The benefits of cost-benefit analysis

On his inauguration day, January 20, 2025, President Donald Trump issued an executive order to immediately rescind 78 Biden-era executive orders. Among these was Executive Order 14094, the Biden Administration’s revision of Circular A-4, the guiding document of the use of cost-benefit analysis in federal regulatory activity. This reinstated the previous Circular A-4 language, adopted in 2003 during the Bush Administration.

Cost-benefit analysis has been in standardized use in U.S. federal regulatory decisionmaking since the Reagan Administration, though most trace its roots back at least to Army Corps of Engineer dam projects during the New Deal era of the Great Depression. Cost-benefit analysis has been affirmed by the seven administrations in the United States since, with each adding their own spin while  keeping to the spirit of the Reagan Administration’s original executive order.

Cost-benefit analysis is also widely used in the United Kingdom. Its practice began in public infrastructure and defense projects during post-WWII economic planning and later became a central part of HM Treasury’s Green Book, the official guidance for appraisal of policies, programmes, and projects for central government policymaking.

Where did the idea of cost-benefit analysis come from? In the United States, many trace cost-benefit analysis to a letter penned by Benjamin Franklin.

…my Way is to divide half a Sheet of Paper by a Line into two Columns; writing over the one Pro, and over the other Con. Then during three or four Days Consideration, I put down under the different Heads short Hints of the different Motives, that at different Times occur to me, for or against the Measure. When I have thus got them all together in one View, I endeavor to estimate their respective Weights; and where I find two, one on each side, that seem equal, I strike them both out. If I find a Reason pro equal to some two Reasons con, I strike out all three…

…’tho the Weight of Reasons cannot be taken with the Precision of Algebraic Quantities…I think I can judge better, and am less liable to make a rash Step; and in fact I have found great Advantage from this kind of Equation, in what may be called Moral or Prudential Algebra.

While Franklin lays forth a practical approach to analyzing costs and benefits on a personal level, why should we apply this to a society? For this answer, I turn to two great European thinkers: Jeremy Bentham and Vilfredo Pareto.

Bentham famously characterized his ethical framework of utilitarianism as “the greatest happiness of the greatest number that is the measure of right and wrong.” He argued this was a “fundamental axiom” of moral thinking.

Anyone who has taken an introductory philosophy of ethics course can tell you how fraught this claim is, but its simplicity is timeless and alluring. All other things being equal, a state of greater happiness for a greater number is desirable to a state of less happiness overall.

The Italian polymath Vilfred Pareto aimed to devise a more narrow definition of moral rectitude, defining a “Pareto improvement” as an improvement of the state of affairs that makes at least one member of society better off without making any members of society worse off.

Seeing this as too high of a threshold to meet for public policy, British Economists John Hicks and Nicholas Kaldor each devised an alternate test: if a state of affairs can come about where the winners could hypothetically compensate the losers from the policy, that can be seen as a policy improvement. So it’s not an actual Pareto improvement that justifies public policy, it is a potential Pareto improvement that does.

Okay, so there is your history of what brought us to the point we have arrived at today. Cost-benefit analysis is an analytical approach that puts the Hicks-Kaldor criterion into operation. It does this by ascribing value using our classic welfare economic tools: what do people themselves value according to their willingness to pay for goods produced?

While some may argue that it is not obvious what a “cost” or a “benefit” is, in the practice of formalized cost-benefit analysis, costs and benefits are clearly defined terms. Costs and benefits are what people who are affected by a policy are willing to pay or to accept for the outcomes of the policy.

Let’s use a practical example. Say a national environmental protection agency is considering whether to require coal-powered electricity plants to install technology that will reduce their particulate matter emissions. The agency conducts a cost-benefit analysis to determine the costs and benefits of the policy. Analysts estimate (a) the cost of installing and adopting the technology, which will lead to lower yields for investors or higher costs for ratepayers and (b) the benefits to local residents of lower risk of death due to less particulate matter exposure.

Estimating the cost of installing and adopting the technology is a technical–but possible–undertaking. Similarly, estimating how many lives can be saved will not be easy per se, but is possible.

