Policy Analysis: Whose Perspective Matters?

Last week at the Society for Benefit-Cost Analysis’s annual conference, I had the opportunity to listen to Catherine Wolfram speak on carbon pricing in the United States. Dr. Wolfram is an economist from MIT who previously served as the Deputy Assistant Secretary for Climate and Energy Economics at the U.S. Treasury. 

As an economist who worked in government, Dr. Wolfram spoke not just about the economics surrounding carbon pricing, but also went into a lot of detail talking about the politics surrounding this question. This was a unique moment during this conference, where speakers often appear agnostic about politics, despite addressing very politically charged questions. 

The interesting thing about this talk in particular was not the claim that carbon pricing has become a polarized topic, we need only look at the past administrations’ social cost of carbon to see that clearly. The talk was interesting because most economists try to avoid the fact that they are talking about political issues. 

On one hand, avoiding politics allows economic analysis to remain more objective. While every analysis is biased by the analyst's context, at the end of the day math is math and presumably a well-done study should yield the same results regardless of who is performing it. 

However, the goal of policy analysis is to inform public policy decisions, and in a democracy, public policy decisions are largely made by politicians. If there isn’t any political will to explore a policy option, then a policy analysis might not be worth the effort. It could be the case that policy analysis will be used to help create political will for a project, but we don’t want to waste time on projects that have no chance of being informative. 

Another reason policy analysis is sometimes overlooked in the decision making process is that not everyone agrees that economics is the most important tool for evaluating impact. 

One question posed by Dr. Wolfram during her talk was whether the importance of economists and policy analysis has actually been a hindrance to the advancement of environmental policy. Her argument for this was that while economists have debated over the fine points of carbon pricing, trying to figure out the best solution to an extremely important issue, climate change has kept progressing. Perhaps, this is a situation where great has been the enemy of good. 

Another point she made was that people who specialize in other disciplines dislike the importance that economics has in policy decisions. It is a little strange to them that some of the most important environmental policy decisions are being influenced by economists and not ecologists. 

All of these points led me to the same conclusion: economics is an excellent tool for understanding public policy, but it is not the only perspective that matters. While a well done cost-benefit analysis might rely on the most recent biology or psychology research, to create the best public policy, we need to involve biologists or psychologists. 

It is not enough to do an economic policy analysis, and pass it along to the policymakers. When possible, the opinions of other experts and decision makers should be included. By collaborating more frequently, we can get closer to the ultimate goal of improving public policy.

Is the Value of a Statistical Life lower for older adults?

Last week, I was at the Society for Benefit-Cost Analysis’s annual conference in Washington, D.C., where I had the opportunity to learn from some of the leading experts in economic analysis about the newest developments in the field.

One topic that has been a major talking point for decades is how analysts monetize changes in the risk of death, which we commonly refer to as the value of statistical life (VSL). We’ve written in detail about VSL in the past, but as a reminder, VSL is not based on how valuable human life is, it is based on how much people are willing to pay for small reductions in the probability of death. 

One of the most debated questions in the VSL literature is whether or not its value should be the same for everyone. My colleague Rob Moore has written about this problem and some of the main questions that surround this topic. However, at this year’s conference, one presenter was focused specifically about how we should think about VSL for elderly adults. 

This presentation was somewhat responding to a talk that was given at the 2023 annual conference, talking about the VSL for young children, which concluded that the child VSL should be higher than the adult VSL. In that presentation, the key insight the researchers had was that children do not have resources to trade for risk of death reduction, because their resources are managed by their parents. As a result, we should look at how much parents are willing to pay for risk of death reduction on behalf of their children, which is indeed higher than what they would pay for reducing their own risk. 

The presentation I attended at the conference last week took some issue with this approach. The main problem the presenters had was the fact that assuming child VSL is higher than adult VSL is a dramatic departure from the labor market approach that the original estimate of VSL is derived from. 

Although this is not the main argument last year’s researchers made, it is a logical extension that if we depart from the labor market method to arrive at a higher VSL for children, we could follow the same rationale to arrive at a lower VSL for elderly adults. 

