Is economic cost benefit analysis a key tool of evidence-based policy, which has transformed the quality of public decision making? Or a pseudo-scientific cover for irrational decisions made on quite different grounds? It is, perhaps an unfortunate moment in history for Cass Sunstein, the distinguished American constitutional lawyer, to publish a treatise arguing for the first proposition.   In the last fifty years, he explains, the US has undergone a revolution. “No guns were fired, no lives were lost…Nevertheless, it happened.’ As a result, he asserts, ‘in terms of saving money and saving lives, the cost benefit revolution has produced immeasurable improvements’.

According to Sunstein this revolution began, apparently and improbably, with Ronald Reagan, but it continued under subsequent leaders, even including the present incumbent of the White House. It is, however, an American revolution. In one of the few references in the book to the world outside the fifty states, Sunstein explains that he had the privilege of speaking to high level policy advisers in three European countries, who were drawn to the idea of cost benefit analysis, but were ‘puzzled and sceptical’. They worried about the difficulties of applying these insights outside their country of origin, and the possible need to hire economists.  These high-level policy advisers were presumably unaware of the EU requirement that all proposals with significant economic or social effects be accompanied by an ‘impact assessment’.  That tells us a lot about the practical significance of these assessments.

My perception is rather different. There was a cost benefit revolution. It began in Britain in the 1960s. Although work had been done in the United States, notably by the US Corps of Engineers, cost benefit analysis around the world still follows a template first set out in a study by Michael Beesley and Christopher Foster, who studied the costs and benefits of the construction of the Victoria Line, the underground railway through central London then under construction. They demonstrated that although the line would generate little additional revenue for London Transport, the value created in time savings and reduced congestion above and below ground far exceeded the costs. Fifty years later, there can be no doubt that they were right. The all-in cost of less than £100 million, equivalent to a little over £1 billion today, seems a very low price for what is now an indispensable part of London’s transport infrastructure.

As flower people descended on Woodstock and San Francisco and French students and workers took to the streets, the most thorough exercise in cost benefit analysis ever undertaken was that commissioned in 1968 for the Roskill Commission. Headed by a distinguished judge, the Commission supervised a dispassionate enquiry into London’s airport needs.  The cost benefit analysis concluded in 1971 that London should have an entirely new airport, at Cublington, about forty miles north west of the metropolis, and the Commission recommended accordingly.  The recommendation was not adopted. Politicians procrastinated, and have continued to procrastinate for the following fifty years, with results familiar to any user of Heathrow. The Commission came up with the right answer. But, like the Summer of Love and the abortive Second French Revolution, the cost benefit revolution of the 1960s came and went.

And there has since been a steady decline, not just in Britain but around the world, in the integrity of data and analysis underpinning public policy. When I worked at the Institute for Fiscal Studies in the early 1980s, it was difficult to persuade politicians or the press that our data was of a quality equivalent to that produced by government. Now no-one would take government data seriously if comparable but different figures were available from the independent IFS. The IFS has enhanced its reputation over 30 years, but the larger cause is the decline in the impartiality of official information. In Britain the rot began under the Thatcher government with interminable redefinition of unemployment figures to present a misleadingly favourable impression, but it has continued under all administrations since. I recall the genuine shock the day I heard a civil servant present encouraging trends on the number of rough sleepers in London and realised that I could no longer accept that – or any – official claim without checking it out myself.

Recognising the problem posed by this lack of credibility, a Gordon Brown initiative established a Statistics Authority, and defined a category of ‘national statistics’, prepared to professional standards, and other data, for which the requirements are less demanding. But the need for the distinction is itself illuminating.

Nor does the US experience look better. If history looks favourably on Ronald Reagan as President, it is not for his commitment to hard data and rigorous analysis. Sometimes it was hard to tell where the movie ended and real life began. Still, he demonstrated an integrity which was not reproduced in Karl Rove’s description of George W Bush’s tenure: ‘we create our own reality.’ And today the US has a President who has no interest in or concern for the factual accuracy of his assertions. This combines with an extreme partisanship in which truth is determined not by what is said but by who says it. If you ask an American for his or her view on climate change, abortion, gun control or the Affordable Care Act, you can usually predict the answer to all from the response to any one. These responses are the product of tribal identification rather than evidence-based analysis. Far from being the beneficiary of a cost benefit revolution, it is hard to imagine a country further than Trump’s America from one in which policy is the product of a rational consideration of the costs and benefits of alternative programmes.

The situation in Britain is hardly better. The abiding image of the 2016 Brexit referendum is the bus decorated with the lie that leaving the EU would release £350 million a week for spending on the NHS. But the Remain side was hardly better. George Osborne posed in front of a poster proclaiming that a no vote would cost each British household £4300 per year – a figure discredited by its purported precision. A claim to knowledge that the speaker could not possibly have is perhaps less reprehensible than outright falsehood, but not by much. Evidence-based policy is the mantra, but the reality is policy-based evidence.

Take as an example HS2, that projected rail link from London to Birmingham and – perhaps – eventually the north. The legacy of Beesley, Foster and Roskill survives in debased form in WebTag, a cost benefit model which, in conjunction with the Treasury’s ‘Green Book’ on project appraisal, the Department for Transport requires to be used for all major UK transport projects. The proponents of HS2 commissioned a study which demonstrated the benefits of the project; consultants for the opponents used the same methodology to reach the opposite conclusion.