What is difficult to the non-economist is how we put a value on those lives. What economists do is say “we won’t put a value on lives, because people do that themselves.” The current approach to valuing reductions in risk of death is to use labor market data to estimate how much people trade off lower incomes for lower risk of death. This way they can elicit what price people themselves place on incremental reductions in risk of death achieved by policy interventions such as this.

From this example, you should be able to see some of the limitations of cost-benefit analysis. I don’t think you need to buy into Hicks-Kaldor, Pareto, or even Bentham to see what analysts are doing: they are estimating the economic costs and benefits of a policy intervention. This type of analysis does not claim to tell us anything about cultural values, fairness, or democracy. At its heart, it focuses on a narrow question: do the economic benefits of a policy exceed its economic costs?

I would endeavor to say this is a question worth answering for policymakers making large decisions about economic policies. No, it is not the only question worth asking when evaluating a public policy. But to be fair…I have never heard of a policymaker, analyst, journalist, philosopher, podcaster, blogger, dinner-table contrarian, or any other person saying that it is. Whether economic benefits outweigh economic costs needs to be a part of the policymaking process, but it will never be the sole factor of the policymaking process outside of some sort of fantasy dystopian technocracy which we are far from living in today.

At its heart, cost-benefit analysis is about its method.

This means comprehensively measuring direct costs. Understanding direct costs of a policy will help us understand the magnitude of the economic impact of a policy and who will be impacted by it.

This means comprehensively measuring indirect costs. Understanding what unintended consequences could be borne by members of society helps policymakers understand the broader impacts of public policy and how its impacts can be felt in unexpected ways.

This means monetizing tangible benefits. Monetization helps policymakers understand the scale of the policy and how much economic benefit could be generated by a policy, even if its costs are high.

This means monetizing intangible benefits. Putting dollar figures on impacts to health, environment, and other goods that we have rigorously-derived valuation for puts them on equal economic footing with more traditional economic benefits and costs.

This means measuring benefits and costs against alternatives or a baseline. Comparing policies to what will happen without implementation helps policymakers conceive what the costs and benefits of inaction are.

This means discounting benefits and costs to current year values. Discounting helps policymakers understand risks and opportunities inherent with policymaking with multiyear impacts.

This means disclosing key assumptions. Transparency helps policymakers understand the weak points in analysis.

This means conducting sensitivity analysis. Analyzing how results change with different assumptions helps policymakers understand how sensitive a model is to its assumptions and how it will change if assumptions change.

While books and dissertations have been written on cost-benefit analysis, conferences are put on by professional societies on the topic, and government administrations fight over different ways to carry out this project, the eight points listed above are the core of what makes a good cost-benefit analysis.

The goal of cost-benefit analysis is not to distill the science of decisionmaking into a simple formula. If anything, cost-benefit analysis does the opposite: it lays bare the complexities of decisionmaking. By understanding what economic costs are levied on society, unintended consequences of a policy, who directly benefits, what spillover benefits are felt, when costs and benefits are incurred, and what happens if we don’t act, policymakers gain key information that helps them make better decisions.

No, cost-benefit analysis is not a perfect formula for knowing definitively if a policy is “good.” Policymakers still need information on the impacts of policies on poverty, inequality, health, education, and subjective well-being. And all other things being equal, having a society with more of the things people want is a good thing. Finding out how to create that world deserves focus for analysis of public policy.

Ohio economists say cutting library funding will harm human capital development

In a survey released this morning by Scioto Analysis, 11 out of 14 economists surveyed agreed that cutting funding from Ohio's public libraries will reduce human capital development of Ohio residents. This comes after the Ohio House passed its budget proposal which allocates about $90 million less for public libraries than in the Governor’s proposed budget.

