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Spring 2020

ISSN 0890-913X

Volume 35, Number 1

Categories: Spring 2020 | Welfare economics

Cost-Benefit Analysis as a Failure to Learn from the Past

James Broughel, Mercatus Center at George Mason University

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TheJournalofPrivateEnterprise35(1),2020,105–113EDUCATIONALNOTECost-BenefitAnalysisasaFailuretoLearnfromthePastJamesBroughelMercatusCenteratGeorgeMasonUniversity______________________________________________________AbstractThisshortnotearguesthatcost-benefitanalysis(CBA),atoolemployedbyprofessionaleconomiststoevaluatethewelfareconsequencesofpublicpolicies,embodiesavarietyoffailurestoheedthewarningsoffamousclassicalliberaleconomists.CBAattributescharacteristicsofindividualstosociety,failstoadequatelyaccountforthe“unseen”consequencesofpolicy,wipesoutthefuturewithasocialdiscountrateasif“inthelongrunwearealldead,”andisanexampleofhowthepursuitofmathematicallogiccanleadtofailuresofcommonsense.Asaresultoftheseproblems,CBAoffersausefulteachingdeviceforstudents,demonstratinghowevenmodern-dayeconomistsatthetopoftheirprofessioncontinuetomakebasicerrorspointedoutbyeconomistsgenerationsago.CBAinthiscontextisbestthoughtofasafailuretolearnfromthepast.______________________________________________________JELCodes:A2,B1,B2,D6,H43,I3,K2Keywords:cost-benefitanalysis,socialwelfarefunction,socialdiscountrate,shadowpriceofcapitalI.IntroductionCost-benefitanalysis(CBA)isatoolwidelyusedintheUSfederalgovernmentandaroundtheworldtoevaluatethewelfarepropertiesofpublicpolicies.EconomistsacrossthepoliticalspectrumendorseCBAasausefultooltoguidedecision-making.However,CBAsuffersfromanumberofshortcomingsthatinothercontextswouldbethoughtofaselementaryfailurestoapplybasiceconomicprinciples.Thisbriefnotewilloutlinetheseshortcomings.Forwhateverreason,CBAhasnotabsorbedmanylessonslearnedthroughoutthehistoryofeconomicthought,lessonsthatinthiscasearemostcloselyassociatedwithclassicalliberaleconomistssuchasF.A.HayekandFrédéricBastiat.Asaresult,CBApresentsausefulfoilwhenteachingaboutcommonpitfallsineconomics,andit

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Metadata [hide]

Title	Cost-Benefit Analysis as a Failure to Learn from the Past
Authors/Creators:	James Broughel, Mercatus Center at George Mason University
Year:	2020
Volume:	35
Number:	1
Pages:	105 - 113
Publisher:	The Association of Private Enterprise Education
ISSN:	0890-913X
Document Type:	Educational Notes
Keywords:	cost-benefit analysis, social welfare function, social discount rate, shadow price of capital

Citation:
Broughel, James / 2020. "Cost-Benefit Analysis as a Failure to Learn from the Past." The Journal of Private Enterprise, 35(1): 105-113.