tag:theconversation.com,2011:/africa/topics/cost-benefit-analysis-11815/articlesCost benefit analysis – The Conversation2023-07-02T20:02:18Ztag:theconversation.com,2011:article/2055712023-07-02T20:02:18Z2023-07-02T20:02:18ZThe Murray-Darling Basin shows why the ‘social cost of water’ concept won’t work<figure><img src="https://images.theconversation.com/files/533850/original/file-20230625-98671-sa646o.jpeg?ixlib=rb-1.1.0&rect=31%2C3%2C2066%2C1394&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source"> Kate McBride</span></span></figcaption></figure><p>Access to safe, clean water is a basic <a href="https://www.unwater.org/water-facts/human-rights-water-and-sanitation">human right</a>. But water scarcity or barriers to access can cause conflict within and between countries. </p>
<p>Fights over water can be expected to <a href="https://www.un.org/en/climatechange/science/climate-issues/water">intensify as the world warms</a>, evaporation increases and rainfall becomes less predictable. So we’ll need to work even harder to resolve disputes and share this precious resource. </p>
<p>Earlier this year, for the first time in almost half a century, the <a href="https://www.unwater.org/news/un-2023-water-conference">United Nations held a conference squarely focused on water</a>. Thousands of water experts gathered in New York for three days in March, to chart a way forward. </p>
<p>We were among the delegates. Since then, we have discussed and debated ideas that surfaced at this international meeting. Some were worthwhile, but others were wrong. In particular, we challenge the concept of a global “social cost of water”. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/532807/original/file-20230620-46525-4a5amn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Infographic outlining the UN 2023 Water Conference vision statement" src="https://images.theconversation.com/files/532807/original/file-20230620-46525-4a5amn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/532807/original/file-20230620-46525-4a5amn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/532807/original/file-20230620-46525-4a5amn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/532807/original/file-20230620-46525-4a5amn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/532807/original/file-20230620-46525-4a5amn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/532807/original/file-20230620-46525-4a5amn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/532807/original/file-20230620-46525-4a5amn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Picturing The UN 2023 Water Conference vision.</span>
<span class="attribution"><a class="source" href="https://www.unwater.org/news/un-2023-water-conference">UN 2023 Water Conference</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/were-ignoring-the-value-of-water-and-that-means-were-devaluing-it-207936">We're ignoring the value of water – and that means we're devaluing it</a>
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<h2>What is a global social cost of water?</h2>
<p>One of the big ideas that came up at the conference was the need for a “new economics of water as a common good”, which includes the “social cost of water”. </p>
<p>Elaborating on his idea <a href="https://www.nature.com/articles/d41586-023-00800-z">in the journal Nature</a>, Swedish scientist Johan Rockström and colleagues wrote:</p>
<blockquote>
<p>[Researchers] must assess the ‘social cost of water’, akin to the ‘social cost of carbon’, which considers the costs to society of loss and damage caused by water extremes and not meeting the basic provision of water for human needs.</p>
</blockquote>
<p>The <a href="https://www.rff.org/publications/explainers/social-cost-carbon-101/">social cost of carbon</a> is an estimate, in dollars, of the economic damages that would result from emitting one additional tonne of carbon dioxide into the atmosphere. It’s a decision-making tool used by governments, especially in the United States, for cost-benefit analysis of climate policy. </p>
<p>The social cost of water concept proposes valuing all types of water, including water vapour in the atmosphere that later falls as rain. This means attempting to put a dollar value on moisture flowing across borders, and implicitly creating world water markets. According to this logic, if <a href="https://www.nature.com/articles/d41586-023-00800-z">most of Nigeria’s rain</a> comes from forests in central Africa, then Nigeria should be prepared to pay central African nations to maintain the source of this moisture generation. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1638209350463541248"}"></div></p>
<p>But we believe the concept of a global social cost of water is fundamentally flawed, as we explained in our <a href="https://www.nature.com/articles/d41586-023-01564-2/">correspondence in Nature</a> in May, alongside <a href="https://www.nature.com/articles/d41586-023-01563-3">others</a> who also questioned its logic and purpose. Further correspondence in June also described calls to govern water on a global scale as “<a href="https://www.nature.com/articles/d41586-023-01924-y">unrealistic</a>” and distracting from sustainable and equitable access. </p>
<p>It’s unclear how a global social cost of water would work in practice. Writing as economists who have studied local water markets for decades, we see many problems with the concept, such as: </p>
<ul>
<li><p>how water moisture volumes would be estimated reliably and regularly</p></li>
<li><p>how a dollar value could be reliably associated with water moisture flows across borders</p></li>
<li><p>how payments would be enforced between countries, and by what institutions</p></li>
<li><p>whether the money paid between countries would actually improve water security</p></li>
<li><p>what would happen when moisture flows across borders lead to floods with loss of human lives – would the downwind country receive compensation for water disasters as well as droughts? </p></li>
</ul>
<p>Australia has the most sophisticated water markets in the world, in the Murray-Darling Basin. But even here there are <a href="https://academic.oup.com/oxrep/article-abstract/36/1/132/5696682">considerable differences in how markets work</a>. Water values and costs are also very different.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-is-the-social-cost-of-carbon-2-energy-experts-explain-176255">What is the ‘social cost of carbon’? 2 energy experts explain</a>
</strong>
</em>
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<figure class="align-center ">
<img alt="A man looks out of the second-storey window of his flooded shack at Scott’s Creek, Morgan." src="https://images.theconversation.com/files/534965/original/file-20230630-23-ziw4ih.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/534965/original/file-20230630-23-ziw4ih.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/534965/original/file-20230630-23-ziw4ih.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/534965/original/file-20230630-23-ziw4ih.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/534965/original/file-20230630-23-ziw4ih.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/534965/original/file-20230630-23-ziw4ih.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/534965/original/file-20230630-23-ziw4ih.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">In December, 2022, the swollen Murray River flooded homes in South Australia. The floodwater reached the second floor of Darren Davey’s shack at Scott’s Creek, Morgan.</span>
<span class="attribution"><a class="source" href="https://photos.aap.com.au/search/murray%20flood?q=%7B%22pageSize%22:25,%22pageNumber%22:2%7D">MATT TURNER, AAP</a></span>
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<h2>Australia’s Murray-Darling Basin: a case in point</h2>
<p>The value of water in the Basin consists of benefits and costs. Some benefits include:</p>
<ul>
<li><p>direct use of water to grow crops or irrigate pasture</p></li>
<li><p>recreational use such as boating and water sports</p></li>
<li><p>indirect use including the benefits to health and wellbeing from living alongside a natural water body</p></li>
<li><p>future use values, knowing there is sufficient water to sustain healthy ecosystems and rivers in years to come</p></li>
<li><p>future generational, existence and cultural values such as non-use values associated with the ancient <a href="https://www.theguardian.com/australia-news/2015/jul/10/fish-traps-brewarrina-extraordinary-ancient-structures-protection">Brewarrina fish traps</a>. </p></li>
</ul>
<p>Costs include harm to mental health associated with a lack of water during drought. At the other extreme, there’s the cost of too much water causing floods, property damage and loss of life, or salinity harming viticulture in the Riverland. </p>
<p>This shows the social value of water is incredibly difficult to measure even within one area such as the Basin, let alone trying to enforce a global water market.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/water-buybacks-are-back-on-the-table-in-the-murray-darling-basin-heres-a-refresher-on-how-they-work-200529">Water buybacks are back on the table in the Murray-Darling Basin. Here's a refresher on how they work</a>
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</em>
</p>
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<h2>What should instead happen next?</h2>
<p><a href="https://www.nature.com/articles/d41586-023-01564-2">We think the best way</a> to address the water crisis is to focus on local management and institutions, plan carefully and implement a wide range of policies. These include: </p>
<ul>
<li><p>using economic methods and tools to assess and implement local water policies where feasible</p></li>
<li><p>removing subsidies that incentivise water exploitation</p></li>
<li><p>establishing sustainable extraction limits</p></li>
<li><p>strengthening water institutions to allow measurement, monitoring and enforcement of water use</p></li>
<li><p><a href="https://reliefweb.int/report/world/what-why-and-how-world-water-crisis-global-commission-economics-water-phase-1-review-and-findings">promoting water justice and sharing</a>. </p></li>
</ul>
<p>This is a big task. Misdirection down blind alleys is a distraction that the world cannot afford.</p>
<iframe style="border-radius:12px" src="https://open.spotify.com/embed/episode/42TLwJwAxQ8uE0bYuZNufh?utm_source=generator" width="100%" height="152" frameborder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe><img src="https://counter.theconversation.com/content/205571/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sarah Ann Wheeler has received funding from the Australian Research Council; GRDC; Wine Australia; MDBA; CRC Food Waste; CSIRO; Goyder Institute; SA Department of Environment and Water; ACCC; NT Department of Environment, Parks and Water Security; NSW Health; Commonwealth Department of Agriculture and Water; Meat and Livestock Australia; ACIAR; RIRDC; UNECE; NCCARF; National Water Commission; and the Government of Netherlands.</span></em></p><p class="fine-print"><em><span>The International Food Policy Research Institute, where Claudia Ringler works, receives funding from a considerable number of donors; none of which is linked to this piece. Claudia Ringler is a member of the International Advisory Committee (IAC) of UNU-INWEH.</span></em></p>After almost half a century, the United Nations has waded back into the murky world of water policy. But one of the ideas following this year’s international meeting has been shot down.Sarah Ann Wheeler, Professor in Water Economics, University of AdelaideClaudia Ringler, Deputy Director, Environment and Production Technology Division, International Food Policy Research Institute (IFPRI) Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1986382023-01-27T15:45:37Z2023-01-27T15:45:37ZThe ‘levelling up’ bidding process wastes time and money – here’s how to improve it<p>The UK government recently <a href="https://www.gov.uk/government/publications/levelling-up-fund-round-2-successful-bidders">announced</a> the results of the second round of successful bids for for its £4.8 billion Levelling Up Fund. This money is provided to local governments with the ambitious (but pretty unspecific) aim of “<a href="https://levellingup.campaign.gov.uk/">creating opportunities for everyone</a>” by addressing economic and social imbalances across the UK. </p>
<p>Winning projects have received as much as £50 million. In this round, the money will be used for ventures including building <a href="https://www.edenproject.com/media-relations/morecambes-eden-project-north-granted-planning-permission">Eden Project North</a> on Morecambe’s seafront and improving railway infrastructure across the UK. Smaller grants will go to projects involving electric buses, theatre and castle renovations, and new leisure centres and affordable housing. </p>
<p>All of the applicants – whether they won funding or not – have one thing in common: they all participated in a competitive bidding process. And while most bids for funding were not selected (out of 529 applications, only 111 will receive levelling up money in this round), they all represent hundreds of hours of work by <a href="https://www.local.gov.uk/case-studies/implementing-external-funding-strategy">in-house specialists</a> in local government, and sometimes paid external consultants as well.</p>
<p>Which is why it’s all the more disappointing for the losing bids. The almost 80% of local councils who were rejected not only lost a project in which they believed, but also the time, money and energy spent preparing the bid. </p>
<p>Now there will be no multifunctional square <a href="https://www.wigantoday.net/news/politics/disappointment-for-wigans-failed-bids-despite-ps20m-success-for-levelling-up-cash-3994196">in Wigan</a>, and Bradford can forget about its <a href="https://www.thetelegraphandargus.co.uk/news/23262611.reaction-4-bradford-schemes-fail-attract-levelling-fund-cash/">advanced robotics centre</a>. Well, for now anyway. Local councils will get <a href="https://www.gov.uk/government/news/landmark-levelling-up-fund-to-spark-transformational-change-across-the-uk">another chance</a> to invest their time and money all over again, when they prepare bids for the next round of levelling up funding (at an as-yet unspecified date). </p>
<p>But research shows that there are ways to make the process more efficient and effective the next time around.</p>
<h2>The levelling up beauty contest</h2>
<p>So-called “beauty contests” – as the process for winning such funding is often described – are ubiquitous in UK local government funding. Around a third of the more than 450 grant schemes <a href="https://www.local.gov.uk/sites/default/files/documents/Fragmented%20Funding_final.pdf">identified by the Local Government Association</a> involve competitive bidding.</p>
<p>The cost of preparing a typical application is estimated to be <a href="https://www.localis.org.uk/wp-content/uploads/2014/07/loc_competitivebidding.pdf">between £20,000 and £30,000</a>. This is a lot of money at any time, but particularly as many local councils are experiencing <a href="https://www.ft.com/content/562bdd76-f242-47e6-9deb-a3beeaebe732">unprecedented budget cuts</a>. </p>
<figure class="align-center ">
<img alt="Prize Winning Award for Winner of Miss Beauty Queen Pageant Contest is Sash, Diamond Crown, studio lighting abstract dark draping textile background" src="https://images.theconversation.com/files/506803/original/file-20230127-3249-9lnq48.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/506803/original/file-20230127-3249-9lnq48.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=286&fit=crop&dpr=1 600w, https://images.theconversation.com/files/506803/original/file-20230127-3249-9lnq48.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=286&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/506803/original/file-20230127-3249-9lnq48.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=286&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/506803/original/file-20230127-3249-9lnq48.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=360&fit=crop&dpr=1 754w, https://images.theconversation.com/files/506803/original/file-20230127-3249-9lnq48.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=360&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/506803/original/file-20230127-3249-9lnq48.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=360&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">When projects compete for funding, it’s often referred to as a ‘beauty contest’.</span>