Researchers have shown that ageism is an extremely costly type of prejudice that exists in our society. While the technical minutia that informs cost-benefit analysis might not appear to have significant equity concerns, if we understand their full implications we can see how these decisions could inform policy that disadvantage certain groups. If we assume that VSL is lower for elderly adults, then things like high quality elder care become much less valuable from an economic perspective. 

The point I took away from this discussion is not that there is a particular right way to calculate VSL, but rather that we need to be fully aware of the implications our calculations come with. If we decide a variable VSL is appropriate because it allows for a more efficient allocation of risk reduction, then we need to make sure we are not reinforcing negative biases with our decisions.

What are the frontiers of cost-benefit analysis?

Last week, Michael and I attended the annual conference for the Society for Benefit-Cost Analysis in Washington, D.C.

This is the once-a-year conference where academics, agency economists, and independent consultants get together to talk about the state of and cutting-edge research around benefit-cost analysis.

One of the sessions I went to that stuck out to me was on the topic of frontiers of benefit-cost analysis being investigated by federal agencies. In March 2023, the National Science and Technology Council established a subcommittee on the topic. The subcommittee was focused on helping agencies conduct three specific tasks:

• Sharing knowledge and expertise on advancing benefit-cost analysis,

• Aiding each other in accessing new data, methods, and expertise, and

• Identifying areas where additional research, including by non-governmental actors, could meaningfully advance agency capacity to quantify or monetize costs and benefits.

At the Annual Conference, representatives from the Subcommittee presented their 2023 Annual Report, which covered some of the most pressing needs by agencies in the area of benefit-cost analysis. In this report, the authors identified five areas where federal agencies needed help understanding how to quantify and monetize costs and benefits for use in regulatory analysis.

Non-Fatal Health Effects

The value of a statistical life is a well-traveled path in benefit-cost analysis. Much more sticky for analysts is how to value the cost of effects that reduce quality of life without ending lives. Quality Adjusted Life Years (QALYs) have been used in medical cost-effectiveness analysis for decades, but this methodology has some limitations that make them hard to use in benefit-cost analysis. Guidance on how to quantify and monetize the impact of non-fatal health effects could be valuable for evaluators doing regulatory impact analysis.

Ecosystem Services Effects

When an ecosystem deteriorates, it can cause harm to humans. For instance, removal of wetlands can reduce the ability of the water system to remove toxins. Evaluation and monetization of these impacts could help agencies such as EPA better evaluate their interventions.

Wildfire and Extreme Weather Effects

Estimating what the future impact of extreme weather will be comes with a lot of uncertainty. Creating estimates that are credible and sound will help policymakers create regulations related to climate change in assessing the impact of their interventions, as well as giving tools to emergency management agencies such as FEMA to use in planning.

Information and Transparency Effects

Much of what federal agencies like the Food and Drug Administration (FDA) do is require information-sharing so consumers have a clear idea of what they are purchasing. Capturing the economic value of these information requirements can be difficult, however. Clearer estimates of these can help agencies balance the costs of information distribution with their potential benefits.

Effects of Public Benefit Programs

Many policymakers are interested in the multigenerational impacts of public benefit programs like SNAP (formerly known as “food stamps”). Giving a full picture of what the impacts of these programs are will help policymakers assess the costs and benefits associated with extension or regulation of benefits.

In addition to these five, the subcommittee also identified two cross-cutting issues: analyzing distributional effects and analyzing risk.

If you are an early-career researcher who wants to make a difference, focusing on one of these topics would put your work in line with what policymakers need today. Now is a good time for researchers who want to be able to make a difference in the policy space.

Immigrants help balance America’s budgets

Immigration has become a hot topic in the federal election debate. Immigrant families have become a political football, with congressional Republicans finally having the opportunity to realize some of their anti-immigrant dreams but punting when they saw the chance to score political points.

While much can be said about the politics of immigration — and believe me, you’ll hear a lot about it this Fall — some of the biggest misinformation comes in the (often bipartisan) rhetoric about the economics of immigration.

One of the biggest claims about immigration in America mindlessly parroted by politicians who haven’t balanced a budget sheet in their life is the following: immigrants cost us money. The argument is that people come from other countries and have to go to public school and take public benefits, costing American taxpayers money.

A recent report out of the Department of Treasury shows not only how simplistic this argument is, but how flat-out wrong it is.