Kevin Egan from the University of Toledo agreed with this statement, saying “Both of my children still love to read due to our weekly local public library visits. Every time we went to the public library it was full of citizens utilizing its resources: many different types of human capital development beyond just reading, including public access to computers for online job applications and resume preparation; study rooms for students to prepare for their classes and do homework, helpful staff to locate whatever you are interested in learning.” David Brasington from the University of Cincinnati disagreed, saying “Other sources of information have made libraries redundant or replaced them.”

When asked about the impact that libraries have on small businesses, economists were split. Five respondents agreed that cutting funding from Ohio's public libraries will reduce formation and longevity of new businesses in Ohio, one disagreed, and eight were either uncertain or had no opinion. One of the economists who agreed was Bill LaFayette from the firm Regionomics, who wrote “Libraries have a wealth of information relevant to understanding markets and competitors, and business operation. Librarians have the training and experience to help people access and understand this information.”

The Ohio Economic Experts Panel is a panel of over 30 Ohio Economists from over 30 Ohio higher educational institutions conducted by Scioto Analysis. The goal of the Ohio Economic Experts Panel is to promote better policy outcomes by providing policymakers, policy influencers, and the public with the informed opinions of Ohio’s leading economists. Individual responses to all surveys can be found here.

Is the social safety net efficient?

As a human, I like giving people gifts. I like picking something out that I think a friend or loved one will like and giving it to them. As an economist, I know that gift giving is inefficient. 

I’m being facetious here (many economists including myself agree gift giving is not inefficient), but for a moment ignore the sentimental value of presenting a friend a gift and just think about the object itself. If you go to the store and spend $50 on a sweater as a gift, what do you think the odds are that your friend would have picked out that exact same sweater if they were in the store? 

Maybe they would have gone with a different color, or a different size. Maybe they wouldn’t have bought a sweater at all. If you just gave this person $50, basic economic theory says that a rational, utility maximizing individual will spend that money in the best possible way. The only chance you have of matching the same total utility with your sweater gift is if that is the exact way your friend would have spent that money. 

In economic parlance, we call these two ways of gift giving in-kind transfers and cash transfers. Usually when we’re talking about cash vs. in-kind transfers it is not in the context of gift giving between friends, it’s in the context of our social safety net. 

Some of our largest safety net programs are straightforward cash transfers. The Earned Income Tax Credit, Social Security, Temporary Assistance for Needy Families are some of the main examples of programs that provide cash assistance to families. We also have major in-kind transfers like SNAP and Medicaid that provide huge dollar value benefits but are limited to specific uses. 

While gift giving has a sentimental component, I think it is fair to say that our social safety net does not. If you agree with me on that point, then the next logical question is why does our social safety net have in-kind transfers at all? 

I think this is a fascinating question with cases on both sides. I’m not going to try and make a case either way in this blog post, but there are a few more considerations about our safety net as it currently stands that I feel like we need to acknowledge. 

First is that in-kind transfers can be equally as efficient as cash transfers under the right circumstances. In our gift giving example, if you knew your friend was going to purchase that exact sweater then buying it for them is exactly the same as giving them $50 from a utility perspective. 

Compare this to SNAP benefits. All humans need to eat, so if a family receives SNAP benefits that don’t fully cover their monthly food expenses then that is essentially the same as a cash transfer for them. If you gave them the same amount of money, they might end up with the exact same consumption at the end of the month. 

Another consideration is that in-kind transfers could potentially maximize social welfare rather than individual welfare. It might be the case that an in-kind transfer gets someone to consume some good that creates positive externalities. We might not be maximizing individual utility, but society might be overall better off. 

Take Medicaid as an example of this. Healthcare has lots of positive externalities, but some people might individually prefer spending their healthcare premiums on other essentials. By subsidizing healthcare for individuals who otherwise would not have it, we are improving outcomes on average for everyone, at the cost of losing some individual efficiency. 

So, should the social safety net have in-kind transfers, or strictly cash transfers? I don’t have the answer to that, nor does anyone else. The answer to that question is largely subjective, especially since efficiency is not the only criteria to judge a policy on.

Ending Medicaid expansion would devastate Ohio’s economy

Earlier this month, the Ohio House passed its version of the biennial budget, setting priorities for the state with tens of billions of dollars of spending.