<span class="attribution"><span class="source">Jade ThaiCatwalk/Shutterstock</span></span>
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</figure>
<p>According to the <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1091240/Round_2_LUF_Applicant_Guidance_20220706.pdf">52 pages of official guidance</a> for the Levelling Up Fund, bidders had to explain how they would divide the requested amount into the three investment themes of the fund and their sub-categories. They had to provide explanations of why their project aligns with existing central government strategies and the various missions of the <a href="https://www.gov.uk/government/publications/levelling-up-the-united-kingdom">Levelling Up white paper</a>. They also had to answer dozens of specific questions about the project, and complete a cost-benefit analysis over the lifetime of the investment. </p>
<p>But that’s not all. The bids then have to be read and evaluated by civil servants before going through <a href="https://www.gov.uk/guidance/levelling-up-fund-round-2-explanatory-note-on-the-assessment-and-decision-making-process">several more rounds of ranking and tweaking</a> by senior politicians, (<a href="https://onlinelibrary.wiley.com/doi/full/10.1111/1467-923X.12970">who may well have their own objectives</a>).</p>
<h2>Weighing up the costs and benefits</h2>
<p>Asking for detailed business cases helps rationalise decision-making during these kinds of processes. Beyond the basic financial evaluation, a <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1126348/TAG_Unit_A1.1_-_Cost_Benefit_Analysis_Nov_2022_Accessible_v1.0.pdf.pdf">cost-benefit analysis</a> aims to measure the broader economic value of each project. </p>
<p>Winning project Eden North in Morecambe <a href="https://www.lancaster.gov.uk/news/2022/aug/eden-project-north-levelling-up-fund-bid-for-50m-submitted-to-government">claims</a>, for instance, that it will indirectly lead to more than 1,000 new jobs in a deprived region by attracting 740,000 visitors a year.</p>
<p>Indirect benefits are often non-monetary. Public transport projects typically have to put a value on <a href="https://www.sciencedirect.com/science/article/pii/S0967070X09000808?casa_token=OxtrGX7I1kIAAAAA:uUz0L3Og4rbTO5GyY-vXWr2IkcRHWDGNY-rMezf-v0QKnnFryXuVt1jiaIMCXTTnoNGzF3I">estimated decreases in transportation times</a>, <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/221088/pb12637-icgb.pdf">air pollution</a>, and <a href="https://road-safety.transport.ec.europa.eu/system/files/2021-07/cost_benefit_analysis.pdf">road injuries</a>, for example.</p>
<p>But <a href="https://journals.sagepub.com/doi/abs/10.1177/109114210203000204">comparing different cost-benefit analyses</a> can mean ranking the <a href="https://www.gov.uk/government/publications/valuation-of-risks-to-life-and-health-monetary-value-of-a-life-year-voly">value of a human life</a> versus that of a rare bird, for example, or even <a href="https://www.pnas.org/doi/10.1073/pnas.1315987111">present costs versus future benefits</a>.</p>
<p>So while useful, such assessments are often not very precise when comparing things as different as a railway upgrade in Cornwall with a city centre regeneration project in Yorkshire. Research also shows these tools often select <a href="https://academic.oup.com/oxrep/article/25/3/344/424009">the kinds of projects most likely to see cost overruns</a>. And drawing conclusions about small differences between generally “good” projects in this way can be pretty meaningless. </p>
<p>Unfortunately, creating precise but meaningless rankings often happens when resources are scarce. Prospective students craft their best <a href="https://www.hepi.ac.uk/2022/11/24/ucas-personal-statements-create-inequality-and-should-be-replaced-by-short-response-questions/">personal statements</a> to get into their dream schools, and researchers submit lengthy proposals to access <a href="https://www.pnas.org/doi/full/10.1073/pnas.1714379115">increasingly competitive</a> grant money. But research shows these review processes are <a href="https://www.pnas.org/doi/abs/10.1073/pnas.1714379115">often no better than random</a>, and unable to <a href="https://www.bmj.com/content/343/bmj.D4797.abstract">consistently rank</a> good projects.</p>
<figure class="align-center ">
<img alt="Miniature people: businessman standing on wooden podium with dollar bank note blur background" src="https://images.theconversation.com/files/506798/original/file-20230127-19-z16p88.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/506798/original/file-20230127-19-z16p88.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/506798/original/file-20230127-19-z16p88.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/506798/original/file-20230127-19-z16p88.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/506798/original/file-20230127-19-z16p88.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/506798/original/file-20230127-19-z16p88.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/506798/original/file-20230127-19-z16p88.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">We need new ways to rank projects bidding for funding.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/miniature-people-businessman-standing-on-wooden-741625378">feeling lucky/Shutterstock</a></span>
</figcaption>
</figure>
<h2>A new way to rank</h2>
<p>So why do we keep on ranking the unrankable? Streamlining bidding processes could save time and money by eliminating the bad projects, financing the outstanding ideas, and allocating the rest of the money randomly among the good ones. </p>
<p>However, experimental evidence shows this would be difficult in practice: <a href="https://academic.oup.com/qje/article/136/4/2195/6354797">bureaucrats</a> and politicians like to <a href="https://www.aeaweb.org/articles?id=10.1257/mic.6.4.138">be in control</a>, even if the outcome is as good as random. Humans also <a href="https://psycnet.apa.org/record/1988-20051-001">like to interpret</a> success as the result of hard work and not some sort of lottery.</p>
<p>In a <a href="https://ideas.repec.org/p/lan/wpaper/344119591.html">recent large-scale experiment</a>, I worked with <a href="https://bouacida.fr/">Elias Bouacida</a>, an assistant professor at <a href="https://www.univ-paris8.fr/en/">Paris 8 University</a>, on research which found that when given the choice, most individuals prefer to see their fate decided by a procedure that looks reasonable than by a lottery – even if they are aware that both are equally unpredictable.</p>
<p>A simple alternative – one that would be much more beneficial in terms of money and time saved on the bidding process – would be to replace competitive bidding with an allocation formula that assigns pots of money to <a href="https://www.ft.com/content/414e1f83-4d81-46f1-9f8a-84aa4a4aaa57?emailId=43ff94af-25c5-4e8e-95de-b1e7570d83ca&segmentId=2f40f9e8-c8d5-af4c-ecdd-78ad0b93926b">local governments, letting them choose</a> their own projects. </p>
<p>We could also offer fewer types of grant and allow applications to be re-used. Reducing application forms to a short cost-benefit analysis would help with this. And then applicants would simply need to trust in the imperfect outcome of a short but independent assessment by civil servants.</p>
<p>This would embrace the randomness of the outcomes, the current governmental preference for centralisation, and the human preference for the appearance of a reasonable process.</p><img src="https://counter.theconversation.com/content/198638/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Renaud Foucart works for Lancaster University, a partner of Eden Project North in Morecambe.</span></em></p>Preparing a bid for such funding can cost project hopefuls up to £30,000.Renaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1716512021-11-15T18:32:52Z2021-11-15T18:32:52ZGot $1.2T to invest in roads and other infrastructure? Here’s how to figure out how to spend it wisely<figure><img src="https://images.theconversation.com/files/431755/original/file-20211112-15225-1ya3u2g.jpg?ixlib=rb-1.1.0&rect=458%2C188%2C5005%2C3448&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A collapsed bridge in Atlanta in 2017 backed up traffic for a month.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/OverpassCollapseFire/d398f5f0405b4ed8b2fc406ed30fade5/photo?Query=atlanta%20bridge%20collapse&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=75&currentItemNo=0">AP Photo/David Goldman</a></span></figcaption></figure><p>The American economy is underpinned by networks. </p>
<p>Road networks carry traffic and freight; the internet and telecommunications networks carry our voices and digital information; the electricity grid is a network carrying energy; financial networks transfer money from bank accounts to merchants. These networks are vast, often global systems – but a local disruption can really block them up. </p>
<p>For example, <a href="http://www.wsbtv.com/news/local/atlanta/gdot-state-offering-31m-in-incentives-to-reopen-i-85-before-june/511832846">the I-85 bridge collapse in Atlanta in 2017</a> snarled that city’s traffic for months. In 2019, <a href="https://www.forbes.com/sites/niallmccarthy/2019/04/03/report-the-u-s-has-over-47000-structurally-deficient-bridges-infographic/?sh=341754a44bdc">a concrete beam fell from a bridge</a> in Chattanooga, Tennessee, resulting in traffic shutdown on one of the nation’s busiest interstate intersections. And in 2021, <a href="https://www.cnn.com/2021/09/02/us/ida-train-stranded-ny-nj/index.html">Hurricane Ida crippled mass transit in New York City</a>, with flash floods overcoming subway lines and trapping people overnight on trains.</p>
<p>As the U.S. government <a href="https://www.reuters.com/world/us/whats-bipartisan-us-1-trillion-infrastructure-bill-2021-10-01/">prepares to spend over $1 trillion on infrastructure projects</a> over the next 10 years, it will be vital to identify which elements are the most crucial to repair or improve. This is important not only for maximizing benefits; it’s also useful in preventing disaster. </p>
<p>Is there, perhaps, a telecommunication line whose destruction would be particularly damaging? Or one road through an area that has an especially large role in keeping traffic flowing smoothly?</p>
<p><a href="http://greatvalley.psu.edu/person/qiang-patrick-qiang">Patrick Qiang</a> <a href="https://scholar.google.com/citations?user=ecFsBp0AAAAJ&hl=en&oi=ao">and I</a> are operations management scholars who have developed <a href="http://dx.doi.org/10.1007/s10898-007-9198-1">a way to evaluate network performance</a> and simulate the effects of potential changes, whether planned – like a highway repair – or unexpected – like a natural disaster. </p>
<p>By modeling the independent behavior of all the users of a network, we can calculate the flow – of <a href="http://dx.doi.org/10.1007/s10898-015-0371-7">freight</a>, <a href="https://dx.doi.org/10.1209/0295-5075/79/38005">commuters</a>, <a href="http://dx.doi.org/10.1007/978-3-540-77958-2_14">money</a> or anything else – across each link, and how other links’ flows will change. This lets us identify where investment will be most beneficial, and which projects shouldn’t happen at all.</p>
<h2>More isn’t always better</h2>
<p>It’s very difficult to measure networks’ performance, in part because they are so complex, but also because people use them differently at different times, and because those choices affect others’ experiences. For example, one person choosing to drive to work instead of taking the bus puts one more car on the road, which might get involved in a crash or otherwise contribute to a traffic jam.</p>
<p>In 1968, German mathematician Dietrich Braess observed the possibility that adding a road to an area with congested traffic <a href="http://dx.doi.org/10.1287/trsc.1050.0127">could actually make things worse</a>, not better. <a href="https://supernet.isenberg.umass.edu/braess/braess-new.html">This paradox</a> can occur when travel times depend on the amount of traffic. If too many drivers decide their own optimal route involves one particular road, that road can become congested, slowing everyone’s travel time. In effect, the drivers would have been better off if the road hadn’t been built.</p>
<p>This phenomenon has been found not only <a href="https://supernet.isenberg.umass.edu/braess/braess-new.html#BraessArticle">in transportation networks</a> and <a href="http://dx.doi.org/10.1239/jap/1032374242">the internet</a>, but also <a href="https://doi.org/10.1209/0295-5075/115/28004">in electrical circuits</a>. </p>
<p>The U.S. shouldn’t waste time and money building or repairing network links a community would be better without. But how can policymakers tell which elements help and which make things worse? </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/8mlH9bnvWVE?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Explaining the Braess paradox.</span></figcaption>
</figure>
<h2>Calculating efficiency</h2>
<p>The best networks can handle the highest demand at the lowest average cost for each trip – such as a commute from a worker’s home to their office. </p>
<p>Evaluating a network means identifying which locations need to be connected to one another, as well as the volume of traffic among specific places and the various costs involved – such as gas, pavement wear and tear and police services keeping drivers safe.</p>
<p>Once a network is measured in this way, it can be converted into a computerized model with which we can simulate removing links or adding new ones in particular places. Then we can measure what happens to the rest of the network: Does traffic get more congested, and if so, by how much? Or, as in the Braess paradox, do travel times actually get shorter when a link is removed? And how much money does a particular project cost to build and save in time or user expenses?</p>
<p>[<em>Over 115,000 readers rely on The Conversation’s newsletter to understand the world.</em> <a href="https://theconversation.com/us/newsletters/the-daily-newsletter-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=100Ksignup">Sign up today</a>.]</p>
<figure class="align-center ">
<img alt="With the White House in the distance, President Biden speaks at a lectern before a crowd of people" src="https://images.theconversation.com/files/432073/original/file-20211115-23-1psza3q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/432073/original/file-20211115-23-1psza3q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/432073/original/file-20211115-23-1psza3q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/432073/original/file-20211115-23-1psza3q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/432073/original/file-20211115-23-1psza3q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/432073/original/file-20211115-23-1psza3q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/432073/original/file-20211115-23-1psza3q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">President Biden celebrated signing the bipartisan infrastructure bill on Nov. 15.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/Biden/c2622af4cdc44114ad250ac56a49a76d/photo?Query=biden&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=63707&currentItemNo=9">AP Photo/Susan Walsh</a></span>
</figcaption>
</figure>
<h2>Going global</h2>
<p>Our method of measuring a network’s performance has been used to refine
<a href="https://ercim-news.ercim.eu/en79/rd/route-optimization-how-efficient-will-the-proposed-north-dublin-metro-be">the route of a proposed metro line in Dublin, Ireland</a>; <a href="https://www.researchgate.net/publication/313365965_Maritime_Network_Efficiency_Comparison_in_Indonesia_Nusantara_Pendulum_and_Sea_Tollway">to design new shipping routes in Indonesia</a>; to identify which roads in Germany <a href="http://www.cedim.de/download/14_Schulz.pdf">should be first on the maintenance list</a> and <a href="http://dx.doi.org/10.1007/s11069-013-0896-3">to determine the effects of road closures after major fires in regions of Greece</a>.</p>
