Cost-benefit analysis in foreign policy

When we debate domestic policy in the US, we’re accustomed to looking at all our options. How much does the proposal cost? What will it get us? What else could we do with that money? The one exception to the rule seems to be healthcare, where no one likes to admit that prolonging life has a finite value.

Foreign policy, like health care, is bedevilled by the perception that no cost is too high for national security. But by looking at how economists have successfully incorporated cost-benefit analysis into health care decisions, we can learn how to begin to subject foreign policy to the same scrutiny.

Doing cost-benefit analysis on domestic policy is the norm.

The Congressional Budget Office (CBO) “scores” legislation to calculate direct expenditures and indirect costs and compare them will the value of the likely return on investment (whether in direct economic growth, increased government revenues, or some benefit per family/voter/city/state).  All policies with budgetary implications are scored by the CBO, and that scoring is taken very seriously by legislators and the press. A bad score usually becomes the subject of a major news story and can ruin a domestic policy bill’s chances. A good score can make an unknown bill a celebrity overnight.

There is one area in domestic policy, however, where cost-benefit analysis isn’t usually accepted: health care.

Remember the idiocy and histrionics of “death panels” and “rationing” from the summer? Reasonable, voluntary, and inoffensive policies like end-of-life counseling and effectiveness studies were skewered by a surprisingly large segment of the population. Obama advisor and leading medical ethicist Ezekiel Emanuel was ridiculed as “Doctor Death” just for saying that we need to “devise a principled way of distinguishing basic from discretionary health care services.”

But the many in America can’t accept the idea of cost effectiveness in health care. You can just hear some people talking to themselves in all caps: WHAT DO YOU MEAN MY LIFE ISN’T INFINITELY VALUABLE?!?! That’s why we get stupid arguments about how ObamaCare is a “Final Solution” and that government’s attempts to limit expenditures on health care are unacceptable.   When it comes to our personal health, we don’t like being told that there’s a limit to what it’s worth.

But  just because some Americans tell you we shouldn’t ration health care and that no cost is too great to keep Granny alive, that’s not what they really believe. In an excellent piece in the New York Times Magazine, Peter Singer argues that just about everyone implicitly accepts the idea of health care rationing:

“You have advanced kidney cancer. It will kill you, probably in the next year or two. A drug called Sutent slows the spread of the cancer and may give you an extra six months, but at a cost of $54,000. … If you can afford it, you probably would pay that much, or more, to live longer. … But suppose it’s not you with the cancer but a stranger covered by your health-insurance fund … [and] your premiums will increase. Do you still think the drug is a good value? Suppose the treatment cost a million dollars. … Ten million? Is there any limit to how much you would want your insurer to pay for a drug that adds six months to someone’s life? If there is any point at which you say, “No, an extra six months isn’t worth that much,” then you think that health care should be rationed.”

And once we admit limitations on health care expenditures, we can begin to construct a framework for comparing alternatives. In the case of health care, that framework in the QALY, or Quality-Adjusted Life Year. Once again, the talented Mr. Singer explains that a QALY is  “a unit designed to enable us to compare the benefits achieved by different forms of health care”. We first come up with a rough estimate for how much a year of life is worth, not by asking them but by looking at people’s actual behavior:

“How much will people pay for air bags in a car, for instance? Once you know how much they will pay for a specified reduction in risk, you multiply the amount that people are willing to pay by how much the risk has been reduced, and then you know, or so the theory goes, what value people place on their lives.”

Based on an individual’s age, we can discount to find the remaining value of life, and then scale that factor to account for quality of life. With this information in hand, we have a rough but useful guide for how much it might be reasonable to spend on a health intervention that extends life by a specific amount. We can compare that expenditure with other uses for the money, and use the cost-benefit analysis to guide our decisions.

Cost-benefit analysis is also extremely rare in foreign policy debates.

A major, even overriding, goal of US foreign policy is the personal security of its citizens. Politicians rarely ask how much we should  spend to protect us from another 9/11 … the question itself seems tacky at best and insulting at worst. You can just hear the rabble reaching for their caps lock button and screaming, “COST? DAMN THE COST! SPARE NO EXPENSE IN KEEPING MY FAMILY SAFE!”