The House version of the budget had many significant changes from the governor’s original budget. The House axed tax hikes on cannabis, gaming, and tobacco, the latter of which could have saved tens of thousands of lives by reducing smoking rates in the state. They also cut the state library fund by $90 million, child care subsidies by $180 million, and removed a child tax credit for families with young children that could have directly supported half a million children and grown the economy.

One provision the House preserved from the executive budget, however, was a law that would immediately revoke health insurance for 770,000 Ohioans if the federal government reduced its contribution to Medicaid at the state level.

When the Affordable Care Act was passed in 2010, the Obama Administration and Democrats in Congress had a goal to ensure everyone in the United States had access to affordable health insurance. The Affordable Care Act did this in a number of ways: covering children with their parents’ health insurance until age 26, creating subsidies for lower- and middle-class families to purchase individual insurance, requiring employers to provide health insurance to full-time workers, prohibiting denials of coverage due to preexisting conditions.

One of the biggest elements of this strategy was expanding Medicaid coverage to all Americans  with incomes under 138% of the federal poverty level, with the federal government paying 90% of the health costs for this new “Medicaid Expansion” population. This provision was challenged in courts and the Supreme Court ultimately made this optional for states. To date, 40 states have accepted the federal dollars to provide health insurance to low-income residents, including Ohio.

Today, 94% of Ohio residents are covered by health insurance, one of the state’s strongest health metrics. According to the Ohio Department of Medicaid, 770,000 Ohio residents are covered by Medicaid Expansion, about 6.5% of the state population. If these people lost their health insurance immediately, the number of people without health insurance in the state would double in an instant.

That is exactly what the Medicaid provision introduced by the governor and as passed by the House will do if the federal government reduces its share of the Medicaid expansion support by as little as a dollar. Ohio is likely to join twelve other states by adopting language that would automatically cut the Medicaid expansion population from health insurance rolls if the federal government reduces its match rate.

If this happened in Ohio, 770,000 Ohio residents would automatically lose health insurance. This would also have ripple effects through the state economy. The Kaiser Family Foundation estimates this would lead to a $72 billion reduction in federal Medicaid spending over the next ten years. That’s about $7.2 billion a year in health care spending that would evaporate from the state, roughly equal to 30% of Ohio’s economic growth over the past year, gone overnight.

These costs would compound over time. People without health insurance are less likely to get preventative screenings, leading them to more frequent emergency room use and more costly treatments. Evidence shows Medicaid expansion improved financial security, promoted tobacco cessation, and reduced rates of heart disease and premature death.

Medicaid is not cheap. But the evidence we have on it suggests it pays dividends to society. Legislators should think hard about the consequences of kicking 770,000 Ohio residents back into the ranks of the uninsured.

This commentary first appeared in the Ohio Capital Journal.

Libraries provide more than books

I was 22 when I walked into the Parson’s branch of the Columbus Public Library to host a teen support program. A cool blast of wind brushed the hairs off my forehead while my eyes adjusted to the light. The space was open, a friendly librarian smiling to my right. Brightly colored walls pulled my gaze from one room to the next, each hosting a group of people. 

I hitched the canvas tote bag higher on my shoulder; it was filled with worksheets, rubber bracelets, and crayons. The librarian directed me to the teen space and I began to organize my materials, listening to the wash of excited chatter behind me. 

The students had walked over from the nearby high school, where they’d just had a level three lockdown because someone brought a firearm into the school. Talking among themselves, they swapped stories of the harrowing events of the afternoon. I felt their stress dissipating as the safety and familiarity of the library blanketed them. The librarians brought snacks over and the students settled in for our activity. 

In that hour I witnessed a function of the library we don’t always name: a safe meeting space where people feel welcome. 

As I write this I am sitting in the Westerville Public Library. Downstairs, I can hear children and parents talking, the intermittent beep of the checkout kiosk. Upstairs in the Adult Services Section, an older gentleman receives help on his resume while a young professional types rapidly on one of the library’s computers. An individual who appears homeless is reading a book while raindrops patter quietly on the windows. 