<p>Our method has also been applied to make supply chains more efficient, both to <a href="http://dx.doi.org/10.1007/978-1-84882-634-2_6">maximize profits</a> and to <a href="http://www.sciencedirect.com/science/article/pii/S0965856412000249">speed disaster relief supplies</a> to people in need.</p>
<p>As the U.S. works to enhance its economic competitiveness, we believe the country will need to invest in many different types of networks to maximize their usefulness and value to Americans. Using measurement methods like ours can guide leaders to wise investments.</p>
<p><em>This is an updated version of an <a href="https://theconversation.com/calculating-where-america-should-invest-in-its-transportation-and-communications-networks-76258">article originally published</a> on April 19, 2017.</em></p><img src="https://counter.theconversation.com/content/171651/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anna Nagurney does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As President Biden signs the bipartisan infrastructure bill, it’s important to determine which road, freight and information networks are the most vital to protect.Anna Nagurney, Eugene M. Isenberg Chair in Integrative Studies, UMass AmherstLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1611542021-06-16T12:38:37Z2021-06-16T12:38:37ZWhy nobody will ever agree on whether COVID lockdowns were worth it<figure><img src="https://images.theconversation.com/files/405940/original/file-20210611-27-851fmh.jpg?ixlib=rb-1.1.0&rect=118%2C59%2C6495%2C4343&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Stuffed bears in windows were a common sight during the early 2020 lockdowns.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/stuffed-toys-are-being-placed-in-windows-or-under-porches-news-photo/1209302162">Eric Baradat/AFP via Getty Images</a></span></figcaption></figure><p>As an increasingly vaccinated world emerges from lockdowns, lots of people are talking about whether the fight against the pandemic was too strong or too weak. Some people argue restrictions <a href="https://theconversation.com/us-could-save-tens-of-thousands-of-lives-and-tens-of-billions-of-dollars-with-3-weeks-of-strict-covid-19-measures-156447">did not go far enough</a>; others maintain the attempted cures <a href="https://doi.org/10.3389/fpubh.2021.625778/full">have been worse than the disease</a>.</p>
<p>One reason for these conflicting views is that the answer depends on <a href="https://anchor.fm/nicolas-wittstock/episodes/Mark-Alan-Smith-Can-Science-Resolve-Political-Debates-eog0ka">both facts and values</a>. </p>
<p>Relevant facts include features of the virus like transmission rates and deaths. Government policies were often guided by scientific findings to reduce the spread of the virus and the resulting illnesses and deaths.</p>
<p>Relevant values include health and longevity, but also prosperity, opportunity, equality and freedom. Different people weigh those values differently.</p>
<p>Our <a href="https://faculty.washington.edu/vmenaldo/Mark%20Alan%20Smith%20Right%20from%20Wrong%20chapter%203.pdf">research</a> on the study of how fair and reasonable discussion helps citizens reach political decisions suggests there will never be widespread agreement on whether lockdowns, the most controversial coronavirus policy, were worthwhile.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/405941/original/file-20210611-15-15s0cxc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A small number of people walk past a boarded up retail shop" src="https://images.theconversation.com/files/405941/original/file-20210611-15-15s0cxc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/405941/original/file-20210611-15-15s0cxc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/405941/original/file-20210611-15-15s0cxc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/405941/original/file-20210611-15-15s0cxc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/405941/original/file-20210611-15-15s0cxc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/405941/original/file-20210611-15-15s0cxc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/405941/original/file-20210611-15-15s0cxc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Retail stores closed, either temporarily or permanently, as the coronavirus spread.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/VirusOutbreakCalifornia/311625bc03394879ace4ab683c132517/photo">AP Photo/Eric Risberg</a></span>
</figcaption>
</figure>
<h2>Costs versus benefits</h2>
<p>In a perfect world, policymakers’ decisions are <a href="https://anchor.fm/nicolas-wittstock/episodes/On-Science-and-Evidence-Based-Policymaking-ejkbt2">based on evidence</a>. But which science and data matter to some people is different from the science and data that matter to others. Should the government prioritize public health at the <a href="https://theconversation.com/is-the-covid-19-pandemic-cure-really-worse-than-the-disease-heres-what-our-research-found-141700">expense of the economy</a>? Should individuals sacrifice <a href="https://www.cato.org/blog/cost-benefit-analysis-lockdown-very-difficult-do-well">liberty for the social good</a>?</p>
<p>In principle, the U.S. could have devoted all of society’s resources to fighting coronavirus – but doing so would have meant ignoring all other illnesses and the personal priorities that make life worth living, like hugging Grandma on July 4th. </p>
<p>Cost-benefit analyses offer one way to ensure that various trade-offs are explicitly considered rather than left unstated. These analyses rely on <a href="https://www.nytimes.com/2020/05/11/upshot/virus-price-human-life.html">well-established methods</a> to estimate how much society is implicitly willing to pay to save one life.</p>
<p>Based on those estimates, the number of deaths prevented by coronavirus mitigation policies could be converted into dollars for the “benefit” side of the ledger. The associated “costs” include direct government expenditures now and into the future, along with lost wages and revenues for individuals and businesses. </p>
<p>With both benefits and costs denominated in dollars, it’s potentially possible to determine a policy’s net social effect: <a href="https://sites.uw.edu/uwpoliticaleconomy/2020/09/10/ronald-coases-contribution-to-evidence-based-policy-by-victor-menaldo/">It’s a simple math problem</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/405943/original/file-20210611-27-1dhe7gl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Medical workers in protective equipment load a patient into an ambulance" src="https://images.theconversation.com/files/405943/original/file-20210611-27-1dhe7gl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/405943/original/file-20210611-27-1dhe7gl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/405943/original/file-20210611-27-1dhe7gl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/405943/original/file-20210611-27-1dhe7gl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/405943/original/file-20210611-27-1dhe7gl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/405943/original/file-20210611-27-1dhe7gl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/405943/original/file-20210611-27-1dhe7gl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Across the country, ambulance workers donned gowns and other protective gear before helping patients who might have been infected with the coronavirus.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/after-administering-him-with-oxygen-county-of-los-angeles-news-photo/1230352984">APU GOMES/AFP via Getty Images</a></span>
</figcaption>
</figure>
<h2>Lockdowns are hard to evaluate</h2>
<p>But even if we could cleanly compare costs to benefits, it’s impossible to definitively measure the effects of lockdowns. Communities that had longer and more extensive lockdowns were often those likely to be more vulnerable to the spread of disease, or with less access to medical care.</p>
<p>For example, some denser places with more intergenerational households introduced severe lockdowns – but were also more likely to suffer high levels of virus <a href="https://www.orfonline.org/research/urban-densities-and-the-covid-19-pandemic-upending-the-sustainability-myth-of-global-megacities-65606/">transmission and death</a>. This would artificially make it seem like lockdowns didn’t work, because those places still suffered many deaths – just fewer than they would have without the lockdowns.</p>
<p>Fortunately, one of the central aims of social science work is finding ways to <a href="https://egap.org/resource/10-strategies-for-figuring-out-if-x-caused-y/">tease out cause from effect using real-world data</a>. Researchers can use statistics to adjust the data in a way that neutralizes the effects of factors that influence both a state’s fatality rate and its propensity to adopt lockdowns, like its population density, wealth, age distribution and health care capacity.</p>
<p>Still, any honest researcher should acknowledge they can only reduce, not eliminate, <a href="https://faculty.washington.edu/vmenaldo/Articles%20in%20Journals/JPAM%20Article.pdf">this type of uncertainty</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/405944/original/file-20210611-27-1or7f02.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A group of people walk down a street holding a sign calling for an end to lockdowns" src="https://images.theconversation.com/files/405944/original/file-20210611-27-1or7f02.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/405944/original/file-20210611-27-1or7f02.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/405944/original/file-20210611-27-1or7f02.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/405944/original/file-20210611-27-1or7f02.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/405944/original/file-20210611-27-1or7f02.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/405944/original/file-20210611-27-1or7f02.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/405944/original/file-20210611-27-1or7f02.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Protesters called for an end to lockdowns.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/group-of-trump-supporters-protest-coronavirus-measurements-news-photo/1229740773">Tayfun Coskun/Anadolu Agency via Getty Images</a></span>
</figcaption>
</figure>
<h2>The range of costs and benefits</h2>
<p>Even if it were possible to isolate the number of deaths prevented through a lockdown, it’s <a href="https://egap.org/resource/10-things-to-know-about-measurement-in-experiments/">hard to measure other costs and benefits</a> associated with coronavirus policies.</p>
<p>Confining people to their homes may have reduced their odds of spreading the virus. But staying home may have raised other risks, such as <a href="https://theconversation.com/domestic-violence-calls-for-help-increased-during-the-pandemic-but-the-answers-havent-gotten-any-easier-156683">domestic abuse</a>, <a href="https://www.kff.org/coronavirus-covid-19/issue-brief/the-implications-of-covid-19-for-mental-health-and-substance-use/">addiction and mental health problems</a> and the <a href="https://www.medscape.com/viewarticle/949610">harms from delayed treatments for other medical conditions</a>.</p>
<p>Among children, the lack of in-person schooling can <a href="https://doi.org/10.1073/pnas.2022376118">hurt learning</a> and raised rates of <a href="https://doi.org/10.1093/tropej/fmaa122">anxiety, depression and sleep disorders</a>.</p>
<p>Other potential costs can be measured only in the future – such as smaller expected earnings among people whose learning was slowed down. </p>
<p>On the flip side, mask-wearing and social isolation may have had the unintended benefit of <a href="https://www.hopkinsmedicine.org/news/articles/flu-cases-decline-dramatically-this-season">temporarily countering seasonal flu</a>, which <a href="https://www.health.com/condition/flu/how-many-people-die-of-the-flu-every-year">kills about 40,000 Americans</a> a year. And there may have been technological innovations – like <a href="https://www.vox.com/recode/21726260/zoom-microsoft-teams-video-conferencing-post-pandemic-coronavirus">improved video-conferencing</a> – sparked by lockdowns. It’s simply too early to tell. </p>
<p>While the ultimate economic effect of lockdowns may be negative, lockdowns may still be justified if people value a dollar today more than one tomorrow. But policymakers, let alone citizens, simply <a href="https://www.lse.ac.uk/granthaminstitute/explainers/what-are-social-discount-rates/">do not agree</a> how much society should value today’s versus tomorrow’s dollars. Indeed, this perhaps fuels the biggest disagreements over policies with delayed effects. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/405945/original/file-20210611-23-1txodh0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A student sits at a desk in a home bedroom, in front of a laptop and with paper and pencil in hand" src="https://images.theconversation.com/files/405945/original/file-20210611-23-1txodh0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/405945/original/file-20210611-23-1txodh0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/405945/original/file-20210611-23-1txodh0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/405945/original/file-20210611-23-1txodh0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/405945/original/file-20210611-23-1txodh0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/405945/original/file-20210611-23-1txodh0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/405945/original/file-20210611-23-1txodh0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Millions of students and teachers had to transition to online school.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/VirusOutbreak-LostLearning/1285c23592fd49b0b40b2d6ac0259dbc/photo">AP Photo/Jeff Chiu</a></span>
</figcaption>
</figure>
<h2>The need for humility</h2>
<p>Because the benefits and costs of policies unfold over time in ways that produce different winners and losers, it’s simply hard to arrive at a consensus on what benefits to rank first and what costs are worth incurring.</p>
<p>An older person may want the government to prioritize elderly people’s health, while parents with young children may emphasize reopening schools. Young adults may bemoan lost job opportunities while waiting out lockdowns. </p>
<p>Ultimately, that’s why there will never be a definitive answer on whether the country’s lockdowns were “worth it.” The costs and benefits can be clarified, but not measured completely. And values come into play: How many lives were saved can never be exactly equated with how many children’s development suffered.</p>
<p>Data can only bring society some of the answers. The rest we have to decide for ourselves.</p>
<p>[<em>Get the best of The Conversation, every weekend.</em> <a href="https://theconversation.com/us/newsletters/weekly-highlights-61?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=weeklybest">Sign up for our weekly newsletter</a>.]</p><img src="https://counter.theconversation.com/content/161154/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Different people and groups have differing, and often opposing, goals that they value differently. That makes public discussion, compromise and agreement difficult.James D. Long, Associate Professor of Political Science, Co-founder of the Political Economy Forum, Host of "Neither Free Nor Fair?" podcast, University of WashingtonMark A. Smith, Professor of Political Science, University of WashingtonVictor Menaldo, Professor of Political Science, Co-founder of the Political Economy Forum, University of WashingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1564472021-03-15T19:06:34Z2021-03-15T19:06:34ZUS could save tens of thousands of lives and tens of billions of dollars with 3 weeks of strict COVID-19 measures<figure><img src="https://images.theconversation.com/files/389588/original/file-20210315-17-13sljvr.jpg?ixlib=rb-1.1.0&rect=126%2C118%2C5157%2C3208&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Texas recently eased all coronavirus restrictions, including mask-wearing. </span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/VirusOutbreakTexas/cda8136ad844492c8428ef6dc33a87e0/photo?Query=mask%20AND%20wearing&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=30913&currentItemNo=48">AP Photo/LM Otero</a></span></figcaption></figure><p>President Joe Biden commemorated the COVID-19 pandemic’s one-year anniversary <a href="https://abcnews.go.com/Politics/transcript-joe-biden-delivers-remarks-year-anniversary-pandemic/story?id=76403134">by giving Americans an ambitious goal</a>: Return to a semblance of normalcy by the Fourth of July. </p>
