During the preparation of my first annual budget for a major subsidiary of a large corporation, a savvy controller taught me, “Don’t argue with the general manager about the future, because you can’t win that argument. No one knows what’s going to happen tomorrow, let alone next year.”
How many important decisions about the unpredictable future are made everyday using faulty, inaccurate, and unrealistic assumptions in a cost/benefit analysis? Decisions about extending credit, investing in securities, buying insurance, going to college, choosing a profession, getting married, buying a house, having children are all based upon our personal beliefs that the benefits received are going to be equal to or greater than the costs expended.
The government is the most obvious proponent of using defective cost/benefit analysis in promoting their pet projects. The following examples speak for themselves:
1. In the recent economic crisis, a decision was made to borrow and spend billions of dollars to ward off a worse financial catastrophe. The total costs of this government decision are unknown and unaccounted for so far, and the ultimate benefit is supposedly the avoidance of an economic disaster which can’t be numerically evaluated. But it’s cheaper to do what we are doing, right?
2. Over forty million inhabitants of the U.S. have no health care insurance. So, why not provide them with some universal healthcare package that won’t cost too much and keeps rationing to a minimum. The benefit of course is more votes for the party responsible for enacting this new entitlement. Any estimate about the cost of doing this is as worthless as the optimistic revenue forecasts of both parties that justified the last federal income tax reduction.
3. The preemptive war in Iraq was launched with bipartisan support assuming a quick surrender and a friendly welcoming of our troops by the oppressed Shiites. The cost/benefit analysis compared an inexpensive, short term military exercise to eliminate arms of mass destruction in the hands of an egotistical dictator and the loss of a few American lives with the possibility of gaining a few military bases from which to attack other terrorist nations and gain a temporary peace in the Middle East. (You assess the results of that projection.)
4. The military escapade in Afghanistan was another hasty decision based on a relatively small investment in arms and Special Forces with the anticipated capture of Osama bin Laden and the destruction of the Al Qaeda terrorist organization. And the benefits were? Security for Americans who live here and abroad. Mission still not defined nor accomplished. (A sound cost/benefit analysis based on the success of the earlier Russian invasion of Afghanistan.)
5. College educations are necessary for all the children being raised in villages. The additional tuition costs were to be financed by extending loans with no maturities and no penalties for late payments to unemployed students. The tuition money was to be used to increase the salaries and perks of underpaid college administrators and liberal professors. Benefits? Educated taxi drivers and progressive thinking construction helpers.
6. For the laid-off factory workers (whose jobs were exported to prove that free trade provided Americans with cheaper TVs, computers, clothes, shoes, and automobiles) unemployment compensation payments has been extended and are likely to be extended again. This is something like welfare without the food stamps. The benefit is less angry activists living in tent cities. The cost, anybody’s guess.
7. Affordable housing for all. This is the simplest analysis: the cost is affordable, and the benefit is having a house. Nothing down, monthly payments for interest and mortgage insurance only, low introductory interest rates, and free rent during at least six months while foreclosure proceedings are being undertaken once the bank can find the mortgage document that may be filed with some bundled mortgage securities sold to foreign investors in Iceland.
8. The cost/benefit analyses being circulated that identify the steps necessary to avoid global warming are either frightening or fanciful denials of the fact that the polar ice caps are melting. Obviously the future costs of hurricanes like Katrina cannot be calculated in devalued dollars and the personal benefits of longer human life in the tropics or in the deserts cannot be accurately estimated. What is being totally ignored in these cost/benefit analyses are the costs to implement the technological breakthroughs required to turn salt water back into ice.
9. The most amazing cost/benefit supported solution uncovered recently is to make Bernard Madoff head of our Social Security Ponzi Scheme. The cost of his unique expertise in attracting investors is negligible, and the perceived benefit to AARP members who are likely to vote in the next election if they are alive is politically positive.
10. The growing transparency in Washington as a result of controversial cost/benefit analyses has postponed government action in resolving the illegal immigration problem. On the one hand, these hardy immigrants are doing work that most spoiled Americans find disgusting. (But for very low wages that don’t get taxed.) On the other hand, it is very costly to build perimeter fences, house illegal immigrant criminals in prisons, treat their kids in overcrowded E.R.s, and deport illegal misfits who refuse to learn English.
Media talking heads and responsible journalists clamor for cost/benefit analyses to justify any further intrusion of government agencies into our personal lives. Big Brother certainly has good intentions, but he has proven to be a poor administrator, inspector, auditor, executive, legislator, and judge. As tragic as reality seems to be too many exploited victims, who can argue about the unintended consequences likely to occur in the future in response to some faulty cost/benefit analysis? Any rational human adult who thinks independently and can open his or her mouth! Inconvenient truth when uncovered eventually becomes accepted, but it takes awhile.