I’m reminded of the recent visit by my parents where we all stared around in wonder at the Westerville Library’s 3D-Printer. Their innovation lab has professional printing, computers, videography equipment, a podcasting studio, and staff members willing and ready to help you use it all.

Ohio’s libraries are exceptional. Rob Moore, Principal for Scioto Analysis, recently wrote an op-ed for the Ohio Capital Journal about how often Ohioans visit their libraries: 3.41 times a year on average — second highest among all states across the country.

Ohio’s libraries offer career support, ASL and literacy classes, and a safe space to exist for free. When you don’t have any money to buy a cup of coffee or a movie ticket, it becomes very clear very fast that most public spaces in America were built to engage with people who can pay. Libraries offer one of the only places that individuals can pass time without having to purchase something. 

In addition to being a safe third space, libraries offer support to individuals navigating complex government programs. A report by the Brookings Institution finds that in “many communities, librarians are also ad hoc social workers and navigators.” Librarians help citizens understand the complexities of the American healthcare system, file their taxes, and obtain housing support. 

San Francisco was one of the first library systems to hire social workers to support their librarians. This combination of training and expertise supports the roughly 15% of library patrons who are homeless. 

The Hartford public library of Connecticut offers “The American Place,” a support program for New Americans trying to acclimate to their new home. They offer legal support, career services, language assistance, and computer training. 

The Chicago Public Library System offers the “Library of Things” which are nontraditional items for patrons to check out. From cornhole to a projector to a tortilla press, the library offers free and accessible ways for patrons to try new technologies without having to put their own money down. 

The NIH estimates that there are 17,000 public libraries nationwide hosting four million visits each day. Part of what makes libraries a valuable third space is the neutrality and accessibility of their locations. 

Libraries cannot offer these services without funding. In their version of the budget bill, the Ohio House originally proposed a $100 Million cut to the state’s libraries compared to Governor DeWine’s original budget, but protests made legislators walk the cut back to $90 Million. It’s worth noting that $600 Million has been appropriated for a new Cleveland Browns Stadium. 

In addition to reductions in their funding, libraries are also facing legislation that could reduce their ability to provide services. The American Library Association hosts a legislation tracker on their website. According to them, the “most concerning are bills that would remove longstanding legal protections that shielded libraries and library workers from criminal prosecution for providing access to books and online resources…" 

As libraries face budget cuts and possible censorship from state governments, they continue to provide key social services to community members. 

I’ll leave you with this. If services like these seem like they can be valuable to you, I created this digital map to help you find your local library in the state of Ohio. Go take a visit: you might find something you like.

Will Artificial Intelligence Destroy the Environment?

No.

Or rather—it can’t on its own.

AI doesn’t have the ability to stop the progress we’re forcing. Human beings are the unrelenting force destabilizing our climate.

So maybe the real question is this:

Will we allow AI to accelerate environmental collapse?

The thought settles heavy over me and I grip the steering wheel a little tighter. Next to me in traffic, the city bus spits gray emissions which dissipate by the time the light turns. From the car speakers, a podcaster’s voice floats into focus:

 “This new project—known as Stargate—would consume 15 Gigawatts of power. That’s like 15 new Philadelphia-sized cities consuming energy.” NPR’s deluge of facts rain heavy on my ears, and I feel that familiar tightness pull on my abdomen. Climate doom. 

“Stargate plans to invest at least $500 billion to build 20 new large data centers across the country…”

Like many Americans, I’ve come to rely heavily on artificial intelligence to help me puzzle out the world around me. This reliance comes at a cost. AI doesn't exist in a vacuum—it depends on an energy-hungry infrastructure. It leans heavily on energy-intensive systems: 99% of all digital data passes through 1.4 million kilometers of deep-sea telecommunication cables. These systems, which power everything from email to streaming to AI models, demand enormous energy, largely sourced from fossil fuels.