<p>“But to get there we can’t let our guard down,” he added. </p>
<p>Unfortunately, many states already have. <a href="https://covid.cdc.gov/covid-data-tracker/#trends_dailytrendscases">Falling numbers of new coronavirus cases</a> and <a href="https://covid.cdc.gov/covid-data-tracker/#vaccinations">accelerating vaccination rates</a> <a href="https://theconversation.com/states-drop-covid-19-mask-mandates-but-still-expect-people-to-mask-up-will-they-156456">have prompted Texas and a growing number of other states</a> to ease more restrictions or drop them altogether. Their governors argue <a href="https://www.wsj.com/articles/coronavirus-latest-news-05-20-2020-11589963481">the economic costs</a> are just too high and the measures <a href="https://dfw.cbslocal.com/2021/03/02/texas-governor-greg-abbott-says-its-time-to-open-texas-100/">no longer necessary</a>. </p>
<p>Federal health officials, meanwhile, <a href="https://www.ny1.com/nyc/all-boroughs/news/2021/03/03/health-officials-warn-states-against-reopening-now-is-not-the-time">are advising states to hold off</a> on reopening too soon and urging Americans to continue to mask up and take other precautions in public – even if they’re fully vaccinated. <a href="https://covid.cdc.gov/covid-data-tracker/#trends_dailytrendsdeaths">About 1,500 people in the U.S. are still dying</a> every day.</p>
<p>The states easing COVID-19 restrictions seem to be valuing the gains from doing so over the lives of the citizens who may die as a result. </p>
<p>Fortunately, <a href="https://scholar.google.com/citations?user=AaOAkygAAAAJ&hl=en&oi=ao">my field of finance</a> offers a way to assess whether this is the right approach or whether the states are making a mistake: conduct a cost-benefit analysis. </p>
<figure class="align-center ">
<img alt="A woman worker wearing a mask waits for a customer whose face is turned away to order at a cafe." src="https://images.theconversation.com/files/389704/original/file-20210315-23-3kzxq4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/389704/original/file-20210315-23-3kzxq4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/389704/original/file-20210315-23-3kzxq4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/389704/original/file-20210315-23-3kzxq4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/389704/original/file-20210315-23-3kzxq4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/389704/original/file-20210315-23-3kzxq4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/389704/original/file-20210315-23-3kzxq4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Even as restrictions ease, many restaurants and businesses continue to enforce mask mandates and physical distancing.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/VirusOutbreakGovernors/1da0b2f27362438b9dbc88d8f744abaa/photo?Query=mask%20AND%20wearing&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=30884&currentItemNo=24">AP Photo/Lynne Sladky</a></span>
</figcaption>
</figure>
<h2>Putting a value on life</h2>
<p>I <a href="http://dx.doi.org/10.2139/ssrn.3789690">published a paper earlier this year</a> – different versions of which were peer-reviewed by <a href="https://voxeu.org/content/would-us-benefit-lockdown-cost-benefit-analysis">Covid Economics</a> and Economics of Natural Disasters and Climate Change (forthcoming) – that performs such an analysis and explains my methodology and assumptions in detail. For this article, I updated the results in my model with the latest figures as of March 13. </p>
<p>A key piece of data you need to know for a cost-benefit analysis is the value of a human life.</p>
<p>Assigning a dollar value to a life may seem strange, but it is <a href="https://aspe.hhs.gov/system/files/pdf/242926/HHS_RIAGuidance.pdf">something that policymakers do routinely</a>, such as when evaluating the benefits of new regulations. One way to do this is to try to assess the value people put on their own lives. Economists infer this from an individual’s willingness to pay in order to increase the probability of staying alive. </p>
<p>For example, <a href="https://scholar.harvard.edu/jaldy/publications/age-differences-value-statistical-life-revealed-preference-evidence">how much extra pay does a worker demand</a> to do a riskier job like in construction that is more likely to result in an injury or death? Or <a href="https://doi.org/10.1093/cep/19.4.397">how much are consumers willing to spend</a> on medical interventions or safety equipment in order to reduce the probability of dying?</p>
<p>Resulting estimates produce the “value of a statistical life” – jargon for how much a human life is worth monetarily. This number <a href="http://dx.doi.org/10.2139/ssrn.898189">typically decreases as people age</a>. </p>
<p>The calculations I used in my analysis are based on a recent report by the <a href="https://trumpwhitehouse.archives.gov/wp-content/uploads/2019/09/Mitigating-the-Impact-of-Pandemic-Influenza-through-Vaccine-Innovation.pdf">White House Council of Economic Advisers</a>, with slight modifications to better match other data sources I referenced in my analysis. The value peaks at US$12.3 million for people aged 20 to 44 and declines until it reaches $5.3 million for those 65 and up. </p>
<p>Of course, since most symptomatic COVID-19 cases do not end up in death, I also needed to figure costs due to lost productivity and the <a href="http://www.doi.org/10.1016/j.vaccine.2007.03.046">medical resources used up</a> when someone gets sick. Since some people merely lose a few days of work, while others may spend weeks in the hospital, it was important to find a way to estimate this. These impacts <a href="http://www.doi.org/10.1093/cid/ciaa1780">also increase with age</a>. And so I analyzed probable sick days depending on age and put a <a href="http://dx.doi.org/10.2139/ssrn.3599482">value on the loss of productivity</a>. </p>
<h2>How tighter restrictions may help</h2>
<p>The next consideration is figuring out how many illnesses and deaths could be prevented by adopting stricter COVID-19 measures. </p>
<p>First we must decide which restrictions will make the most difference. After a year of studying the virus, <a href="https://www.cdc.gov/coronavirus/2019-ncov/prevent-getting-sick/prevention.html">health officials generally agree</a> that the most effective interventions include mandating face coverings, limiting indoor gatherings and requiring physical distancing. Other important measures include closing nonessential businesses, restricting travel from heavily affected areas and maintaining widespread testing and contact tracing. </p>
<p>Currently, businesses are “mostly open” <a href="https://www.nytimes.com/interactive/2020/us/states-reopen-map-coronavirus.html">in all but eight states</a>, while masks are still required in a little over half of them. </p>
<p>To project the number of future cases, I used a <a href="https://www.maa.org/press/periodicals/loci/joma/the-sir-model-for-spread-of-disease-the-differential-equation-model">standard epidemiological model</a> that estimates how various factors alter how many people get sick and recover or die from a disease. The model allows me to incorporate assumptions concerning the implementation of coronavirus restrictions nationwide as well as <a href="https://www.nytimes.com/interactive/2020/us/covid-19-vaccine-doses.html">expected vaccination rates</a> that I assume will continue at the current pace of about 2.5 million doses a day.</p>
<p>The model estimates that between now and September, when I project the pandemic should be largely over in the U.S. <a href="https://www.nytimes.com/interactive/2021/02/20/us/us-herd-immunity-covid.html">because of herd immunity</a>, nearly 5.5 million more people will likely get sick and 65,000 people will die, if the current level of restrictions – like mask mandates and business closures – remains in place. If states continue to ease their restrictions, these estimates would rise, while if vaccinations accelerate, they would decline. </p>
<p>But if all states adopted – or were forced to adopt – all the restrictions listed above for a period of three weeks, the model projects that about 4.5 million fewer people would get sick and 54,000 fewer would die. </p>
<figure class="align-center ">
<img alt="A sign over a restaurant in Los Angeles says 'Open for dine-in! 8:00AM to 8:00PM. Welcome Back!' above several diners at tables outside." src="https://images.theconversation.com/files/389652/original/file-20210315-21-m04iat.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/389652/original/file-20210315-21-m04iat.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/389652/original/file-20210315-21-m04iat.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/389652/original/file-20210315-21-m04iat.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/389652/original/file-20210315-21-m04iat.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/389652/original/file-20210315-21-m04iat.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/389652/original/file-20210315-21-m04iat.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Restaurants in California have begun re-opening to indoor dining.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/VirusOutbreakLosAngeles/61a10fbfa11746ebbfef8fa8a09d5b0c/photo?Query=business%20AND%20closure&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=870&currentItemNo=6">AP Photo/Mark J. Terrill</a></span>
</figcaption>
</figure>
<h2>Only three weeks</h2>
<p>To some people, merely knowing how many lives could be saved is enough to convince them that a short period of tightened restrictions makes sense. The cost-benefit analysis, however, puts everything in monetary terms – using the “value of a statistical life” numbers mentioned earlier – and may be more persuasive for others who are more skeptical.</p>
<p>My analysis shows the economic value of lives saved and illnesses avoided, based on these assumptions, totals nearly $339 billion. That’s basically the “benefit” to the economy of putting in place three weeks of tightened restrictions nationwide. </p>
<p>To figure the “cost” part of the analysis, I reviewed <a href="https://read.oecd-ilibrary.org/view/?ref=126_126496-evgsi2gmqj&title=Evaluating_the_initial_impact_of_COVID-19_contain%20ment_measures_on_economic_activity">a few</a> <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3599482">different studies</a> that estimated the costs to the economy of coronavirus restrictions. I concluded that the economy would lose nearly $37 billion every week that restrictions like closure of nonessential businesses and mandated social distancing are imposed. The costs could be higher depending on if the restrictions trigger any bankruptcies or other businesses costs, which are very hard to project.</p>
<p>That adds up to about $111 billion over three weeks, after which I assume states would ease those restrictions and revert to their current policies. </p>
<p>So the net cost savings of imposing three weeks of restrictions would be nearly $228 billion. As the U.S. nears herd immunity, the cost-benefit analysis shows the costs of restrictions will eventually outweigh the benefits – but more people will have died as a result. </p>
<p>Admittedly, this is based on many assumptions, and it’s virtually impossible to get all of them right. Forecasting the number of deaths and illnesses is especially hard, and you’ll get different estimates from sources like the <a href="https://www.cdc.gov/coronavirus/2019-ncov/covid-data/forecasting-us.html">Centers for Disease Control and Prevention</a>. And it’s possible the vaccines will lose their effectiveness over time to existing or new variants that emerge. </p>
<p>Furthermore, cost-benefit analyses aren’t meant to be predictions; they simply help guide decision-making. But regardless of how I crunched the numbers, I still reached the same conclusion: Imposing a period of tighter restrictions now – even for just one week – will save a lot of lives, offering greater economic benefits than costs. </p>
<h2>Now’s not the time to ease up</h2>
<p>In other words, now seems to be exactly the wrong time to ease and eliminate restrictions as some states are doing, especially with <a href="https://www.nature.com/articles/d41586-021-00564-4">several new variants remaining a threat</a>. </p>
<p>In fact, I tested a hypothetical scenario in which the <a href="https://www.statnews.com/2021/02/09/not-british-variant-call-it-b117/">more transmissible B.1.1.7 variant</a> becomes the predominant one in the United States. As a result, the calculations in my paper showed that the estimated net benefit of temporarily imposing tighter restrictions nearly triples. </p>
<p>Anthony Fauci, the government’s top infectious diseases expert, <a href="https://www.nytimes.com/live/2021/03/14/world/covid-19-coronavirus#covid-fauci-anniversary">called decisions to ease mask mandates</a> and other restrictions “risky business” and warned that the U.S. <a href="https://www.wsj.com/articles/fauci-warns-against-easing-covid-19-restrictions-11615740267">could see another surge in cases</a> – as Europe is experiencing now – if it lifts restrictions too soon. </p>
<p>My analysis suggests the U.S. should go even further. It not only would save lives but makes economic sense too.</p>
<p>[<em>Over 100,000 readers rely on The Conversation’s newsletter to understand the world.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=100Ksignup">Sign up today</a>.]</p><img src="https://counter.theconversation.com/content/156447/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anna Scherbina does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Texas and many other states have eased all or most coronavirus restrictions such as mask-wearing. A cost-benefit analysis suggests reversing those moves for just a short period could make a big difference.Anna Scherbina, Associate Professor of Finance, Brandeis UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1395632020-07-16T20:01:46Z2020-07-16T20:01:46ZDon’t abandon plans for high-speed rail in Australia – just look at all the benefits<figure><img src="https://images.theconversation.com/files/347045/original/file-20200713-38-ykqvc3.jpg?ixlib=rb-1.1.0&rect=179%2C291%2C2085%2C1250&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Thomas Nord/Shutterstock</span></span></figcaption></figure><p>The Grattan Institute’s call to “<a href="https://grattan.edu.au/report/fast-train-fever/" title="Fast train fever: Why renovated rail might work but bullet trains won’t">abandon</a>” plans for any high-speed rail network in Australia fails to look at the wider benefits such a project can bring by way of more productive economies and more sustainable towns and cities.</p>
<p>The study authors argue the development of any bullet train network linking Brisbane to Melbourne via Sydney and Canberra is “unsuitable for Australia”.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/look-beyond-a-silver-bullet-train-for-stimulus-136834">Look beyond a silver bullet train for stimulus</a>
</strong>
</em>
</p>
<hr>
<p>But what their argument neglects is that a project like high-speed rail has a unique capacity to reshape cities and population settlement patterns in positive ways.</p>
<h2>A question of cost</h2>
<p>The institute’s study says the idea of high-speed rail is an unwanted distraction in policy-making for the nation’s transport future. Its case relies on a review of the high-speed rail experience in Europe, Japan and China.</p>
<p>All of these nations, it says, have vastly different distributions of towns and major cities to that in Australia, which has extremely long distances between a few large cities.</p>
<p>The study also critiques a 2013 Commonwealth <a href="https://www.infrastructure.gov.au/rail/publications/high-speed-rail-study-reports/index.aspx">analysis</a> that found a A$130 billion high-speed rail project linking Brisbane, Sydney and Melbourne would generate a benefit-cost ratio of 2.3 to 1.
