Monthly Archives: October 2014

Pays for itself

These days I am reading a lot of papers from economists that talk about interventions paying for themselves.  These are educational or development interventions where the costs of the intervention are less than the supposed (and pretty shaky) projected additional public money raised in the long term as a result.  The intervention is often recommended on the basis of these calculations.  It strikes me as odd that this is even considered an interesting ratio, since public money is gathered from a range of sources, and is necessarily about redistributing money from one part of the economy to another.  An optimal way of directing funds might be social welfare per pound spent, with some adjustment for social justice, so that opportunity costs are avoided, with some deduction for utility lost in taxation.  It is irrelevant to talk about public returns, and misdirects attention to something that is (a) very hard to project, and (b) a weird thing to do anyway as it is possible to raise taxes in other ways if the net of social utility is improved.  It’s just so strange that “improve maths results with intervention Xit pays for itself” means anything to anyone when that’s not how things are paid for and isn’t necessarily the use of funds that maximizes utility.

Cynically, I wonder if the obsession with the bottom line in government makes these ‘expenditure/returns’ ratios interesting to policy makers.  I also wonder whether the lack of proper engagement in measured utility (e.g. something analogous to the QUALY used in the health sector) allows people to miss the point entirely.

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