AI models rely heavily on water to cool the large data centers. The World Economic Forum reports that “a 1 megawatt (MW) data centre can use up to 25.5 million litres of water annually just for cooling – equivalent to the daily water consumption of approximately 300,000 people.” To address this, innovators are exploring new cooling technology such as cool-water tank immersion and synthetic liquid coolants as alternatives to heavy water use. 

In addition to water, the models need electricity. The Harvard Business Review found that “even putting aside the environmental toll of chip manufacturing and supply chains, the training process for a single AI model, such as a large language model, can consume thousands of megawatt hours of electricity and emit hundreds of tons of carbon. This is roughly equivalent to the annual carbon emissions of hundreds of households in America.”

It’s worth noting for anyone who has lamented that AI will take over the world—it already has—and life persists. AI is technology. Just like the automobile, the airplane, the lightbulb. Despite the environmental impacts of driving, flying, and turning on the lights, we keep using these tools. 

These tools have consequences for their use. If the private cost of driving, flying, turning on the lights, and using AI is lower than the social costs, we will happily offload those costs onto future generations and speed up climate change in the process. Common policy tools we have to bring that private cost in line with social costs is through a carbon tax or cap and trade policy that puts a price on carbon emissions. In this way we can pay for our technology usage, rather than dine and dash, and leave our grandchildren to pay the bill.

Governments play a pivotal role in shaping a future where AI development is not only innovative, but also sustainable and inclusive. Policy levers already exist to combat environmental destruction:

1. Carbon taxes and cap-and-trade programs hold producers accountable for their emissions. To learn more about how these policies work, check out Scioto’s recent breakdowns of cap-and-trade and carbon taxes. 

2. Regulatory standards ensure regular and accurate data collection on emissions and energy use. 

3. Data transparency requirements ensure equitable access to the data used to train AI models. This helps address the information asymmetry associated with the 'black box' nature of many large language models. 

4. Procurement rules are another tool to direct government spending in a way that incentivizes or disincentivizes the behaviors of producers within the AI industry. 

AI can’t destroy the environment because it would have to get in line—behind us. 

This is the moment of the AI revolution, and we still have our foot on the gas, the electricity, and the water. We have to slow our energy and AI demands in order to treat this planet like our grandchildren will live and thrive here, too.

Original analysis: universal prekindergarten would boost Ohio’s economy

A new cost-benefit analysis by Scioto Analysis finds that universal pre-kindergarten in Ohio could deliver significant economic returns. The firm estimates the program would generate $3.80 in benefits for every $1 in costs per new child enrolled. With more families facing the rising costs of childcare and early childhood learning gaps widening, this analysis presents an effective solution to these problems.

This cost-benefit analysis estimates returns ranging from $220 million to $750 million depending on how many children enroll in the program. These benefits primarily accrue from increased future earnings, reduced prison time, reduced special education services, and reduced grade school repetition. 

Key Findings:

• For every dollar spent, the program could create $3.80 in benefits. The program generates $28,000 in net benefits per child.

• Scioto’s simulation of 10,000 enrollment scenarios based on the participation rates in universal prekindergarten programs in New Mexico and West Virginia produced consistently positive outcomes.

• Ohio could see 9,300 more children enrolled in universal pre-kindergarten if the program has enrollment levels similar to those seen in New Mexico. With enrollment levels that mirror West Virginia, 29,000 more children would enroll.

The analysis also showed the benefits of universal prekindergarten as a workforce development program.

“$7 of every $10 of benefits generated by a universal prekindergarten program come from future labor market earnings of children,” said Scioto Analysis Principal Rob Moore. “According to the evidence we have, universal prekindergarten could be a strong long-term economic development investment for Ohio.”

World Happiness Report: Eating alone is making us miserable

Last month, we celebrated an unofficial Scioto Analysis holiday, the annual release of the World Happiness Report. This is the gold standard for subjective wellbeing research across the globe, and is the inspiration for many of our own projects, as well as Gross National Happiness USA, an organization my colleague Rob Moore was president of in recent years. 

There are a ton of interesting facts that come out of this report. This year focuses especially on how people care for each other, and how people are more benevolent than we perceive them to be. 

