit analyses have played very little role in these debates. This leads me to two questions: Would we be better off if policymakers used the cost-benefit analyses provided by policy analysts rather than relying on their own definitions of values, and what is the state of the policy analyst profession if their primary means of analysis is often ignored by policymakers?

Policy Stages - Agenda Setting

This is the first of our chapters on the policy stages. In this chapter Peters covers the "first" two stages of the policy process (remember, stages theory is a tool to help us think about policies, and in reality the stages aren't so neat and orderly). Agenda setting is commonly thought of as the first stage of the policy process. The ability to place items on the agenda for consideration and keep other items off is one of the most important powers in the policy process. This is why party control of the House and Senate can be so important. Think about how different some of the issues considered by the Republican House are from some of the issues being considered by the Democratic Senate (this difference becomes even greater when we look at the bills coming out of committees in one house versus the other).

Peters talks about two types of agendas: systemic and institutional. Systemic agendas are broader and more stable over time. They include any issue that has been deemed appropriate for consideration by the public sector. Institutional agendas are much more variable and only include those issues that are under active consideration at the time. While some advocacy groups are trying to move their issues onto the systemic agenda, most are attempting to move their issues from the systemic agenda to the institutional agenda. As you can imagine, at any given time most issues are on the systemic agenda with relatively few issues on the institutional agenda.

A lot of debate in political science and public policy studies concern who sets the agenda. The study of public policy really originated with Robert Dahl's Who Governs, a work that takes a pluralist perspective on policymaking. Pluralism emphasizes a marketplace of ideas. Pluralist theory argues that society is made up of different interest group with many divergent ideas, with government acting as the primary mediator between these groups. Individuals join the groups that advocate for things they care about and act as bystanders on other issues. Policies are ultimately decided by competition, and in the marketplace of ideas the best idea wins. 

While pluralism assumes that all groups have equal power in the marketplace of ideas, elitist theory assumes that policy is primarily made by the wealthy and powerful. C. Wright Mills' The Power Elite is often considered the classic of elite theory, and argues that business owners, politicians, and military leaders all engage in the same circles and work together in their various sectors to distribute power and wealth among themselves. Keeping and increasing the power of those who are already powerful is an important aspect of public policy, from the perspective of elite theory (of course elite theorists generally see this as a problem in democratic societies).Other scholars like E.E. Schattschneider point to the difficulties that the poor have in organizing into interest groups and understanding the public sector.

The State-Centric approach tends to center agenda setting with government actors rather than interest groups or other outside actors. Congressional committees and bureaucratic agencies become the key actors in deciding what government should consider at any given time.

Once we have established who can set the agenda, we move to the question of how issues make it onto the agenda. Of course, this will have a lot to do with the political ideologies, personal values, and rational self-interest of those with the power to set the agenda. Emergencies, life or death issues, issues concentrated in districts of powerful policymakers, and visible issues will all likely be included on the agenda. Mancur Olsen's The Logic of Collective Action discusses how the dispersion of costs and benefits across the population influences which issues are included in the agenda and ultimately passed. Where benefits are concentrated and excludable  and costs are dispersed, policies will generally be placed on the agenda and passed. Where benefits are dispersed and costs are concentrated policies will generally be kept off the agenda. Further, where issues can be tied to older issues, national symbols, and existing solutions, they will often be added to the agenda.

From an economic perspective, government should intervene where we find market failure. The private sector will not provide the optimal level of public goods because there is no way to exclude those who do not pay for the good. Public goods are those goods that are non-rival  (my consumption will not limit your consumption) and  non-excludable (there is no way to exclude those who do not pay for the good). We can think of our Fourth of July fireworks as public goods (within a certain range). The private sector would be unlikely to provide the optimal amount of fireworks because there is no way to exclude those who do not pay to see the fireworks from viewing them. Market failure also exists in the case of externalities. Externalities exist when either the full cost or full benefit of a good cannot be privatized. For example, an economist would likely argue that the lightrail should be subsidized by government (ideally from a road toll or tax on driving fuel inefficient vehicles) because the benefits of reduced traffic and emissions cannot be fully privatized. In this day and age, it is hard to think about goods that are entirely private goods and without any external costs or benefits. 

Once an item is placed on the agenda, the second stage of the policy process begins. Government needs to determine how the issue will be solved through policy formulation. As Peters points out, sometimes this is based more on habit and analogy than theory or scientific evaluation. The bureaucracy, think tanks, interest groups, and legislators all participate in policy formulation (often legislators participate much less than you would assume). Two tools are often used in the United States to formulate policy, Cost Benefit Analysis and Decision Analysis. Both of these tools should be covered in an advanced policy analysis class. Briefly, Cost Benefit Analysis is based on the premise that all actions and goods can be converted into a monetary value, and government should choose the policy with the highest ratio of benefits to costs. Decision analysis takes cost benefit analysis and adds uncertainty. Using decision analysis, the action that is the most profitable or the least costly, given the likelihood that a specific event will occur, should be taken.