A group of economists at the Department of Treasury estimated the impact of refugees and asylees on federal, state, and local budgets. They found that refugees and asylees actually had a net positive impact on public budgets. This means that they generated more revenue for public budgets than they cost in expenditures.

Why is this? It’s because refugees pay taxes.

These researchers estimated that over a 15-year period, refugees and asylees generated $360 billion in payroll, income, and excise taxes for the federal government and $220 billion in income, sales, and property taxes for state and local governments.

What would happen if these refugees and asylees weren’t here? We’d need to find somewhere to make up the lost revenue. 

At the federal level, that means either piling on more to the national debt, cutting spending on programs like Social Security or Medicare, or raising federal income taxes. At the state and local level, which usually have balanced budget requirements, that means cutting education spending, health spending, or public safety spending or increasing state sales taxes or property taxes.

So basically refugees are paying to be here. And U.S.-born residents like most of the people reading this right now are the ones benefiting from it.

Now this isn’t to say refugees, asylees, and other immigrants don’t pose any costs to state and local governments. They go to public schools and many receive public benefits as well. But most immigrants who come to the United States plan to stay here. The Pew Research Center estimates three-quarters of immigrants in the United States are either naturalized citizens or “lawful permanent residents.” 

This means investment in immigrants means investment in the U.S. economy in the long-run. We know an educated workforce leads to a better economy for everyone. We know a strong safety net makes it more likely people will take risks that will lead to technological breakthroughs that lead to better lives for everyone. And we know immigrants are responsible for a larger proportion of new technologies than their numbers suggest they should.

So keep your mind sharp over the next few months. You’re going to hear both politicians you disagree with and politicians you agree with saying nasty things about people who look different from you costing you money. And most of what they say is going to be wrong.

This commentary first appeared in the Ohio Capital Journal.

How do we get new Americans enrolled at banks?

According to the 2021 Federal Deposit Insurance Corporation survey of unbanked and underbanked households, just 4% of U.S. born households are unbanked or underbanked. If we look at households where the residents were born outside the U.S. and have achieved citizen status, this percentage rises to 4.6%. If we look at the non-citizen households, as many as 11% are unbanked or underbanked.

Additionally, foreign-born residents in the U.S. often worry more about their finances than native residents do. Data from the National Health Interview Survey has shown that foreign-born respondents reported worrying more about the following financial categories: retirement, medical costs due to illness or injury, standard of living, medical costs of routine healthcare.

Financial services are an essential part of creating wealth. People need to take out loans to make big purchases like cars and houses, and not having a bank account can complicate the process of receiving public assistance. This means that by being unbanked and underbanked at much higher rates, non-citizen immigrants are at a significant financial disadvantage.

To address this problem, we first need to understand what barriers are preventing immigrant populations from engaging with the financial system. 

One type of problem many foreign-born residents face are economic barriers. These are challenges like not having enough money to open a bank account in the first place. These are the kind of problems that policymakers have the greatest ability to solve. Local governments can offer cash assistance or low-interest loans to help immigrants establish a financial footprint and begin the process of growing their wealth.

Another type of problem immigrants face are social barriers. These are things like language barriers that make interacting with traditional banks more difficult. One study of Asian immigrants in Los Angeles suggests that ethnic financial resources such as ethnic banks could help reduce some of these issues.

One major social issue that has become more relevant in recent years is fear surrounding immigration status and the financial system. A 2021 study from the Urban Institute found that one in five adults in immigrant families with children reported that they or a family member avoided one or more non-cash public benefits because of immigration-related concerns. 

This is despite the fact that during the COVID-19 pandemic, rule changes made it so these benefits were no longer considered during the application process for green cards or temporary visas. Policymakers need to make sure that people understand what the rules are and how they apply. This is especially important in the context of immigration and public benefits, which are both extremely important and endlessly complicated state systems. 

If policymakers want to help their immigrant constituents achieve financial security, giving them the tools to engage with the financial system is a critical first step. Removing  barriers to entry could help reduce the number of non-citizens that are unbanked or underbanked.

Department of Treasury: Refugees promote fiscal stability

Last month, the Department of Health and Human Services released a new report looking at the fiscal impact that refugees and asylees had on the American economy. Specifically, they looked at how tax revenue generated by Asylees and Refugees compared to federal and local spending on refugees and asylees. 