I’d highly recommend reading through the whole report. There is so much good information and it really is a good experience to read about humans being good to each other. Today though, I wanted to highlight one section that stood out to me.

The importance of shared meals

One of the seminal books in the subjective wellbeing field is Robert Putnam’s Bowling Alone which talks about how Americans are losing social capital by interacting less with others across basically every aspect of their lives. For example, bowling alone instead of in a bowling league. 

While the importance of social connections is well studied, this year’s World Happiness Report adds to our understanding by looking at a new dataset on how frequently people share meals with each other. 

One of the takeaways from this new dataset was that there is a lot of variation in meal sharing across countries, and this variation is not very well explained by income, education, or employment. It just appears that on a case-by-case basis, in some countries almost everyone shares their meals while in others almost everyone eats alone. 

This is an important note because this dataset also shows that how often people share meals is actually a very strong predictor of their subjective wellbeing. From the chapter on sharing meals: “Those who share more meals with others report significantly higher levels of life satisfaction and positive affect, and lower levels of negative affect. This is true across ages, genders, countries, cultures, and regions.”

In the United States, about 25% of people who responded to the American Time Use Survey reported eating all of their meals alone in the previous day. This is a trend that has been increasing in recent years, especially for young people. 

This is a worrying trend, especially because it is difficult to see what steps we can take to reverse it. In a meeting earlier this week, I jokingly suggested that we could incentivize sharing meals by enacting a new tax that only applies to people who go to restaurants by themselves. This is a bad idea, but it shows just how hard it is for policymakers to change these types of trends. 

Public policy is really good at shifting resources around our economy. It is not so good at getting people to change their behavior. Policymakers can adjust incentives on the margins to make certain choices relatively more appealing, but unless you actually think adding a tax on people who go out to eat alone is a good thing, I have a hard time seeing a path for policy to dramatically change what's happening. 

Part of the reason it seems like public policy doesn’t have the tools to address this issue is that we still don’t understand it very well at all. This World Happiness Report is the first time the issue of shared meals has been analyzed as a driver of subjective wellbeing. 

We’ve written about this before, but there needs to be more data collected in this country about subjective wellbeing. Because it is hard to do evidence-based policymaking without evidence.

Ohio’s exceptional libraries are an economic driver

Ohio House leaders released a range of changes in their substitute budget bill last week. Gov. DeWine’s cannabis, gambling, and tobacco tax increases were out, and his proposed child tax credit was removed. The bill also included tax cuts for coal mining, a new tax expenditure to support anti-abortion advocacy centers, and many other changes to tax, budget, and other policy areas.

Maybe the most historic change introduced in the new bill, however, was a proposal to eliminate the state’s public library fund, which has funded Ohio’s library system for the past 100 years.

To be clear, this is not a total elimination of public library support, just the fund. The new bill folds the special line item into the state’s general revenue fund. The proposed House budget still provides public library funding from the general revenue fund, though it does cut the governor’s proposal to fund libraries by 9% — a $100 million reduction.

Ohio ranks near the middle of the pack on a lot of metrics. Its library system is not one of those. Ohioans visit their libraries 3.41 times a year on average — second highest among all states across the country. The average Ohioan checks out over 12 books a year — more than any other state in the country. Two-thirds of Ohioans have a library card, which puts it second among states in that category.

In the early days of my firm Scioto Analysis, I pondered a lot about market failure. Okay, I still do, but at the time I had a lot fewer clients to keep me occupied. I recall being on the phone with my benefit-cost analysis professor from graduate school asking him what services libraries provide to correct market failures.

At the time, I was very focused on circulation: how does provision of books help correct market failures?

What I missed at the time was right in front of me. I built Scioto Analysis at the library. I would bike there daily to have a place to work away from home. I would reserve conference rooms so I had places where I could have in-person or online meetings. I used their computers to do work and had a place to print RFP responses — a nice resource for someone who hasn’t owned a printer in years.