So every A$1 invested in a high-speed rail network would generate A$2.30 in benefits such as travel time savings, avoided vehicle operating costs and reduced road congestion. </p>
<p>But the Grattan study authors say that figure is based on a “cherry-picked” discount rate of 4%. This is economics jargon for the minimum return that the community would expect from the investment of its collective resources in any project. </p>
<p>The Grattan study also says the 2013 cost-benefit analysis did not allow for cost over-runs. Nor did it consider the greenhouse gas emissions associated with the enormous quantities of concrete and steel needed to build the infrastructure.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/high-speed-rail-on-australias-east-coast-would-increase-emissions-for-up-to-36-years-138655">High-speed rail on Australia's east coast would increase emissions for up to 36 years</a>
</strong>
</em>
</p>
<hr>
<p>So why are some people, including <a href="https://infrastructuremagazine.com.au/2019/05/13/labor-commits-to-high-speed-rail-from-melbourne-to-brisbane/">the federal Labor Party</a>, still so enamoured with the idea of high-speed rail when others would have it binned?</p>
<h2>Some projects reshape cities</h2>
<p>Not all transport infrastructure projects are equal when it comes to cost-benefit analysis. Some investments have a transformative effect on population settlement patterns – they shape cities and regions.</p>
<p>The Sydney Harbour Bridge and the Melbourne Underground Rail Loop are classic examples of city-shaping projects. Each altered travel times between different parts of the metropolis, which then shifted the location preferences of households and businesses. This led to a substantially different city structure compared to what might otherwise have developed.</p>
<p>Other projects, the vast majority of government transport outlays, merely follow or service the pattern of settlement established by the city-shaping investments. These “follower” projects include the local arterial roads and tramways that circulate people and goods within cities. </p>
<p>The Commonwealth’s official <a href="https://www.atap.gov.au/framework/integrated-transport-land-use-planning/6-Strategic-or-city-shaping-infrastructure">guidelines for major project evaluation</a> recognise this distinction.</p>
<p>New ways of living, learning, working and playing become possible with city-shaping projects. By comparison, the procession of follower projects simply perpetuates settlement patterns and economic structures.</p>
<p>This is the claim and appeal of high-speed rail. Advocates <a href="https://www.sydney.edu.au/business/news-and-events/news/2019/10/03/fast-rail-answer-to-urban-sprawl.html">argue</a> such an investment would divert a significant proportion of urban growth from the far-flung suburbs of metropolitan areas to new regional locations. That’s because these regions will then have similar travel times into core city labour markets.</p>
<p>In these regional locations, households would enjoy greater housing choice and affordability, more walkability and better access to open space. They could even have better access to a range of community facilities than their metro suburban counterparts.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/we-can-halve-train-travel-times-between-our-cities-by-moving-to-faster-rail-116512">We can halve train travel times between our cities by moving to faster rail</a>
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<p>Advocates also <a href="http://eprints.lse.ac.uk/67664/1/dp1435.pdf">argue</a> businesses in the big cities and intervening regional areas will be able to connect with each other at lower cost and source the skills they need more efficiently. This would boost productivity.</p>
<h2>Consider all the benefits</h2>
<p>The 2013 analysis took into account issues such as congestion, emissions (from travel) and transport accidents. But it did not attempt to quantify and monetise the effects of high-speed rail shaping cities and regions. </p>
<p>Arguably, the most important set of benefits from this investment were left out of the economic evaluation, simply because they are difficult to measure. </p>
<p>Modelling how the supply chains of businesses might change under the influence of city-shaping projects, or how the housing preferences of people might shift, is undoubtedly challenging. But being difficult to measure makes these impacts no less real.</p>
<p>Despite this limitation on the scope of benefits, the <a href="https://www.infrastructure.gov.au/rail/publications/high-speed-rail-study-reports/files/HSR_Phase_2_Keyfindings_ES_Booklet.pdf">2013 study said</a> the high-speed rail project would return a benefit-cost ratio of 1.1 at a 7% discount rate, which the Grattan study says is the usual test applied to transport projects.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/smart-money-a-better-way-for-australia-to-select-big-transport-infrastructure-projects-92265">Smart money: a better way for Australia to select big transport infrastructure projects</a>
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<p>Grattan says the project barely scrapes in at this higher discount rate and implies many other projects would offer ratios greater than 1:1 and should be preferred. These would typically be smaller, follower projects that address local congestion problems.</p>
<p>But a project achieving a 1.1 benefit-cost ratio means Australia would still be better off undertaking the project compared to a business-as-usual case.</p>
<p>If the transformative effects of high-speed rail include more compact and walkable cities with less car dependency and greater productivity, then such a network has good reason to keep its grip on the Australian imagination.</p><img src="https://counter.theconversation.com/content/139563/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marcus Luigi Spiller is a principal and partner at SGS Economics & Planning Pty Ltd.</span></em></p>A high-speed rail network in Australia would create many benefits by reshaping cities and regional communities along its route.Marcus Luigi Spiller, Associate Professor of Urban Planning (honorary), The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1417002020-07-07T12:14:32Z2020-07-07T12:14:32ZIs the COVID-19 pandemic cure really worse than the disease? Here’s what our research found<figure><img src="https://images.theconversation.com/files/345822/original/file-20200706-3962-16yhlpp.jpg?ixlib=rb-1.1.0&rect=37%2C0%2C2420%2C1454&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The economic impact of coronavirus restrictions can also take a human toll.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/portrait-of-young-woman-with-mask-on-the-street-royalty-free-image/1213302709">mladenbalinovac via Getty Images</a></span></figcaption></figure><p><em>The Research Brief is a short take about interesting academic work.</em></p>
<h2>The big idea</h2>
<p>The coronavirus pandemic catapulted the country into one of the deepest recessions in U.S. history, leaving <a href="https://apnews.com/f6861a055dd8eb86e21e528bf4b54653">millions of Americans without jobs</a> or<a href="https://www.kff.org/coronavirus-covid-19/issue-brief/eligibility-for-aca-health-coverage-following-job-loss/"> health insurance</a>. There is a lot of evidence that <a href="https://oxfordmedicine.com/view/10.1093/med/9780195377903.001.0001/med-9780195377903">economic hardship is associated with poor health</a> and can increase the risk of <a href="http://doi.org/10.1161/CIRCULATIONAHA.118.035521">cardiovascular disease</a>, <a href="https://doi.org/10.1016/j.jebo.2015.11.004">mental health problems</a>, <a href="http://doi.org/10.1212/WNL.0000000000008463/">cognitive dysfunction</a> and <a href="http://doi.org/10.1001/jama.2016.4226">early death</a>.</p>
<p>All of that raises a question: Is the U.S. better off with the public health interventions being used to keep the coronavirus from spreading or without them?</p>
<p>In a <a href="https://ssrn.com/abstract=3638575">new working paper</a>, <a href="https://nursing.umich.edu/faculty-staff/faculty/olga-yakusheva">I and a team</a> of health economists from U.S. universities set out to answer that question from a humanitarian perspective. To do that, we reviewed the latest data and scientific research about the virus to evaluate the number of lives saved if public health measures remain in place. We also reviewed economic studies looking at deaths caused by past restrictions of economic activity to assess the number of lives that could be lost if those measures trigger an extended economic recession.</p>
<p>We estimate that by the end of 2020, public health measures to mitigate COVID-19, including shelter-in-place orders, school and business closures, social distancing and face mask recommendations, would save between 900,000 and 2.7 million lives in the U.S. The economic downturn and loss of income from shelter-in-place measures and other restrictions on economic activity could contribute to between 50,400 and 323,000 deaths, based on an economic decline of 8%-14%.</p>
<p>Counting lives alone, we conclude that the public health measures to stop the spread of COVID-19 are justified and in the best interest of our society. </p>
<h2>Why it matters</h2>
<p>President Donald Trump likes to say that the cure must not be worse than the disease when it comes to coronavirus interventions that affect the economy. The public health approach works, but it can also hurt. Determining the “right dose” of a medicine always requires careful consideration of unintended consequences.</p>
<p>Several cost-benefit calculations of the COVID-19 economic shutdown measures have recently appeared in the popular press. They determined that saving the life of a COVID-19 patient could come at a price of up to <a href="https://theincidentaleconomist.com/wordpress/economic-cost-of-flattening-the-curve/">US$6.7 million per year of life saved</a> in terms of economic losses. These calculations stirred up a heated debate, with one side advocating for a <a href="https://www.businessinsider.com/coronavirus-cuomo-implores-trump-not-place-money-over-human-life-2020-3">save-lives-not-dollars approach</a> and the other <a href="https://www.inquirer.com/opinion/commentary/coronavirus-economic-shutdown-unemployment-pennsylvania-20200420.html">doubting its wisdom</a>. The debate <a href="https://www.usatoday.com/story/news/politics/2020/04/16/kennedy-slowing-coronavirus-spread-not-worth-economic-costs/5143384002/">fell along party lines</a>, further contributing to misinformation and even some <a href="https://www.marketwatch.com/story/why-do-so-many-americans-refuse-to-wear-face-masks-it-may-have-nothing-to-do-with-politics-2020-06-16">willful resistance to public health recommendations</a>.</p>
<p>By acknowledging and fully exploring the possible ramifications of the economic recession in lives saved or lost, our hope is that we will create a more “apples-to-apples” comparison. Most comparisons of the costs of interventions being discussed put a dollar figure on lives saved or lost. If an analysis finds, for example, that the U.S. pays <a href="https://www.inquirer.com/opinion/commentary/coronavirus-economic-shutdown-unemployment-pennsylvania-20200420.html">$1.5 million for every life saved</a>, that raises a value question: Is that a reasonable cost or not? The answer can lead people and policymakers to resist public health measures. Our analysis instead compares the number of lives likely to be saved to the number of lives likely to be lost, keeping judgments about the value of a human life out of the equation. </p>
<p>The results are clear – the public health measures save more lives than they may jeopardize in the long run.</p>
<h2>What still isn’t known</h2>
<p>The current economic downturn is unusual in that it wasn’t caused by a structural economic problem, like a war or a housing bubble, but rather by a pandemic – a severe but temporary external factor. Therefore, it is unclear how long it will take for the economy to recover. It is also unclear how the pandemic may change over time. </p>
<p>The <a href="https://www.bls.gov/news.release/pdf/empsit.pdf">June</a> and <a href="https://www.bls.gov/news.release/pdf/empsit.pdf">July jobs reports</a> showed higher-than-expected jobs growth following the easing of economic restrictions. This seeded much-needed optimism for a quick economic recovery and suggested that the impact on the economy might be not as severe as people expected. At the same time, a <a href="https://doi.org/10.1038/s41591-020-0965-6">recent study</a> shows that many COVID-19 survivors <a href="http://doi.org/10.1001/jama.2020.7869">may lose immunity to the virus</a> within a matter of months, adding to reinfection concerns, which means public health measures may actually be saving more lives than once thought. Many of these uncertainties can impact our calculations. </p>
<p>Our team is continuously tracking these developments and updating our analyses.</p>
<h2>What other research is being done</h2>
<p>An important question that we have not explored yet is how the benefits and the costs of COVID-19 measures are distributed. We know the virus disproportionately affects <a href="https://data.cdc.gov/NCHS/Provisional-COVID-19-Death-Counts-by-Sex-Age-and-S/9bhg-hcku">older people</a> and <a href="https://www.npr.org/sections/health-shots/2020/05/30/865413079/what-do-coronavirus-racial-disparities-look-like-state-by-state">people of color</a>. We also know that lower-income people are <a href="https://doi.org/10.1001/jama.2016.4226">most likely to suffer health consequences</a> from loss of employment or income.</p>
<p>If policymakers have the information to better understand these effects, they can find ways to anticipate public sentiment during public health crises.</p>
<p><em>This article has been updated to reflect new calculations for the minimum number of lives saved. The change is described in an update to the working paper.</em></p><img src="https://counter.theconversation.com/content/141700/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Olga Yakusheva does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Putting a dollar value on human lives to compare the costs and benefits of stay-at-home orders can have unintended consequences. These researchers found a different way.Olga Yakusheva, Associate Professor in Nursing and Public Health, University of MichiganLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1384142020-05-18T20:03:37Z2020-05-18T20:03:37ZThe big stimulus spending has just begun. Here’s how to get it right, quickly<figure><img src="https://images.theconversation.com/files/335641/original/file-20200518-138615-nkmxhn.jpg?ixlib=rb-1.1.0&rect=301%2C275%2C3600%2C1430&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Responding to COVID-19 required governments to make hard choices with enormous consequences. The biggest were whether to let the disease rip, lock it down, or strike out in search of a middle ground that delivered the best of both worlds.</p>
<p>Different leaders made different decisions and will ultimately be judged by their citizens and historians. But it’s not just in health that COVID-19 requires choices with enormous consequences – it’s also in spending.</p>
<p>Two months ago the government announced a <a href="https://theconversation.com/morrisons-coronavirus-package-is-a-good-start-but-hell-probably-have-to-spend-more-133511">A$17.6 billion</a> coronavirus stimulus package. Remember when that was <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/economic-stimulus-package">a lot</a> of money?</p>
<p>Since then it has committed to spend <a href="https://theconversation.com/scalable-without-limit-how-the-government-plans-to-get-coronavirus-support-into-our-hands-quickly-134353">an extra</a> <a href="https://theconversation.com/the-key-to-the-success-of-the-130-billion-wage-subsidy-is-retrospective-paid-work-135042">$200 billion</a>.</p>
<h2>$200 billion has become base camp</h2>
<p>Should we just let the government rip through hundreds of billions more in an attempt to quickly stimulate the economy? Should we put all proposed spending through lengthy cost benefit analyses and parliamentary inquiries? </p>
<p>Or is there some sort of middle path?</p>
<p>In a new paper by The Australia Institute, <a href="https://www.tai.org.au/content/design-principles-fiscal-policy-pandemic">Design Principles for Fiscal Policy in a Pandemic</a>, Matt Grudnoff, David Richardson and I set out eight criteria on which to judge spending proposals in order to expedite public and parliamentary scrutiny. </p>
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Read more:
<a href="https://theconversation.com/its-just-started-well-need-war-bonds-and-stimulus-on-a-scale-not-seen-in-our-lifetimes-137155">It's just started: we'll need war bonds, and stimulus on a scale not seen in our lifetimes</a>
