1
00:00:09,744 --> 00:00:11,160
FRANK ACKERMAN:
First about issues

2
00:00:11,160 --> 00:00:14,340
of cost benefit analysis,
if we're doing it,

3
00:00:14,340 --> 00:00:17,500
and then come back to
the issues that Lee

4
00:00:17,500 --> 00:00:20,394
outlined about what's wrong
with cost benefit analysis.

5
00:00:20,394 --> 00:00:21,810
Because whether
or not you believe

6
00:00:21,810 --> 00:00:24,930
something is wrong with it,
many decisions are made with it.

7
00:00:24,930 --> 00:00:30,690
So, well first of all, I'm
impressed at what everyone

8
00:00:30,690 --> 00:00:34,290
has done here and
particularly people

9
00:00:34,290 --> 00:00:37,890
doing this level of
presentation cold and level

10
00:00:37,890 --> 00:00:41,650
of impersonation of
participants in the debate

11
00:00:41,650 --> 00:00:46,160
is very impressive.

12
00:00:46,160 --> 00:00:48,330
You seem to have grasped
most of the things

13
00:00:48,330 --> 00:00:50,460
that I would end up talking
about in cost benefit

14
00:00:50,460 --> 00:00:53,610
analysis in an initial
discussion of it, so let

15
00:00:53,610 --> 00:00:58,920
me try to move on to some of
the more difficult or advanced

16
00:00:58,920 --> 00:01:03,420
issues that I think are
touched on indirectly.

17
00:01:03,420 --> 00:01:05,970
The first speaker
mentioned the willingness

18
00:01:05,970 --> 00:01:09,120
to pay or willingness to accept.

19
00:01:09,120 --> 00:01:12,410
This is a distinction that
sounds almost the same.

20
00:01:12,410 --> 00:01:15,090
They turn out to be extremely
different in practice.

21
00:01:15,090 --> 00:01:17,280
And economists who have
written about methods

22
00:01:17,280 --> 00:01:22,121
have pretty much come to
a consensus on willingness

23
00:01:22,121 --> 00:01:22,620
to pay.

24
00:01:22,620 --> 00:01:25,260
I'm not sure that
it's necessarily

25
00:01:25,260 --> 00:01:26,520
for that great reason.

26
00:01:26,520 --> 00:01:28,860
One of the things it said
is that people feel strongly

27
00:01:28,860 --> 00:01:31,410
about the environment, they
might have ridiculously high

28
00:01:31,410 --> 00:01:33,760
willingness to accept values
that they wouldn't accept

29
00:01:33,760 --> 00:01:36,270
damage unless you
offered them an absurdly

30
00:01:36,270 --> 00:01:37,630
large amount of money.

31
00:01:37,630 --> 00:01:42,360
But I mean, that might be
data rather than a problem

32
00:01:42,360 --> 00:01:45,190
in the analysis.

33
00:01:45,190 --> 00:01:50,940
Nonetheless, the practice has
settled on willingness to pay.

34
00:01:50,940 --> 00:01:52,710
I think there's a
question about what

35
00:01:52,710 --> 00:01:57,570
do the numbers mean if the
costs and benefits are not

36
00:01:57,570 --> 00:01:59,100
comparably monetized.

37
00:01:59,100 --> 00:02:02,730
I think lurking behind
the whole discussion

38
00:02:02,730 --> 00:02:05,040
is the assumption
that the cost benefit

39
00:02:05,040 --> 00:02:08,570
results are meaningful because
they are comparably complete.

40
00:02:08,570 --> 00:02:10,679
And that if they are
not comparably complete,

41
00:02:10,679 --> 00:02:13,681
if for instance, the
accounting of cost

42
00:02:13,681 --> 00:02:15,930
is much more complete than
the accounting of benefits,

43
00:02:15,930 --> 00:02:19,920
then you have at
best, a lower bound

44
00:02:19,920 --> 00:02:26,040
rather than a point estimate
of the exact right estimate.

45
00:02:26,040 --> 00:02:30,060
So, you know, that's
also essentially

46
00:02:30,060 --> 00:02:31,460
never recognized sometimes.

47
00:02:31,460 --> 00:02:34,290
There's a throwaway
qualification

48
00:02:34,290 --> 00:02:38,930
about what the unquantified
benefits might mean.

49
00:02:38,930 --> 00:02:42,020
The question about how economic
benefits of job creation

50
00:02:42,020 --> 00:02:45,650
are handled is a
separate puzzle.

51
00:02:45,650 --> 00:02:50,210
This depends on the
macroeconomic theories

52
00:02:50,210 --> 00:02:51,200
that one subscribes to.