Essentially, this report asked whether or not the tax contributions of refugees and asylees paid for the public services these people accessed. 

In total, the Department of Health and Human Services found that over a 15-year period, government expenditures on refugees and asylees totalled $457.2 billion, compared to $581 billion in tax revenue generated by refugees and asylees. This means that refugees and asylees had a positive fiscal impact on the federal budget of $123.8 billion over this 15-year period. 

When looking at refugees, asylees, and their immediate families, there still exists a total net positive fiscal impact, though it is much smaller. This is because when accounting for immediate families, the federal government experiences a net fiscal benefit of $37.5 billion while local governments experience a net fiscal loss of $21.4 billion. Local governments bear a disproportionately high amount of the costs associated with refugees and asylees since they fund public K-12 schools refugee children are educated in. 

Overall, this report shows that welcoming refugees and asylees is not just a humanitarian service, it also helps U.S. fiscal solvency. 

One of the limitations of this study is that it only looks at the financial impacts that refugees and asylees have on public budgets. It does not address the social impacts refugees and asylees have on the communities they become a part of, or the economic impact of these refugees on the broader community.

One study from 2016 looked at the spillover effects that refugee camps in Rwanda had on their neighboring communities. These researchers found that as a result of the aid that refugees received, real wages increased in nearby communities. 

While refugees and asylees in the United States are clearly living in a different context, it is encouraging to know that in some areas, the presence of displaced people can directly benefit the communities that they become a part of. 

It would be valuable for researchers to explore some of these questions in the context of the United States. Understanding what the spillover effects of accepting refugees are, and if they vary in any ways, could help maximize what appears to already be a beneficial program from a financial perspective. 

Additionally, more research could identify inefficiencies that hinder refugees and asylees in the United States. For example, one paper from 2017 found that despite the fact that refugees and asylees provide net fiscal benefits in the long run, they were much poorer and had much lower employment compared to native residents when they first entered the country. This means that in the short run, they likely rely more heavily on social services.

It is impractical to expect refugees and asylees to immediately find their footing after moving to the United States, but if something could be done to make that transition smoother, then we might expect them to have an even greater positive fiscal impact.

This research highlights the fact that refugees and asylees can provide financial value to the public sectors of communities they enter. While we still don’t understand the total impacts these people have, this study at least gives us a valuable piece of the puzzle.

High-quality child care is key to improving tomorrow’s workforce in Ohio

In a recent Cleveland.com article, Jeremy Pelzer reported that the Ohio Chamber of Commerce has been expressing public concerns about Ohio’s child care market.

The general argument being made by Steve Stivers, president and CEO of the Ohio Chamber of Commerce, is that workers need child care options if they want to go to work. If child care options are too expensive or not readily available, potential workers will opt out of the workforce.

This will reduce Ohio’s labor force participation rate, which will drive up costs for labor and will run Ohio companies out of business.

This reasoning is sound and reflects an immediate problem for Ohio businesses. If workers cannot afford child care, they will opt to care for children on their own rather than pay the cost of child care.

Workforce participation of the parents is not the only economic impact of lack of child care, however. A potentially larger long-term economic impact comes from how lack of quality child care will affect the workforce trajectory of the kids themselves.

In his book on the topic, “Investing in Kids,“ Economic Development Economist Timothy Bartik tackles this question. 

Bartik started his career as an economist focused on economic development incentives. Tax incentives for economic development are maligned by economists as a “race to the bottom” public policy tool that pits localities against one another and leaves them all worse off.

Bartik’s interest was in whether economic development incentives made sense to local policymakers themselves. He created a model that helped explain what the impact of economic development incentives was on local wages.

What Bartik found was that well-designed economic development incentives that did things like invest in export-heavy industries through tools like local infrastructure development and workforce training could have a positive impact on local wages.

After doing this work, Bartik was approached by a foundation who asked him a new question: could early childhood education be an economic development tool? Could investing in kids today lead to better local wages decades down the line?

Bartik tackled the question and found the answer is yes, investing in early childhood education today is investing in tomorrow’s local workforce. He found that not only was investing in early childhood education a good way to improve wages down the line, but that the gains realized by early childhood education were comparable to the gains realized by well-designed economic development incentives.