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<p>While not all voters will be able to agree on what the most pressing problems are, presumably all voters agree that when it comes to spending vast amounts of public money it is important to have some clear criteria against which voters can subsequently judge the necessarily rapid decisions that are made.</p>
<p>The first two are for stimulus spending to be large in size and speedy in implementation.</p>
<p>The other six use economic theory to help maximise benefit for bucks.</p>
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<p>Target households with high marginal propensity to consume</p>
</blockquote>
<p>Low income households have a higher “propensity to consume’” than wealthier families who can afford to save some of what they receive. Saved stimulus does nothing to increase demand and employment in the short term. </p>
<p>Direct government spending on goods and services is another way to ensure that money is spent quickly.</p>
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<p>Target domestic production</p>
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<p>Money spent on imported cars, imported electronics or imported capital equipment will diminish the local benefits of stimulus spending.</p>
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<p>Target activities with high employment intensities</p>
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<p>Some industries create more direct and indirect jobs per billion dollars of spending than others. Capital intensive mining and construction projects, for example, create far fewer jobs per billion dollars spent than spending on health and community services.</p>
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<p>Target those most hurt by the crisis</p>
</blockquote>
<p>When considering stimulus spending the government should focus on projects that provide employment opportunities to individuals in industries most affected. Two of these are tourism and hospitality. While such an approach is equitable, it is also efficient as it helps ensure that the skills of the newly-unemployed match those needed by needed by new projects.</p>
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<p>Target regions that are most disadvantaged</p>
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<p>Building new train lines in NSW might be a good long run investment for the country, but it will do little to create jobs for tourism workers who have lost their jobs in Queensland. Stimulus spending targeted at the regions most effected will be the most likely to socak up unemployment.</p>
<blockquote>
<p>Target useful projects that deliver benefits</p>
</blockquote>
<p>When considering stimulus spending the government should think about what we want more of after the crisis has ended. An example from an earlier stimulus program is the ocean baths that dot the NSW coastline.</p>
<p>Many were built in order to generate employment during the <a href="https://www.abc.net.au/news/2018-06-07/sydneys-ocean-pools-who-built-them/9808500?nw=0">great depression</a>, yet almost 90 years later we are still enjoying the additional secondary benefits.</p>
<h2>Most good projects will meet most of the criteria</h2>
<p>While not all good projects will meet all of the criteria spelt out above, most good stimulus projects will meet most of them. </p>
<p>The enormity of the discretionary spending that the Morrison government is about to undertake on our behalf is almost impossible to fathom. </p>
<p>In a normal year the Commonwealth spends $500 billion on all of its services. </p>
<p>In the past two months alone it has committed to spend an additional $200 billion, and it hasn’t even started on the extra spending that will be needed to restore economic health as restrictions unwind.</p>
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Read more:
<a href="https://theconversation.com/look-beyond-a-silver-bullet-train-for-stimulus-136834">Look beyond a silver bullet train for stimulus</a>
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<p>The enormity of the spending that will be needed means that, more than ever before, the decisions it makes over the next few months will determine our economic success for decades to come. </p>
<p>For all our sakes it is important it gets these decisions right. </p>
<p>Using principles we have set out for assessing the myriad of potential projects it will consider will give it the best chance to make the biggest difference, and give us some confidence that even though decisions are being made quickly, they are being made well.</p>
<hr>
<p><em>Matt Grudnoff, Senior Economist at The Australia Institute, contributed to this piece.</em></p><img src="https://counter.theconversation.com/content/138414/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Denniss does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Decisions about the spending of enormous amounts are about to be made quickly. Here are eight rules to determine value for money.Richard Denniss, Adjunct Professor, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1387212020-05-17T19:59:04Z2020-05-17T19:59:04ZEconomists back social distancing 34-9 in new poll<figure><img src="https://images.theconversation.com/files/335472/original/file-20200516-138610-6fh4by.png?ixlib=rb-1.1.0&rect=209%2C0%2C3556%2C2000&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Wes Mountain/The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>Australian economists overwhelmingly back social distancing measures that slow the spread of coronavirus over the alternative of easing restrictions and allowing the spread of the disease to pick up.</p>
<p>But a significant minority, 9 of the 47 leading economists polled in the first of a series of monthly surveys, say they would support an easing of restrictions even if it did allow the spread to accelerate.</p>
<p>The <a href="https://theconversation.com/au/topics/esa-conversation-national-economic-poll-87063">Economic Society of Australia-Conversation</a> monthly poll will build on national polls conducted by the Economic Society, initially in conjunction with Monash University, since <a href="https://esacentral.org.au/polls">2015</a>.</p>
<p>The economists chosen to take part are Australia’s leaders in fields including microeconomics, macroeconomics, economic modelling and public policy. Among them are former and current government advisers and a former and current member of the Reserve Bank board.</p>
<p>Their responses are given weight by statements explaining their views published in full on The Conversation website and by a requirement that they rank the confidence they have in their responses on a scale of 1 to 10.</p>
<h2>What matters is R</h2>
<p><a href="https://www.bbc.com/news/health-52473523">R</a>, which is also referred to as <a href="https://theconversation.com/r0-how-scientists-quantify-the-intensity-of-an-outbreak-like-coronavirus-and-predict-the-pandemics-spread-130777">R0</a>, <a href="https://theconversation.com/how-to-model-a-pandemic-134187">R₀</a>, and <a href="https://rt.live/">Rt</a> is the reproduction number of the virus. It a measure of the average number of other people that any person with it will directly infect.</p>
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<a href="https://images.theconversation.com/files/322057/original/file-20200321-22632-12jnmnq.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/322057/original/file-20200321-22632-12jnmnq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/322057/original/file-20200321-22632-12jnmnq.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=621&fit=crop&dpr=1 600w, https://images.theconversation.com/files/322057/original/file-20200321-22632-12jnmnq.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=621&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/322057/original/file-20200321-22632-12jnmnq.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=621&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/322057/original/file-20200321-22632-12jnmnq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=780&fit=crop&dpr=1 754w, https://images.theconversation.com/files/322057/original/file-20200321-22632-12jnmnq.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=780&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/322057/original/file-20200321-22632-12jnmnq.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=780&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<p>An R of 2 means that on average each person with the virus will directly infect two other people in a process that will escalate increasingly quickly until after four sets of contacts 16 people have it, and after 20 sets of contacts more than one million people have it.</p>
<p>This snowballing effect is a property of any R above 1.</p>
<p>At an R below 1 the spread decelerates until very few people have it.</p>
<p>In the early days of the outbreaks, Australia’s value of R was <a href="https://www.abc.net.au/news/2020-03-22/covid-19-how-deadly-and-contagious-is-coronavirus/12068106">well above 1</a>.</p>
<p>The lockdowns and other restrictions have helped push it down <a href="https://www.abc.net.au/news/2020-05-14/will-australia-have-a-second-wave-of-coronavirus-infections/12234496">to about 1</a>.</p>
<p>The 47 leading Australian economists selected by the Economic Society of Australia were asked whether they agreed, disagreed, or strongly agreed or strongly disagreed with this proposition:</p>
<blockquote>
<p>The benefits to Australian society of maintaining social distancing measures sufficient to keep R less than 1 for COVID-19 are likely to exceed the costs. </p>
</blockquote>
<p>The proposition suggests that in the present context it is likely to be worthwhile to continue to maintain the restrictions that are needed to push R below 1 and keep it there.</p>
<p>Almost three quarters of the economists surveyed – 34 out of 47 – backed the proposition, 23 of them “strongly”.</p>
<p>Only nine disagreed, and only one strongly.</p>
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<p>The arguments put for the worth of maintaining social distancing measures sufficient to keep R below 1 include avoiding “tens or hundreds of thousands of avoidable deaths” (John Quiggin) and allowing the economy to return to normal sooner than otherwise by escaping the need for “repeated lockdowns” that might be needed if the disease got out of control again (Ian Harper).</p>
<p>Chris Edmond uses the analogy of the <a href="https://www.economicshelp.org/blog/1364/economics/phillips-curve-explained/">Phillips Curve</a> that is meant to show the the tradeoff between levels of inflation and unemployment. </p>
<p>Although it shows a tradeoff in the short term (more inflation results in lower unemployment) in the longer term it finds no such tradeoff. More inflation simply leads to higher prices with unemployment being no lower.</p>
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Read more:
<a href="https://theconversation.com/eradicating-the-covid-19-coronavirus-is-also-the-best-economic-strategy-136488">Eradicating the COVID-19 coronavirus is also the best economic strategy</a>
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<p>“In a similar way, there is no long-run trade off between public health and the health of the economy in responding to the COVID-19 crisis,” he says. </p>
<p>Lifting restrictions “risks the worst of all worlds, compromising our public health goals and at the same time not getting a proper economic recovery”.</p>
<p>Stefanie Schurer quotes a German proverb: <a href="https://en.wikiquote.org/wiki/Talk:German_proverbs">better a painful ending than an endless pain</a>.</p>
<h2>Lifting restrictions “worst of all worlds”</h2>
<p>She says a short and medium term failure to eliminate, or at least slow down, the spread of COVID-19 would entail significant longer-run political, economic and social costs.</p>
<p>Renee Fry-McKibbin points out that that even if the deaths from reopening economic activity turn out not to be high, we have no idea yet of the long term health consequences of exposing more people to COVID-19. </p>
<p>“Will people suffer from respiratory issues going forward requiring ongoing medical attention?” she asks. “We have incomplete information on the actual costs and benefits.”</p>
<p>Saul Eslake, who can see the worth of continued restrictions that keep R below 1, cautions that the longer they remain in place, the more the case for reopening will grow. </p>
<h2>Yet the costs of restrictions are growing</h2>
<p>Craig Emerson says keeping R below 1 should be merely a “guiding principle” rather than a binding constraint.</p>
<p>“The longer the restrictions are in place, the greater will be the likelihood of links being broken - leading to severe economic hardship, business failures, mortgage defaults, domestic violence, mental health problems, suicide and long-term unemployment, particularly for the young,” he says.</p>
<p>Gigi Foster says, in retrospect, the best thing for Australia to have done would have been to have never had an enforced lockdown, but to have encouraged people to continue to behave as normally as possible while taking precautions, as in Sweden, allowing young and healthy people to acquire immunity in order to protect more vulnerable people, in this and in future waves of the virus.</p>
<p>She suspects the costs of continued restrictions that keep R below 1 outweigh the benefits, including benefits measured in <a href="https://www1.health.gov.au/internet/publications/publishing.nsf/Content/illicit-pubs-needle-return-1-rep-toc%7Eillicit-pubs-needle-return-1-rep-5%7Eillicit-pubs-needle-return-1-rep-5-2">quality-adjusted life years</a> saved.</p>
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Read more:
<a href="https://theconversation.com/covid-lockdowns-have-human-costs-as-well-as-benefits-its-time-to-consider-both-137233">COVID lockdowns have human costs as well as benefits. It's time to consider both</a>
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<p>Hugh Sibley says that by making progress towards eliminating the virus we have eliminated the option of acquiring the mass immunity that would make it easier to live with it. </p>
<p>“We have, in effect, dug ourselves into a hole,” he says. “And we are now congratulating ourselves how deep that hole is. Too few people are asking how we get out.”</p>
<h2>Supporters more certain than opponents</h2>
<p>When responses to the survey are weighted by the confidence respondents have in them, opposition to restrictions weakens.</p>
<p>Unweighted for confidence, 19% of respondents oppose the proposition that restrictions that keep R below 1 are likely to be value for money.</p>
<p>Weighted for (lack of) confidence, opposition falls to 15.4%.</p>
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<p>Unweighted for confidence, 72.3% support the proposition that restrictions that keep R below 1 are likely to be value for money.</p>
<p>Weighted for confidence, that support grows to 77.1%</p>
<p>The proportion strongly agreeing with the proposition grows from 48.9% to 54.8%</p>
<p>Put another way, when weighted for confidence, a clear majority of the economists surveyed strongly support the proposition that the benefits to society from maintaining social distancing measures sufficient to keep R less than 1 are likely to exceed the costs. </p>
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<p><em>Individual responses</em></p>
<p><iframe id="tc-infographic-483" class="tc-infographic" height="400px" src="https://cdn.theconversation.com/infographics/483/8bc4673fd594bf9952c618e101fca6b540c12580/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p>
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<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The economists who support the use of social distancing measures to slow the spread of COVID-19 are not only in the majority, they are also more certain of their opinions than those who do not.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1383032020-05-15T22:35:07Z2020-05-15T22:35:07ZThe costs of the shutdown are overestimated – they’re outweighed by its $1 trillion benefit<figure><img src="https://images.theconversation.com/files/335314/original/file-20200515-138610-vnf0pz.jpg?ixlib=rb-1.1.0&rect=553%2C218%2C2686%2C1325&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>As Australia begins to relax its COVID-19 restrictions there is understandable debate about how quickly that should proceed, and whether lockdowns even made sense in Australia in the first place.</p>
<p>The sceptics arguing for more rapid relaxation of containment measures point to the economic costs of lockdowns and appeal to the cold calculus of <a href="https://www.investopedia.com/terms/c/cost-benefitanalysis.asp">cost-benefit analysis</a> to conclude that the lives saved by lockdowns don’t justify the economic costs incurred to do so. </p>
<p>Their numbers don’t stack up.</p>
<p>To be able to weigh the value of a life against the economic costs of forgone output from lost jobs and business closures, requires placing a dollar value on one person’s life. This number is called the value of a statistical life. </p>