53
00:02:51,200 --> 00:02:54,890
Cost benefit analysis is
sometimes, but not necessarily

54
00:02:54,890 --> 00:02:57,820
embedded in a
theory that assumes

55
00:02:57,820 --> 00:03:01,160
free markets reach a state
of employment more or less

56
00:03:01,160 --> 00:03:02,310
all the time.

57
00:03:02,310 --> 00:03:05,210
Computer generally equilibrium
models, which essentially

58
00:03:05,210 --> 00:03:09,860
conceal this assumption
behind waves of mathematics,

59
00:03:09,860 --> 00:03:13,190
but assume that
labor markets clear.

60
00:03:13,190 --> 00:03:14,495
Well, guess what?

61
00:03:14,495 --> 00:03:17,390
If labor markets clear,
you don't create net jobs

62
00:03:17,390 --> 00:03:20,560
by putting people to work.

63
00:03:20,560 --> 00:03:22,430
There are essentially
no policy makers

64
00:03:22,430 --> 00:03:25,660
in the country who actually
act as if they believe this.

65
00:03:25,660 --> 00:03:29,470
I mean, are we creating local
jobs is a central question

66
00:03:29,470 --> 00:03:31,790
for every policymaker.

67
00:03:31,790 --> 00:03:33,530
So in that sense,
the calculation

68
00:03:33,530 --> 00:03:36,470
is correct relative
to what people assume.

69
00:03:36,470 --> 00:03:41,528
But not necessarily correct
relative to the theories.

70
00:03:41,528 --> 00:03:47,200
The who should, the question
of is it worth doing this.

71
00:03:47,200 --> 00:03:49,850
You know, does cost benefit
analysis on its own terms show

72
00:03:49,850 --> 00:03:52,550
that it's worth
remediating versus what

73
00:03:52,550 --> 00:03:56,570
does it show about development
are, as I think people noted,

74
00:03:56,570 --> 00:03:58,400
are two separate questions.

75
00:03:58,400 --> 00:04:01,220
And what it showed,
you know, is it worth

76
00:04:01,220 --> 00:04:04,162
remediating is a question that
takes cost benefit analysis.

77
00:04:04,162 --> 00:04:05,870
What should be developed
there strikes me

78
00:04:05,870 --> 00:04:07,790
as probably a more
straightforward

79
00:04:07,790 --> 00:04:11,760
financial calculation
about development.

80
00:04:11,760 --> 00:04:13,610
Unless it has
environmental impacts

81
00:04:13,610 --> 00:04:15,040
we haven't talked about.

82
00:04:15,040 --> 00:04:19,540
Also the question
of who should, who

83
00:04:19,540 --> 00:04:23,200
should pay versus who benefits,
are again, separate questions.

84
00:04:23,200 --> 00:04:26,410
Cost benefit analysis
identifies, again

85
00:04:26,410 --> 00:04:30,160
in its own terms, is it worth
it for society to do it,

86
00:04:30,160 --> 00:04:31,670
not who should pay.

87
00:04:31,670 --> 00:04:34,150
Should the people who benefit
the most from development

88
00:04:34,150 --> 00:04:37,880
pay for it, is a policy question
about distribution of benefits.

89
00:04:37,880 --> 00:04:39,804
If you were building
low income housing,

90
00:04:39,804 --> 00:04:42,220
you would never suggest that
the people who benefited most

91
00:04:42,220 --> 00:04:44,530
from low income housing
should pay the cost.

92
00:04:44,530 --> 00:04:48,850
That's not the point
of low income housing.

93
00:04:48,850 --> 00:04:54,430
The discounting question I think
applies in particular to health

94
00:04:54,430 --> 00:04:56,860
costs, one of the
other debates--

95
00:04:56,860 --> 00:04:59,340
Which my co-author, Lisa
Heinzerling particularly

96
00:04:59,340 --> 00:05:02,530
has highlighted, is that
if you have diseases

97
00:05:02,530 --> 00:05:04,930
that have a long latency
period, as you might

98
00:05:04,930 --> 00:05:06,790
well in Superfund pollution.

99
00:05:06,790 --> 00:05:10,640
Things that will show up 20,
30, 40 years after exposure,

100
00:05:10,640 --> 00:05:13,630
do you discount them from the
time when the disease appears

101
00:05:13,630 --> 00:05:16,842
or from the time when the
risk, the exposure occurs?

102
00:05:16,842 --> 00:05:18,300
At a high discount
rate, this could

103
00:05:18,300 --> 00:05:20,020
make a very large difference.