Also important about Bartik’s analysis is that he found these benefits accrued to local wages. So this means that even after accounting for the fact that many children will eventually move away from the place where they received their early education, localities will still end up with better wages down the road that more than pay for the up-front cost of providing early education for children in the first place.

According to the best evidence we have today, improving access to high-quality child care and early education is not just a key part of supporting today’s workforce. It’s also an effective policy lever for improving tomorrow’s.

This commentary first appeared in the Ohio Capital Journal.

What does anti-poverty policy look like in a post-COVID world?

One thing I’ve noticed in conversations I have with people working in nonprofit and public finance is a growing nervousness around the coming expiration of ARPA funds.

According to a blog post from the Economic Policy Institute last month, 2024 is the last opportunity for state and local governments to make spending decisions on ARPA funds. State governments have only decided how to spend about $140 billion of the $200 billion allocated to them while local governments have only decided how to spend $59 billion of the $100 billion allocated to them. This means about $100 billion in ARPA funds for state and local governments have not been decided on yet.

Even if all these funds are allocated, they will run out in 2026. This is temporary state and local support and any programs they fund will have to find new sources of funding or cease. Many schools are set to lose ARPA funding in September of this year.

COVID-19 was a unique time in our public policy history. Policymakers responded much more quickly than usual, putting aside political differences to rally behind emergency measures in a way that mirrored wartime unity. The package of allocations for state and local governments, cash transfers to taxpayers, and expansion of programs like SNAP and school lunches represented a general acceptance among policymakers that the public sector needed to support individuals because there was an external threat, no fault of their own, that they needed protection from.

The strange thing about this assessment is that this is the problem of poverty every day of every year. Very few people choose poverty the same way they choose what to wear in the morning. Poverty chooses them.

One of the problems with how policymakers approach poverty is that it is often treated as some sort of cosmic justice for people’s decisions in the past. The hesitancy policymakers have to even address child poverty suggests this goes beyond a belief that is rooted in empirical evidence or some idea of who deserves what. It reflects a belief that there is something metaphysical that levies poverty on these children. Either that, or that child poverty is somehow justice for parents who make poor decisions.

We at Scioto Analysis are here to dispel this myth. No one deserves poverty. And a strong social safety net that catches people when they are about to fall into it creates safety that lets people climb the tightrope and take risks that lead to innovation. A landmark 2018 study found someone in the richest 1 percent of the country was ten times more likely to be an inventor than someone in the poorest 50 percent of the country. This is because people in the richest 1 percent have a safety net not available to the bottom 50 percent–family support.

With the unity of the COVID-19 pandemic long gone now, old notions of desert of poverty are back in vogue. But poverty continues to cause problems for people in poverty and people not in it alike. Are policymakers willing to confront this problem or will they push their heads deeper in the sand?

How have SNAP benefits evolved in Ohio?

In November of last year, Brookings published a report comparing state social safety nets. One of the most significant parts of safety nets in the states is the Supplemental Nutrition Assistance Program, otherwise known as SNAP  and formerly known as “food stamps”.

SNAP is an extremely important anti-poverty program. The Census Bureau estimates that nationwide, 3.7 million people are lifted out of poverty as a result of these benefits. This makes it the third largest anti-poverty program in the United States, behind only Social Security and refundable tax credits like the Earned Income Tax Credit.

Below are two charts. The first shows the number of Ohioans that received SNAP benefits in each month since January 2007, and the second shows the average amount of benefits each person received in dollars. All data below comes from the Ohio Department of Job and Family Services.

These two graphs highlight how the SNAP benefits changed during the Great Recession and during the COVID-19 pandemic. During both downturns, SNAP benefits increased in Ohio, but the nature of these downturns highlights some important differences. 

One difference between the Great Recession and the COVID-19 pandemic is that in 2008, there was a large increase in the number of people receiving benefits, while in 2020 there was a massive spike in the size of those benefits. During both events, the number of people and the value of the benefits increased, but there is a clear difference in the magnitude of each change.

This is because of how the Federal Government chose to respond to these different crises. In 2009, the Obama administration passed the American Recovery and Reinvestment Act which provided funding for infrastructure, healthcare, and education. The goal of this was to get the economy back on track after the financial markets collapsed.