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Read more:
<a href="https://theconversation.com/modelling-suggests-going-early-and-going-hard-will-save-lives-and-help-the-economy-135025">Modelling suggests going early and going hard will save lives and help the economy</a>
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<p>In Australia, the Government generally uses a value of A$<a href="https://www.pmc.gov.au/sites/default/files/publications/Value_of_Statistical_Life_guidance_note.pdf">4.9 million</a>. The United States uses a value of <a href="https://www.bloomberg.com/graphics/2017-value-of-life/">US$10 million</a>.</p>
<p>What are the benefits of the shutdown? This is the value of lives saved plus any indirect economic or health benefits. Lives saved are those excess lives that would be lost if government relied on a strategy that allowed enough people to get infected to result in so-called <a href="https://www.webmd.com/lung/what-is-herd-immunity#1">herd immunity</a>.</p>
<p>How many extra lives would be lost under this second strategy? </p>
<p>To answer this, we need assumptions about the virus. </p>
<h2>The lives lost if we let it rip</h2>
<p>The <a href="https://www.nytimes.com/2020/04/23/world/europe/coronavirus-R0-explainer.html?referringSource=articleShare">initial reproduction rate</a> of the virus, R0, was thought to be about 2.5. This means that every 2 people infected were likely to infect another 5; producing an average infection rate per person of 2.5.</p>
<p>Herd immunity for COVID-19 is estimated to require roughly 60% of the population be infected before the <a href="https://www.livescience.com/coronavirus-flatten-the-curve.html">curve begins to flatten</a> and the peak infections fall.</p>
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Read more:
<a href="https://theconversation.com/what-is-herd-immunity-and-how-many-people-need-to-be-vaccinated-to-protect-a-community-116355">What is herd immunity and how many people need to be vaccinated to protect a community?</a>
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<p>This happens when the reproduction rate, R0, falls below one. Because of subsequent new infections, the total number infected over the course of the pandemic is closer to 90%.</p>
<p>Given a population of 25 million people and assuming a fatality rate of 1%, this would produce 225,000 deaths. </p>
<p>An assumption of a 1% fatality rate is low from the perspective of those making decisions at the onset of the pandemic, at a time when crucial and reliable data were missing.</p>
<h2>Those lives are valued at $1.1 trillion</h2>
<p>Converting those fatalities to dollars using the Australian value of a statistical life of A$4.9 million per life yields a cost of A$1.1 trillion. </p>
<p>In rough terms, that’s the amount we have gained by shutting down the economy, provided deaths do not skyrocket when lockdown measures are relaxed and borders re-open. </p>
<p>It is about three fifths of one year’s gross domestic product, which is about A$1.9 trillion.</p>
<p>What are the costs of the shutdown? </p>
<p>These are the direct economic costs from reduced economic activity plus the indirect social, medical, and economic costs, all measured in terms of national income.</p>
<p>A starting point is to take the lost income that occurs from the recession that has probably already begun. </p>
<h2>What will the shutdown cost?</h2>
<p>Let’s assume that the downturn results in a 10% drop in gross domestic product over 2020 and 2021 – about $180 billion – consistent with IMF forecasts of a fall in GDP of 6.7% in 2020 and a sharp rebound of 6.1% growth in 2021, and comparable to the Reserve Bank of Australia’s forecasts in the latest <a href="https://www.rba.gov.au/publications/smp/2020/may/">Statement on Monetary Policy</a>.</p>
<p>Comparing this cost from shutting down – about $180 billion – to the benefit of $1,103 billion – makes the case for shutdown clear.</p>
<p>But this calculation grossly overestimates the costs of the shutdown. </p>
<p>The recession is a consequence of both the shutdown and the pandemic. </p>
<p>We need to attribute costs to each.</p>
<p>Most of the economic costs of the recession are likely to be due to the pandemic itself rather the shutdown. </p>
<h2>Many costs would have been borne anyway</h2>
<p>Even before the shutdown, economic activity was in decline. </p>
<p>Both in Australia and internationally air travel, restaurant bookings and a range of other activities had fallen sharply. </p>
<p>They were the result of a “private shutdown” that commenced before the mandated government shutdown. </p>
<p>Even in a country such as Sweden, where a shutdown has not been mandatory, there has been a more than 75% reduction in movement in central Stockholm and a more than 90% reduction in travel to some domestic holiday destinations.</p>
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Read more:
<a href="https://theconversation.com/eradicating-the-covid-19-coronavirus-is-also-the-best-economic-strategy-136488">Eradicating the COVID-19 coronavirus is also the best economic strategy</a>
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<p>To be generous, let’s assume the costs attributable to the government-mandated part of the shutdown are half of the total costs, making their cost A$90 billion.</p>
<p>In reality, they are likely to be less, one important study suggests <a href="https://arxiv.org/pdf/2005.04630.pdf">much less</a>. </p>
<p>It is hard to imagine a much bigger private shutdown not taking place had the government decided to simply let the disease rip until its spread was slowed by herd immunity. </p>
<h2>Support is not a cost</h2>
<p>It is also important to note that the government’s spending of A$214 billion to support the economy during the shutdown is a transfer of resources from one part of society to another rather than a cost.</p>
<p>It creates neither direct costs nor benefits for society as a whole, other than the economic distortions coming from raising the revenue to service the spending. </p>
<p>With long-term government bond rates near 1% (less than inflation), the total cost of distortions is likely to be tiny.</p>
<p>Of course, this discussion simplifies what are incredibly complex social, health and economic questions. There are clearly further costs, from both relaxing restrictions and keeping them in place.</p>
<h2>Other costs are not that big</h2>
<p>These costs are worthy of serious study and should rightly be part of a comprehensive public policy discussion. But looked at through the lens of a cost-benefit analysis these combined effects are likely to be small relative to the value of preventing mass death.</p>
<p>Among them are the incidence of mental health problems and domestic violence under lockdowns. They are important concerns that should be addressed by targeted and well-designed programs. </p>
<p>Weighing against that is evidence that economic crises are associated with <a href="https://voxeu.org/article/economic-crises-and-mortality">declines</a> in overall mortality rates. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/the-calculus-of-death-shows-the-covid-lock-down-is-clearly-worth-the-cost-137716">The calculus of death shows the COVID lock-down is clearly worth the cost</a>
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<p>While suicides rise, total mortality, including deaths from heart attacks and workplace and traffic accidents, <a href="https://www.politico.com/news/magazine/2020/04/02/coronavirus-economy-reopen-deaths-balance-analysis-159248">falls</a>. </p>
<p>In the specific case of this pandemic there is <a href="https://psyarxiv.com/3kfmh">survey evidence</a> based on respondents from 58 countries suggesting that strong government responses to the pandemic have been reducing worry and depression.</p>
<p>Also, we have to acknowledge that recessions and educational disruption have health and economic costs that are unequally spread.</p>
<p>The shutdown disproportionately impacts more-disadvantaged people including short-term casual workers, migrant workers, those with disabilities and the homeless. </p>
<h2>The most-disadvantaged suffer, either way</h2>
<p>This skewing will also be present in the herd immunity option. As New York City makes clear, a rapid spread of the disease also disproportionately impacts disadvantaged communities. One can only speculate about the disease burden should some of our remote indigenous communities get exposed.</p>
<p>To this we should add further achievements of the shutdown:</p>
<ul>
<li><p>elimination of mental trauma and grief from losing our loved ones</p></li>
<li><p>avoiding the costs of possible longer-term implications of the disease, which we still know little about</p></li>
<li><p>avoiding a collapse in the capacity of the health system to deal with other emergencies through the sheer numbers of COVID-19 infected combined with staff shortages due to illness</p></li>
</ul>
<p>Those advocating cost-benefit analysis of this kind have to apply the principle systematically. It is difficult to see how the total of these sorts of considerations on each side of the ledger could compare to the benefit of lives saved. They will be an order of magnitude, if not two, smaller.</p>
<h2>$90 billion, versus $1.1 trillion</h2>
<p>In the cold calculus of cost-benefit analysis, a highly pessimistic view of the economic costs of Australia’s shutdown comes to around $90 billion. </p>
<p>It is a small price to pay compared to the statistical value of lives the shutdown should save, around A$1.1 trillion. </p>
<p>It produces a simple message. The shutdown wins.</p>
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Read more:
<a href="https://theconversation.com/its-hard-to-know-when-to-come-out-from-under-the-doona-itll-be-soon-but-not-yet-137879">It's hard to know when to come out from under the doona. It'll be soon, but not yet</a>
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<p>The question we now face is how quickly to relax restrictions. Here, too, there are costs and benefits, and we need to be mindful of the economic cost of a second-wave outbreak, plus mortality costs of disease spread before effective treatments or vaccine become available.</p>
<p>And in all of this bean counting, we should remember that putting a price tag on human life is sometimes unavoidable – such as when a doctor with access to only one ventilator has to choose between two patients. </p>
<p>But we shouldn’t mistake necessity for desirability. We should seek to avoid needing to make such wrenching choices whenever possible.</p>
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<p><em>Dr Jen Schaefer of the Royal Children’s Hospital Melbourne assisted with the preparation of this piece.</em></p><img src="https://counter.theconversation.com/content/138303/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A realistic estimate of the economic costs of a two-year lockdown amounts to $90 billion. The benefit in lives saved amounts to at $1.1 trillion.Richard Holden, Professor of Economics, UNSW SydneyBruce Preston, Professor of Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1378792020-05-11T03:17:25Z2020-05-11T03:17:25ZIt’s hard to know when to come out from under the doona. It’ll be soon, but not yet<figure><img src="https://images.theconversation.com/files/333838/original/file-20200510-49550-11x592u.jpg?ixlib=rb-1.1.0&rect=24%2C52%2C2167%2C1080&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://unsplash.com/@beccaschultz93">Becca Schultz/Unsplash</a></span></figcaption></figure><p>In the wake of our success so far in containing the spread of COVID-19, the prime minister has been prodding us to come out from under the doona. </p>
<p>With the premiers, he has prepared a <a href="https://prod.static9.net.au/fs/e8cb19bb-ca0b-48e7-82b2-b644786124e3">three-step plan</a>. </p>
<p>The problem, he said on Friday, is that it would be tempting to stay in lockdown tucked up under the doona <a href="https://www.pm.gov.au/media/press-conference-australian-parliament-house-08may20">forever</a>. </p>
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<p>And you know, you’ll never face any danger. But we’ve got to get out from under the doona at some time. And if not now, then when?</p>
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<p>The treasurer Josh Frydenberg says continuing the lockdown is costing the economy <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/speeches/address-national-press-club">A$4 billion</a> per week.</p>
<p>Economists have sharply polarised positions.</p>
<h2>To stay safe, or to live boldly</h2>
<p>The preamble to an open letter by 265 Australian economists published in <a href="https://theconversation.com/open-letter-from-265-australian-economists-dont-sacrifice-health-for-the-economy-136686">The Conversation</a> last month said that to use those costs as a reason to end the lockdown would represent a “callous indifference to life”. </p>
<p>Others seem to think that the lives lost <a href="https://theconversation.com/covid-lockdowns-have-human-costs-as-well-as-benefits-its-time-to-consider-both-137233">matter less</a> than the huge economic and social costs from staying locked down. </p>
<p>In between those extremes lies a huge band of uncertainty. </p>
<p>A more circumspect comparison of the risks of unlocking compared to the risks of staying locked down suggests that, in purely economic terms, the restrictions make good sense so far. </p>
<h2>You start by putting a value on lives</h2>
<p>One way to evaluate the merits of relaxing restrictions is to put a monetary value on the fatalities avoided, and compare that cost with the cost imposed by the restrictions.</p>
<p>Putting a monetary value on human life is often viewed as unsavoury. But, whether explicitly or implicitly, it is what is being done every time a government or non government entity makes a decision that affects the risk of increased mortality, from whether to put up a road sign to how to conduct hospital triage.</p>
<p>Being explicit gives some assurance that the proposed measures are proportional. It can alleviate fears that what’s proposed is an under or over reaction. </p>
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Read more:
<a href="https://theconversation.com/the-calculus-of-death-shows-the-covid-lock-down-is-clearly-worth-the-cost-137716">The calculus of death shows the COVID lock-down is clearly worth the cost</a>
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<p>But numbers alone can not tell us what is the right thing to do. That requires making value judgements - which is the job of politicians. </p>
<p>It is nevertheless helpful to understand how the COVID-19 policy responses measure up to standards used in normal public health decision making.</p>
<p>Making this difficult is the enormous uncertainty over some of the key variables.</p>
<h2>It’s hard to know how many lives</h2>
<p>A critical number is the infection fatality rate. </p>
<p>The Oxford Centre for Evidence Based Medicine puts the infection fatality rate at between <a href="https://www.cebm.net/covid-19/global-covid-19-case-fatality-rates/">0.1% and 0.4%</a> of the population. </p>
<p>For Australia, if 90% were infected, this implies 22,000 to 90,000 fatalities. </p>
<p>This range could further be increased by as much as 50% if not enough intensive care units are available.</p>
<p>Professor Tony Blakely of the University of Melbourne, and Professor Nick Wilson of the University of Otago have reported a larger estimate of <a href="https://pursuit.unimelb.edu.au/articles/the-maths-and-ethics-of-minimising-covid-19-deaths">134,000</a> fatalities.</p>
<p>For planning purposes the Department of Prime Minister and Cabinet values a full statistical life, when converted to 2019 dollars - allowing for inflation and growth - of approximately <a href="https://www.pmc.gov.au/sites/default/files/publications/Value_of_Statistical_Life_guidance_note.pdf">A$5.1 million</a>. </p>
<p>Reasonable arguments could be made that it should be many times larger or smaller.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/333842/original/file-20200510-49546-1ubflin.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/333842/original/file-20200510-49546-1ubflin.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/333842/original/file-20200510-49546-1ubflin.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=893&fit=crop&dpr=1 600w, https://images.theconversation.com/files/333842/original/file-20200510-49546-1ubflin.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=893&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/333842/original/file-20200510-49546-1ubflin.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=893&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/333842/original/file-20200510-49546-1ubflin.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1122&fit=crop&dpr=1 754w, https://images.theconversation.com/files/333842/original/file-20200510-49546-1ubflin.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1122&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/333842/original/file-20200510-49546-1ubflin.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1122&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://books.google.com.au/books/about/Saved.html?id=YiPAHAAACAAJ&redir_esc=y">Saved, Tony Bullimore's book about the rescue.</a></span>