104
00:05:20,020 --> 00:05:22,330
The government
practice has drifted

105
00:05:22,330 --> 00:05:25,010
toward the more conservative
approach of discounting

106
00:05:25,010 --> 00:05:26,260
from when the disease appears.

107
00:05:26,260 --> 00:05:29,200
But the discourse of
risk which is involved,

108
00:05:29,200 --> 00:05:32,070
seems to point to discounting
from the time when

109
00:05:32,070 --> 00:05:35,560
the exposure happened, which
makes them look much larger.

110
00:05:35,560 --> 00:05:37,620
LEE: Just expand on that,
because people I think

111
00:05:37,620 --> 00:05:40,622
were a little fuzzy about
discounting in the first place.

112
00:05:40,622 --> 00:05:42,080
AUDIENCE: I have
your slides if you

113
00:05:42,080 --> 00:05:45,220
want one of those particular
slides brought up,

114
00:05:45,220 --> 00:05:46,615
your discounting slides.

115
00:05:50,800 --> 00:05:53,570
FRANK ACKERMAN: Well, let
me try just saying it once.

116
00:05:53,570 --> 00:05:59,530
So discounting applies to cases
where the costs and benefits

117
00:05:59,530 --> 00:06:00,670
happen at different years.

118
00:06:00,670 --> 00:06:03,970
No one is indifferent between
whether costs or benefits

119
00:06:03,970 --> 00:06:07,750
happen now or 10 years from now.

120
00:06:07,750 --> 00:06:09,670
And so trying to
express everything

121
00:06:09,670 --> 00:06:12,250
as an equivalent present value,
the farther in the future

122
00:06:12,250 --> 00:06:17,960
it is, generally the less it
seems like it's worth today.

123
00:06:17,960 --> 00:06:21,400
So if costs and benefits
happen at very different times,

124
00:06:21,400 --> 00:06:25,390
as they do in many environmental
problems, the rate at which we

125
00:06:25,390 --> 00:06:26,490
discount the future.

126
00:06:26,490 --> 00:06:26,990
Right?

127
00:06:26,990 --> 00:06:30,880
We can all agree that getting
paid far in the future

128
00:06:30,880 --> 00:06:33,160
is worth less than getting
paid the same amount today.

129
00:06:33,160 --> 00:06:35,140
But how much less is it worth?

130
00:06:35,140 --> 00:06:38,120
What's the discount rate ?

131
00:06:38,120 --> 00:06:42,100
Brings up, that will
affect essentially,

132
00:06:42,100 --> 00:06:45,730
the trade-off between, the
price ratio between the future

133
00:06:45,730 --> 00:06:46,910
and the present.

134
00:06:46,910 --> 00:06:48,670
And so the more, the
higher the discount

135
00:06:48,670 --> 00:06:50,710
rate, the more
unfavorable that is.

136
00:06:50,710 --> 00:06:55,360
So one of the issues with the
kind of toxic health hazards

137
00:06:55,360 --> 00:06:57,820
that arise in this
scenario in particular,

138
00:06:57,820 --> 00:07:01,810
is that you can be
exposed to them today

139
00:07:01,810 --> 00:07:05,240
and you know, cancer is
famous for, many cancers have

140
00:07:05,240 --> 00:07:08,080
a very long latency
period before there's

141
00:07:08,080 --> 00:07:10,190
any detectable disease.

142
00:07:10,190 --> 00:07:13,150
But they come from exposures,
childhood exposures,

143
00:07:13,150 --> 00:07:16,510
exposures decades earlier.

144
00:07:16,510 --> 00:07:19,510
People have the, people who
immigrate internationally

145
00:07:19,510 --> 00:07:22,210
have the cancer patterns of
the country they lived in

146
00:07:22,210 --> 00:07:25,060
before they were 20 generally.

147
00:07:25,060 --> 00:07:27,270
So even cancers
occur late in life.

148
00:07:27,270 --> 00:07:30,040
So in that case, if you're
discounting the future

149
00:07:30,040 --> 00:07:34,510
at a big value, you're exposed
today, you show signs of cancer

150
00:07:34,510 --> 00:07:36,160
30 years from now.

151
00:07:36,160 --> 00:07:39,490
Should we treat that as a harm
that was done to you today

152
00:07:39,490 --> 00:07:40,630
when you were exposed?

153
00:07:40,630 --> 00:07:43,180
Or a harm that was done to
you 30 years from now when you

154
00:07:43,180 --> 00:07:45,350
had cancer?

155
00:07:45,350 --> 00:07:48,579
At a high enough discount rate,
those would be very different.

156
00:07:48,579 --> 00:07:51,453
AUDIENCE: For discounting,
does that only happen when you,

157
00:07:51,453 --> 00:07:53,848
when the costs and
benefits are only looked

158
00:07:53,848 --> 00:07:56,243
at for present day people?