In the world of WebTag, an individual’s time is given a monetary value depending on the mode of transport by which he or she travels.  There are thirteen such modes.  The time of a taxi passenger, (as of 2018 and measured in 2002 prices) is worth £13.57 per hour, whereas the taxi driver’s time is considered less valuable, at £9.94 per hour.  Hedge fund managers walking to work and journalists cycling to their offices share a time value of £7.69 per hour, but the Deliveroo courier on her motorbike shares a time value of £13.57 with the taxi passenger.  Absurd as it might seem to put an arbitrary and exact value on time in the present, the model demands that this level of precision continues into the future.  Growth projections yield predictions of how valuable the time of each group will be in 2052, to the penny.  If you would like to know how many people will be travelling in a car on a weekday evening in 2036, the WebTag spreadsheet will provide an answer.  By making up all the numbers it contains.

The central claim of cost benefit analysis is that the value of everything can be expressed in monetary terms, enabling every project to be assigned a cash measure of benefit or disbenefit. The Roskill Commission acknowledged that the Norman church at Stewkley might have to be demolished to make way for Cublington’s runways, and estimated the loss by reference to its insurance value of £50,000. Sunstein illustrates his approach with the example of removing toxins from water supply. Individuals might be willing to pay £90 to remove a 1 in 100,000, chance of death from water poisoning, consistent with a value of £9million for a human life.

Remarkably, this is what Sunstein regards as an ‘easy’ case. We can just ask people how much they are willing to see added to their water bill. But almost everyone who is not an economist is understandably reluctant to put a value on human life – either their own or other people’s, for understandable reasons. Ford’s Pinto car had a fuel tank which was liable to explode in a collision. The company was excoriated for a calculation which showed that the cost of making the car safer was greater than the value of the lives thereby saved. As later emerged, the purpose of the calculation was not to determine the design but to demonstrate, seemingly unsuccessfully, the absurdity of formulating the problem this way. Discouraging smoking imposes substantial costs because the additional state pensions through increased life expectancy far exceed the costs of NHS treatment of smoking related diseases. But does anyone really think this sort of calculation is appropriate?

“How much would you pay to eliminate a 1 in 100,000 risk of death?’ is simply not a question which relates to how ordinary people think, and it is foolish to attach any weight to the answers. If the value of a Norman church is not well measured by looking at its insurance value, it is also hopeless to ask how much every individual would pay for the church to be spared from demolition, and irrelevant to compute what would it cost to provide a functional modern worship facility.

But in Sunstein’s world, infrastructure projects are “easy cases”. Cost benefit analysis should be applied to all regulation.  How much would you pay to have Muslim immigrants excluded from the United States? How much would you, a Muslim, pay to be allowed to enter the United States? Amartya Sen constructed the paradox of the Paretian liberal. If Mr Prude would rather read a pornographic book than allow Mr Lewd to read it, and Mr Lewd is sufficiently tickled by the idea of Mr Prude being forced to read it to prefer that outcome to the opportunity to read it himself, then cost benefit analysis tells us that only Mr Prude should read the book. But does anyone really think that this outcome is the right answer?

What is wrong with these exercises is not just that they make economists seem deserving targets for Oscar Wilde’s characterisation of the man who knows ‘the price of everything and the value of nothing’. It is not even that these exercises appear to have no real impact on policy decisions – even the admirable and exemplary Victoria Line study was undertaken as the line was actually under construction.

The more serious problems that by claiming falsely that all projects can be judged by reference to some standard template, the endless invention of bogus numbers gets in the way of the use of informed judgment to identify the key economic parameters which are relevant to an informed political decision – factors which will necessarily differ substantially according to the nature of the decision. For example, the value to passengers of faster journeys is key to an assessment of the economic benefit of a high-speed line to Birmingham. Since WebTag depends crucially on the value of time, this discussion has moved on to the question of whether business people with laptops will be using their time productively on trains. Better perhaps to look at places like east Holland, where travellers have the options of regular trains, faster intercity, and high-speed trains, at successively higher fares. That experience describes the real choices made by real people.  More important is the question of whether rapid links between the capital and provincial cities help regional development, or contribute further to centralisation?  Here also there is unobserved but relevant experience from other countries. But because hard to quantify, the issue fails to receive the attention it deserves.

We have never been in more need of a properly evidence-based policy process. But Sunstein’s ‘cost benefit revolution’ has over half a century made matters worse, not better, providing a bogus rationale for bad decisions – like HS2 – made by reference to soundbites, prejudices and gut feelings. The requirement is for policy advisers who are quantitatively trained but skilled in identifying the relevant economic issues and presenting them to an increasingly sceptical public. The Brexit debate revolves critically around the differences between a single market and a customs union, a free trade area and the rules of the World Trade Organisation, Norway minus and Canada plus. But insofar as we heard any economic argument at all it consisted of the exchange of unfounded numerical assertions.  It was only after the result of the referendum that any of the substantive choices entered public discourse. It would be encouraging, if perhaps too optimistic, to think that a rerun of the debate might be different. Economics can be immensely helpful in framing arguments. But it is instead all too often employed in the unproductive exchange of spurious statistics.