Entrepreneurs aren’t the only people who benefit from libraries. A study out this year in the American Economic Journal found investments in public libraries lead to increased test scores for children who lived nearby. This means libraries are also helping build tomorrow’s workforce.

Economist Howard Fleeter estimates Ohio’s libraries provided physical and electronic circulation, computer and technology services, reference services, programs, and other services to the tune of a total value of $3.1 billion in 2019. Comparing this to the total operating cost of the system of $780 million, Fleeter estimates the system generates about $4 in economic benefits for every $1 in operating expenses.

There are certainly other benefits to public libraries. Services to low-income people and people struggling with housing security, as a place for children to spend time after school, and civic benefits from people having a place to be around others free of charge are all values of the library. The economic benefits are real, however, and they could be threatened by proposed cuts at the state level.

This commentary first appeared in the Ohio Capital Journal.

Is data a public good?

If you’ve read any amount of news over the past three months you are probably aware that President Trump has enabled Elon Musk and the new Department of Governmental Efficiency to fire employees across the federal government. As I’ve written about before, one of the things we stand to lose in the face of this dramatic scale back of the federal government is access to high quality public data

A recent U.S. Economic Experts Panel explored the impacts of this impending loss of data. The general consensus of the panel was that scaling back the number of federal statisticians who collected and reported this data would have negative consequences. One thing that stood out to me as I skimmed through the responses was one comment written by Erik Hurst from the University of Chicago. He said “To make good policy, data is needed to understand how the economy is currently performing and to examine potential key economic variables that are changing. The data is a public good and is not otherwise provided by the private sector.”

This comment essentially echoes the point of my blog post, but the last sentence sticks out to me. “The data is a public good” is a rather strong claim. 

A public good is not just something that the government provides, it refers to a classification system that economists use to understand how goods are traded in markets. In this classification system, goods need to be either rival or non-rival, and either excludable or non-excludable. 

A good is rival if one person’s consumption of that good prevents another person from consuming it. Most day-to-day purchases are rival. If I go and buy a bike at the local shop, that prevents someone else from buying and also benefiting from that bike. Roads are an example of a non-rival good. In most circumstances, one person driving their car on a road does not prevent another person from also using and benefiting from that road. 

A good is excludable if it is possible to prevent someone from using it. Anything you buy in a store is excludable, because the producer can wait until you give them money to allow you to benefit from it. An example of a non-excludable good would be something like trees on a street. Everyone benefits from the added shade of trees, and there is no way to prevent people from benefiting. 

For something to be a public good, it needs to be both non-rival and non-excludable. If you think about what those two things mean together, it makes sense why the government should be providing these goods. Non-excludable means there is no way for a private firm to profit from providing this good, and non-rival means there isn’t a limit on how many people can use a good. 

Unlike private firms that would not be able to raise any sort of revenue from providing these goods, the government has the ability to collect taxes, essentially charging everyone and spreading the burden of paying for these goods across the population. We even see taxes for specific public goods, such as gasoline taxes that help pay for roads. 

So, does Census data qualify as a public good? 

First, Census data is certainly non-rival. My ability to download a spreadsheet does not prevent anyone else from doing the same. Is Census data non-excludable, that requires some more thought. 

For private firms that do data collection, data can certainly be excludable to some extent. Companies can require people to pay to access their data, and they can require some agreement that prevents data sharing. For context, non-rival, excludable goods are called “club goods.”

While it is technically possible for the Census Bureau to adopt this business model, it would essentially amount to adding a user tax on data. However when we increase taxes on a good, people consume it less than they otherwise would in a tax-free market. This can be a good thing if a good creates negative externalities, but as someone who works for a company whose mission is in part to “provide policymakers and policy influencers with evidence-based analysis of pressing public problems,” I believe that it is clear that this type of data has a ton of positive externalities. 

The basic rules of microeconomic theory suggest that turning Census data into a club good would reduce the total benefits people are getting in our economy. We all benefit from good access to public data. The upside to making sure that high quality data remains a public good is extremely clear: it helps us create better policies and make better decisions.