159
00:07:56,243 --> 00:07:59,188
Like if you include future
people in your accounting,

160
00:07:59,188 --> 00:08:01,079
you no longer have discounting?

161
00:08:01,079 --> 00:08:01,870
FRANK ACKERMAN: No.

162
00:08:01,870 --> 00:08:03,640
Then you really
have discounting.

163
00:08:03,640 --> 00:08:05,950
Because there's no
way for future people

164
00:08:05,950 --> 00:08:07,640
to be at the table
and make decisions.

165
00:08:07,640 --> 00:08:12,610
So I mean the decisions are
being made by today's people.

166
00:08:12,610 --> 00:08:14,170
You don't know what
the future wants.

167
00:08:14,170 --> 00:08:17,830
You don't know what the future's
willingness to pay will be.

168
00:08:17,830 --> 00:08:19,770
So we're making
decisions about what we

169
00:08:19,770 --> 00:08:21,420
think those things are worth.

170
00:08:21,420 --> 00:08:26,260
And the farther in
the future they are,

171
00:08:26,260 --> 00:08:30,168
the more we discount
them at a positive rate.

172
00:08:30,168 --> 00:08:32,490
AUDIENCE: I don't know if we
have time to clarify this.

173
00:08:32,490 --> 00:08:34,222
I'm wondering why,
I think we can

174
00:08:34,222 --> 00:08:36,825
make a reasonable assumption
that for air pollution,

175
00:08:36,825 --> 00:08:38,806
how much it matters to us.

176
00:08:38,806 --> 00:08:42,409
The people in the future also
don't want air pollution.

177
00:08:42,409 --> 00:08:45,620
They relate to air pollution at
least similarly to us, right?

178
00:08:45,620 --> 00:08:48,480
There wouldn't be
discounting in that case?

179
00:08:48,480 --> 00:08:49,980
FRANK ACKERMAN:
Well, I mean, people

180
00:08:49,980 --> 00:08:51,396
who have thought
a lot about this,

181
00:08:51,396 --> 00:08:53,430
and again, Mark Sagoff,
who Lee mentioned,

182
00:08:53,430 --> 00:08:55,200
is a philosopher
who's looked at some

183
00:08:55,200 --> 00:08:57,060
of this, who essentially
concluded we're

184
00:08:57,060 --> 00:08:58,635
going to create the future.

185
00:08:58,635 --> 00:09:01,830
If we preserve wild nature
and act like we value it,

186
00:09:01,830 --> 00:09:04,380
we'll probably have
descendants who value that.

187
00:09:04,380 --> 00:09:08,460
If we create a world that's
all paved and has strip malls

188
00:09:08,460 --> 00:09:10,230
and excellent video
games, we'll probably

189
00:09:10,230 --> 00:09:13,530
create descendants
who value that.

190
00:09:13,530 --> 00:09:16,590
So it's like, there's
a circularity in that

191
00:09:16,590 --> 00:09:18,690
what we do today will
actually create the future's

192
00:09:18,690 --> 00:09:20,130
preferences.

193
00:09:20,130 --> 00:09:24,630
So there is no way actually to
do something from a hypothesis

194
00:09:24,630 --> 00:09:28,110
about what the future prefers,
because not only do they not

195
00:09:28,110 --> 00:09:31,596
exist yet, but we
will create them.

196
00:09:31,596 --> 00:09:34,190
LEE: We have two
minutes [INAUDIBLE]..

197
00:09:34,190 --> 00:09:35,850
FRANK ACKERMAN: Oh, my God.

198
00:09:39,530 --> 00:09:41,550
So what do you do
with this refusal

199
00:09:41,550 --> 00:09:44,885
of cost benefit analysis
for such excellent reasons

200
00:09:44,885 --> 00:09:48,390
as Lee outlines?

201
00:09:48,390 --> 00:09:51,030
You know, I think again,
separating in this story,

202
00:09:51,030 --> 00:09:53,460
separating the cleanup
from the development,

203
00:09:53,460 --> 00:09:57,570
there might be a stronger
case for the cleanup

204
00:09:57,570 --> 00:09:59,330
and a weaker one
for development--

205
00:09:59,330 --> 00:10:03,000
The more you're thinking about
these non-monetized values.