In 2020, one of the steps the Trump administration took early on to address the pandemic was the passing of the Families First Coronavirus Response act, which among other things allowed states to increase the amount of money families received substantially. This resulted in the total amount of SNAP benefits issued in Ohio to more than double from $169 million to $387 million, while the total number of recipients only increased from 1.3 million people to 1.6 million people.

The difference between these two downturns was that in 2008, the financial sector failed from within. In 2020, there was a major outside force that caused all of the damage. The response from the Obama administration reflects the fact that fundamental change was needed in order to get back on track. Extreme emergency spending would have been helpful, but it would not have addressed the long term issues that plagued the economy. 

When the pandemic began in 2020, there wasn’t the same type of major structural flaw in the economy. Certainly the pandemic exposed every flaw that it could find, but at the time it was not unreasonable to think that with a large enough band-aid type fix could solve the immediate problems until a vaccine brough the pandemic to a close. This is the same time that officials were issuing lockdowns that were only supposed to last a few weeks. 

What is interesting about the expansion of benefits during the COVID-19 pandemic is that they were extremely successful at abating poverty, even after the vaccine was developed and case counts began to fall. Unfortunately, programs like the expanded SNAP allotments and the expanded Child Tax Credit are starting to phase out. 

At the end of 2024, local governments will run out of time to use the last of their American Rescue Plan Act funding. This means local policymakers are on the clock to try and find ways to use this money wisely. If it gets used ineffectively, then people who have come to rely on increased assistance in the face of rising prices are going to get left behind. Hopefully this last bit of stimulus can be used to create long-lasting change. 

What does sustainable economic development look like?

The rising cost of housing and rent has emerged as a defining public policy problem of the 2020s.

In response to the rapidly increasing price of housing, most experts in the housing sphere have pointed to the culprit: housing supply. High-demand metro areas are growing rapidly, but housing supply has not caught up with that demand. When demand outstrips supply, guess what? Housing prices go up.

Why hasn’t housing supply kept up with demand? Experts in the housing sphere say it has a lot to do with local housing policy. Rigid zoning, policies that favor single-family housing, and a patchwork of housing support between public housing, rent controls, and federal vouchers have led to a system that has slowed housing growth to a spigot in many metropolitan areas while population has continued to grow.

Simply put: governments have been too rigid in telling people what kind of housing can be built where and have distorted the housing market.

Two Bloomberg stories caught my attention lately that showed policymakers putting their thumbs on the scale in local economic development in different ways.

One was about a trend in local governments subsidizing grocery stores to encourage them to stay open in “food deserts.” The idea here is that the local food market is not strong enough to support a grocery store, so the public sector should subsidize stores to reduce food insecurity.

Another was about local governments banning new car washes in their neighborhoods. Local citizens have felt overwhelmed by the number of car washes in their neighborhoods and have been working to use local control ordinances to reduce the opening of car washes in their neighborhoods.

I see both of these as examples of a similar phenomenon: local policymakers trying to shape the character of their neighborhood by encouraging or discouraging certain types of development.

There are a few problems that come with this approach.
First, corruption. The types of tools policymakers use for these sorts of interventions are easily abused by businesses. Subsidies are more likely to go to companies that are connected to policymakers. We saw this with the infamous HB6 scandal in Ohio. “Exemptions” from bans are more likely to go to companies that have the ins to advocate for them.

Second, efficiency. What if the most efficient intervention for one family to stave off food insecurity is to grow a community garden? What if the most efficient way for another is access to transportation to a part of town with more job opportunities? What if the most efficient intervention for another family is allowing them to take part in programs like SNAP-Ed? Subsidizing grocery stores does not help any of those families. A more efficient approach would be to give cash to families and allow them to decide what to spend them on, an approach showing positive results across the country and world.

Third, unintended consequences. What if a subsidized grocery store runs others out of town? What if a car wash banned from a neighborhood means fewer jobs for local residents? These are possible occurrences that come from trying to put pressure on local economic development that isn’t centered on improving the well-being of residents.

The experts say that the best way to keep housing prices low is to reduce barriers to development, not increase them. They also say the best way to reduce poverty is to give resources to families, not make decisions for them about what they do with those resources.