In my opinion, this is largely a result of neo-conservatives dominating the public discourse on foreign policy for the past several decades. In general, it is up to policy-partisans to advocate their particular causes, like generals pressing for more troops. It is for the civilian policy maker at the top to allocate scarce resources and choose among the competing options. Neo-cons have spent so much time playing armchair general that they’ve neglected to play armchair president. They ignore the scarcity of means and advocate their pet projects with mindless tenacity. They display a surprising lack of economic thinking, given how they share the Republican party with market-oriented conservatives.

Regardless of how neo-conservatives frame the debate, there are limited resources available for foreign policy and we must carefully weight the costs and benefits of foreign policy expenditures if we are to spend wisely and maximize our security. This is a fact that is slowly coming to light in the ongoing debate about Afghanistan. Matthew Yglesias over at Think Progress wrote today that, “Political leaders need to reach conclusions about the importance of proposed ventures relative to other possible priorities. How much does the Helmand River valley [in Afghanistan] really matter to the United States?” Similarly, The New York Times’ Thomas Friedman argues today that “stabilizing Afghanistan and removing it as a threat [is expensive] … and we can’t afford it.” There is a growing realization that Obama’s decision about what to do in Afghanistan cannot be made in a vacuum. Rather, we must take into account affordability and competing priorities. Andrew Sullivan at The Atlantic has also argued that we need to consider the potential costs and benefits in Afghanistan.

But how can we create a framework for cost-benefit analysis in foreign policy decision-making?

We can start by looking back at how economists constructed the QALY to bring some rationality to the health care debate. Instead of asking people how much we should spend to increase their personal security, we should observe their behavior. Very roughly, we could begin such an analysis by looking at how much towns, counties, cities, and states allocate to public safety (like cops, prisons, CCTV, etc). What is the tradeoff between dollars spent and personal security that most Americans are willing to accept? Studies can focus on examples where crime fighting expenditures have either increased or decreased, and look at how crime rates were effected to get an idea of how much the average citizen is willing to pay to be protected from street crime. Decisions about expenditures on military deployment abroad can then be put into context and viewed as equivalent to decisions about expenditures on police services in municipalities. Just as with the QALY, this is only the beginning of a rough guide to whether a given deployment is ‘worth it’, and it could even be scaled by a factor describing the ‘quality’ of the deployment in terms of ancillary, non-security benefits (such as improved governance and economic development in the deployment zone, for example).

But such a rough calculation of security cost-benefit is only the beginning, because certainly there are other goals in American foreign policy than merely security, and more competitors for tax dollars than just Army and Marine battalions. Foreign policy decisions, like the troop increase in Afghanistan, have to be couched in a larger international framework. It’s important to have more than just pro-surge and anti-surge military voices int he room. We also need NSC staff concerned about Yemen and Somalia in the room. And PEPFAR and USAID staff int he room concerned about the African AIDS epidemic. And every other major US foreign policy goal. We need to view foreign policy decisions as real competitions for hard-earned tax dollars, not as untouchable sacred cows.

This is necessary now, because all too often it seems as if whatever the foreign policy issue of the moment is – missile defense in Poland, troop levels in Afghanistan, AIDS funding in Africa – happens in a vacuum. We’re smarter than that. Let’s act like it.


3 Responses to “Cost-benefit analysis in foreign policy”

  1. 1 J Kong October 31, 2009 at 8:34 am

    Great post – I’d like to see a cost-benefit analysis of how one should chose which language to learn.. If French is easier than Cantonese, but there are more Cantonese people in the world, which language should I choose?

    Voila mon passport!

    • 2 JSC5 November 2, 2009 at 8:16 pm

      Hardy hardy har. I’m getting to it! I swear! Just trying to draw it out, ya know? Increase the excitement a little before I drop the data on you.

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This is a group blog. JSC5 currently writes from the US. JSC7 writes from behind the Great Firewall of China.

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