206
00:10:03,000 --> 00:10:05,310
I think that I've
come to the conclusion

207
00:10:05,310 --> 00:10:08,530
that despite the validity
of all those critiques

208
00:10:08,530 --> 00:10:10,770
and the importance of
saying them every time

209
00:10:10,770 --> 00:10:12,690
you get a chance, that if--

210
00:10:12,690 --> 00:10:14,940
You have more than six
minutes to talk about one

211
00:10:14,940 --> 00:10:17,220
of these things that
you have to then go

212
00:10:17,220 --> 00:10:21,390
on and say using the prevailing
values, what would you get.

213
00:10:21,390 --> 00:10:26,460
Try to avoid endorsing
them as a sign of,

214
00:10:26,460 --> 00:10:29,200
you know, yes, we think this
is the greatest idea ever,

215
00:10:29,200 --> 00:10:30,375
but saying--

216
00:10:30,375 --> 00:10:32,520
I've ended up
saying using values

217
00:10:32,520 --> 00:10:35,130
that have become conventional,
here's what you would conclude.

218
00:10:35,130 --> 00:10:37,752
So in this case,
$35 million damage

219
00:10:37,752 --> 00:10:39,210
is not very large
if you think it's

220
00:10:39,210 --> 00:10:40,620
going to kill a few people.

221
00:10:40,620 --> 00:10:44,210
Because values of life in
the $6 to $8 million range

222
00:10:44,210 --> 00:10:46,265
have become conventional.

223
00:10:46,265 --> 00:10:47,640
If we had more
time, I could tell

224
00:10:47,640 --> 00:10:51,530
you how absurd the basis for the
$6 to $8 million per life is,

225
00:10:51,530 --> 00:10:53,170
and the paradoxes
that come from that.

226
00:10:53,170 --> 00:10:58,860
But given that that has become
semi standard in the policy

227
00:10:58,860 --> 00:11:05,280
discourse, a policy that saves
a few lives predicatively

228
00:11:05,280 --> 00:11:08,970
is clearly worth $35
million to society

229
00:11:08,970 --> 00:11:10,840
in conventional
cost benefit terms.

230
00:11:10,840 --> 00:11:15,630
So that things that
kind of hold your nose

231
00:11:15,630 --> 00:11:18,480
and go with the lesser evil,
which American politics is

232
00:11:18,480 --> 00:11:21,290
so full of, occurs here too.

233
00:11:21,290 --> 00:11:24,270
LEE: Would that last
sentence, in a sense,

234
00:11:24,270 --> 00:11:27,480
be adequate to just
say to the governor,

235
00:11:27,480 --> 00:11:31,790
I think you don't need to spend
money on an elaborate analysis,

236
00:11:31,790 --> 00:11:35,710
even using the prevailing values
of $6 to $7 million per person.

237
00:11:35,710 --> 00:11:39,180
We undoubtedly would
save six or seven lives.

238
00:11:39,180 --> 00:11:42,940
Maybe 60 or 70, maybe 600 or
700 in the course of this.

239
00:11:42,940 --> 00:11:46,084
So we don't even need
to any further analysis.

240
00:11:46,084 --> 00:11:47,625
FRANK ACKERMAN: I
think that's right.

241
00:11:47,625 --> 00:11:51,150
If it's clear that it
saves a lot of lives,

242
00:11:51,150 --> 00:11:54,176
and air pollution
often kills people.

243
00:11:54,176 --> 00:11:55,800
So the things that
reduce air pollution

244
00:11:55,800 --> 00:11:58,830
are particularly
successful in this.

245
00:11:58,830 --> 00:12:00,750
There are a handful
of these values

246
00:12:00,750 --> 00:12:02,220
that have become standard.

247
00:12:02,220 --> 00:12:04,950
There's been an argument
that you shouldn't

248
00:12:04,950 --> 00:12:09,420
allow other values, there's
been a very partisan discourse

249
00:12:09,420 --> 00:12:10,830
about which values are allowed.

250
00:12:10,830 --> 00:12:13,440
But the handful of values
which have been allowed,

251
00:12:13,440 --> 00:12:17,410
create strong arguments
for some policies.

252
00:12:17,410 --> 00:12:19,230
Superfund one's
actually are trickier

253
00:12:19,230 --> 00:12:21,940
to demonstrate the number of
deaths than air pollution.

254
00:12:21,940 --> 00:12:24,373
Air pollution so
clearly kills people

255
00:12:24,373 --> 00:12:26,706
that it just doesn't have a
chance in these cost benefit

256
00:12:26,706 --> 00:12:28,895
settings.

257
00:12:28,895 --> 00:12:30,770
LEE: We will stop out
of respect for the fact

258
00:12:30,770 --> 00:12:32,700
that you have to
study more economics.

259
00:12:32,700 --> 00:12:35,770
Frank, thank you so much.

260
00:12:35,770 --> 00:12:39,120
[APPLAUSE]