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<p>As an example, when the lone British sailor Tony Bullimore was rescued from the Antarctic Ocean by the HMAS Adelaide in 1997, the nation celebrated as he emerged from under the hull after four days trapped in winds of up to 160 km per hour. </p>
<p>Australia’s defence minister <a href="https://www.theguardian.com/fromthearchive/story/0,,1985507,00.html">dismissed</a> any criticism of the cost. </p>
<p>“We have an international legal obligation. We have a moral obligation obviously to go and rescue people, whether in bushfires, cyclones or at sea,” he said.</p>
<p>In today’s dollars it cost about $10 million to save 57 year old Bullimore’s life. When age is factored in this represents a value that is many times more than the normal value of a full statsitical life used by the prime minister’s department.</p>
<h2>A reference figure is $150 billion…</h2>
<p>Nevertheless, taking $5.1 million as a conservative estimate of the value of a full life and reducing it by two thirds to take account of the fact that most of the people who die from COVID-19 are in the final third of their lives, gives a conservative cost of 90,000 COVID-19 fatalities in a “do-nothing” scenario of about $150 billion, or 8% of gross domestic product.</p>
<p>By comparison, at $4 billion per week, the economic cost of the first month of restrictions amounts to a little under 1% of gross domestic product. </p>
<p>Spending many times that much to avoid a health crisis that could cost 8% of gross domestic product, and perhaps much more, seems reasonable.</p>
<p>This makes Australia’s lockdown and social distancing regulations eminently justifiable by standard public policy criteria.</p>
<h2>…which means we can’t keep doing this forever</h2>
<p>But there’s a catch: continuing the regulations indefinitely isn’t an option. </p>
<p>Lockdowns make more sense if there is an exit strategy or end game – such as a vaccine or medical intervention. </p>
<p>Unfortunately, neither are likely within six to twelve months, if ever. </p>
<p>Like cures for cancer, it’s possible they will always remain just over the horizon. </p>
<p>This kind of indefinite time-frame would see the economic and social costs of restrictions rise over time and potentially exceed the statistical value of the lives saved, all the while leaving the vast majority of the population susceptible. Even if COVID-19 were eliminated in Australia, so that economic activity resumed, this would impose substantial costs on tourism and accommodation sectors - potentially for ever.</p>
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Read more:
<a href="https://theconversation.com/covid-lockdowns-have-human-costs-as-well-as-benefits-its-time-to-consider-both-137233">COVID lockdowns have human costs as well as benefits. It's time to consider both</a>
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<p>There is a danger of a double tragedy. Without a <a href="https://go8.edu.au/research/roadmap-to-recovery">plan to exit</a> and with no vaccine, we could find ourselves having spent 8% or more of gross domestic product in lockdowns and still face the threat of a national epidemic. </p>
<p>Waiting for a vaccine could become like having yet another go on the pokies – without a commitment to exit, you end up broke with nothing else to spend.</p>
<p>At the moment, the restrictions are justified in financial terms. </p>
<p>But rising economic and social costs mean we will need an exit strategy. This may simply mean learning to live with COVID-19. </p>
<p>With that end-game in mind, taking a cautious peek out from under the doona, soon, makes sense.</p><img src="https://counter.theconversation.com/content/137879/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Robertson receives funding from Australian Research Council. </span></em></p>The lock-downs are saving more lives than they cost, but eventually the costs will rise to the point where they exceed the value of lives saved.Peter Robertson, Professor, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1372332020-04-30T02:44:37Z2020-04-30T02:44:37ZCOVID lockdowns have human costs as well as benefits. It’s time to consider both<p>Australia has been lucky. We’ve had time to consider our response to COVID-19, based on what was happening in other countries, before it hit us. </p>
<p>We implemented restrictions that are likely to have saved many from dying of COVID-19. Fewer than 100 have died so far, a fraction of the number initially projected.</p>
<p>At this pivotal moment, we need to think carefully about how best to protect ourselves going forward.</p>
<p>We need to consider whether the costs of continued restrictions to prevent transmission of COVID-19 – costs that can be quantified in terms of human lives harmed and human lives lost – are worth the benefits. </p>
<p>It is <a href="https://www.dailymail.co.uk/news/article-8237177/Gigi-Foster-Q-Economist-says-Australia-shouldnt-gone-coronavirus-lockdown.html">unpopular</a> to question the value of protecting Australians against COVID-19 when the world is in the middle of the pandemic.</p>
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Read more:
<a href="https://theconversation.com/what-might-trigger-a-return-to-normal-why-our-coronavirus-exit-strategy-is-tbc-136047">What might trigger a return to 'normal'? Why our coronavirus exit strategy is ... TBC</a>
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<p>Yet continuing the restrictions we have put in place will increase deaths from other causes, and decrease the quality of many lives.</p>
<p>Moving forward, we will need to make decisions that maximise the health and well-being of all Australians, including the most vulnerable. We will need to consider not only the deaths and suffering the restrictions prevent (the benefits), but also the deaths and suffering they bring about (the costs).</p>
<h2>Benefit: lives saved</h2>
<p>By Tuesday April 28, COVID-19 had killed 84 Australian residents, only a fraction of the <a href="https://pursuit.unimelb.edu.au/articles/the-maths-and-ethics-of-minimising-covid-19-deaths">134,000</a> initially expected. </p>
<p>This striking outcome reflects both government restrictions and rapid responses by individuals, with the actual contribution of each uncertain.</p>
<p>Australia’s geography, environment, culture and demographic makeup are different from other countries which have had many more deaths, and this too might have contributed.</p>
<p>But the restrictions will have saved many lives that otherwise would have been taken by COVID-19.</p>
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Read more:
<a href="https://theconversation.com/unlocking-australia-what-can-benefit-cost-analysis-tell-us-136233">Unlocking Australia: What can benefit-cost analysis tell us?</a>
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<p>In Sweden, which had no forced lockdown and only voluntary social distancing, around 2500 deaths have been attributed to COVID-19.</p>
<p>Adjusted for Australia’s higher population, that per-capita death rate would have produced about 6,000 COVID-19 Australian deaths by now, instead of 84.</p>
<p>The restrictions might have also saved lives by reducing things such as traffic and workplace accidents. Around <a href="https://www.bitre.gov.au/statistics/safety">100</a> Australians die each month in road accidents and <a href="https://www.safeworkaustralia.gov.au/statistics-and-research/statistics/fatalities/fatality-statistics">14</a> in accidents at work.</p>
<h2>Cost: lives lost to domestic violence</h2>
<p>Concerns are <a href="https://www.sachverstaendigenrat-wirtschaft.de/en/special-report-2020.html">emerging internationally</a> about increased deaths due to COVID-19 restrictions. Despite reporting lags and uncertainty about the specific causes, the signs are worrying.</p>
<p>Australia’s record in domestic violence was shameful before the pandemic. </p>
<p>On average, <a href="https://aic.gov.au/publications/sr/sr002">one woman every week</a> is killed by her current or ex-partner in Australia. One in <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/4906.0">every four</a> Australian women has experienced emotional abuse from a current or former partner. </p>
<p>In the UK, deaths from domestic violence have more than doubled during COVID-19 restrictions. Calls to helplines for women have <a href="https://www.theguardian.com/society/2020/apr/12/domestic-violence-surges-seven-hundred-per-cent-uk-coronavirus">surged seven-fold</a>. </p>
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Read more:
<a href="https://theconversation.com/how-do-we-keep-family-violence-perpetrators-in-view-during-the-covid-19-lockdown-135942">How do we keep family violence perpetrators ‘in view’ during the COVID-19 lockdown?</a>
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<p>In Australia, Google searches related to domestic violence <a href="https://7news.com.au/lifestyle/health-wellbeing/coronavirus-lockdown-results-in-75-per-cent-increase-in-domestic-violence-google-searches-c-901273">almost doubled</a>, with increasing calls from potential perpetrators of domestic violence. </p>
<p>Government restrictions have left many potential victims <a href="https://pursuit.unimelb.edu.au/articles/domestic-violence-isolation-and-covid-19">vulnerable</a> inside their homes. Whilst the Australian government has pledged <a href="https://www.pm.gov.au/media/11-billion-support-more-mental-health-medicare-and-domestic-violence-services-0">A$150 million</a> to support those experiencing domestic violence during COVID-19, like Jobkeeper, the extra services may not be enough to fully fix the problems exacerbated by the shutdown.</p>
<p>Domestic violence not only leads to deaths, but also to increased suffering of victims, which can be quantified in units such as wellbeing-adjusted life years (known as <a href="http://clubtroppo.com.au/2020/04/08/how-many-wellbys-is-the-corona-panic-costing/">WELLBYs</a>).</p>
<p>These human costs are highly likely to be paid by young women and by mothers, creating inter-generational trauma, particularly within vulnerable populations.</p>
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Read more:
<a href="https://theconversation.com/mums-with-an-intellectual-disability-already-risk-family-violence-and-losing-their-kids-coronavirus-could-make-things-worse-131468">Mums with an intellectual disability already risk family violence and losing their kids. Coronavirus could make things worse</a>
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<p>By contrast, the median age of Australians who have died due to COVID-19 is <a href="https://www.health.gov.au/resources/publications/coronavirus-covid-19-at-a-glance">79</a>. </p>
<p>Many had pre-existing heart and lung conditions and might <a href="https://www.thelancet.com/journals/lanres/article/PIIS2213-2600(20)30110-7/fulltext">not have benefited</a> from costly and invasive interventions such as mechanical ventilation.</p>
<h2>Cost: lives lost to suicide</h2>
<p>Each year over <a href="https://www.blackdoginstitute.org.au/clinical-resources/suicide-self-harm/facts-about-suicide-in-australia">65,000</a> Australians attempt suicide. 3000 die by suicide. Suicide is the <a href="https://www.abs.gov.au/Causes-of-Death">leading cause of death</a> for Australians between the ages 15 and 44.</p>
<p>A recent study described coronavirus interventions as the “<a href="https://jamanetwork.com/journals/jamapsychiatry/fullarticle/2764584">perfect storm</a>” for increased suicide risk.</p>
<p>Although the COVID-19 crisis is <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7173821/">still evolving</a>, deaths by suicide climbed in the United States during the 1918–19 influenza pandemic, and among older people in Hong Kong during the 2003 SARS epidemic.</p>
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Read more:
<a href="https://theconversation.com/is-your-mental-health-deteriorating-during-the-coronavirus-pandemic-heres-what-to-look-out-for-134827">Is your mental health deteriorating during the coronavirus pandemic? Here's what to look out for</a>
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<p>Another study concludes that suicide rates in Europe and the United States climb by about <a href="https://www.ncbi.nlm.nih.gov/pubmed/24925987">1%</a> for every one percentage point increase in unemployment. During the 2008 financial crisis Europe and the US recorded an extra 10,000 extra deaths by suicide. The authors expect <a href="https://www.reuters.com/investigates/special-report/health-coronavirus-usa-cost/">twice as many</a> extra deaths due to suicide over the next 24 months. </p>
<p>To the extent that this kind of increased human suffering is a result of COVID-19 restrictions, it should be counted in any assessment of whether to ease them.</p>
<h2>Cost: lives lost to health care crowd-out</h2>
<p>Arguably the biggest short-run health cost of our COVID-19 arrangements has flowed from the government’s preparation for a much greater burden on the health system than eventuated. </p>
<p>Private hospitals were brought under state control and non-urgent surgeries <a href="https://www.abc.net.au/news/2020-04-21/elective-surgery-restored-national-cabinet-cmo-coronavirus/12168848">postponed</a>. In the past week some have been <a href="https://www.abc.net.au/news/2020-04-21/elective-surgery-restored-national-cabinet-cmo-coronavirus/12168848">restarted</a>.</p>
<p>And there is growing evidence that people are <a href="https://www.bmj.com/content/369/bmj.m1607">avoiding</a> seeking other forms of medical help because they are afraid of contracting COVID-19 or don’t want to burden health care providers.</p>
<p>In Britain, the number of people presenting at Accident and Emergency has fallen by one quarter. There is concern in the <a href="https://www.theguardian.com/society/2020/mar/27/fears-seriously-ill-a-and-e-numbers-drop-coronavirus-nh">Britain</a> and in <a href="https://acem.org.au/">Australia</a> about excess deaths as a consequence.</p>
<p>In the UK there were <a href="https://www.bmj.com/content/369/bmj.m1607">7,996</a> more registered deaths in the week ending April 10 than the five-year average for that period. COVID-19 accounted for 6213 of them, leaving an extra 1810 unexplained.</p>
<h2>Are we prepared to do the maths?</h2>
<p>There are undoubted health benefits from COVID-19 restrictions, including deaths averted and quality-adjusted life years saved. But there are also costs, which can be measured using the same metrics. </p>
<p>They include the consequences of lost education quality for the <a href="https://www.bmj.com/content/369/bmj.m1557">coronavirus cohort</a>, and the long-run impact of a prolonged economic downturn.</p>
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Read more:
<a href="https://theconversation.com/australian-schools-are-closing-because-of-coronavirus-but-should-they-be-133432">Australian schools are closing because of coronavirus, but should they be?</a>
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<p>Making decisions based on lives saved and lost is challenging, but not new. </p>
<p>Our government makes such decisions every day when it considers such things as how much to spend on cancer research or whether to fund a new drug through the pharmaceutical benefits scheme. </p>
<p>These decisions are typically made using quality-adjusted life years or numbers of deaths averted, allowing governments to directly compare lives with lives, and deaths with deaths.</p>
<p>Now that the first wave of the pandemic has peaked, it is time for governments to consider carefully their next moves.</p>
<p>Sharing the full equation they are using – including the real costs as well as the real benefits of interventions – would enable the public to evaluate whether those decisions are being made with Australia’s best interests in mind.</p>
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<p><em>If this article has raised issues for you, or if you’re concerned about someone you know, call Lifeline on 13 11 14.</em></p><img src="https://counter.theconversation.com/content/137233/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gigi Foster receives funding from the Australian Research Council. </span></em></p><p class="fine-print"><em><span>Martha Hickey does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>We’ve prevented many deaths, many of them at the cost of other deaths. The accounting ought to be made clear.Gigi Foster, Professor, School of Economics, UNSW SydneyMartha Hickey, Professor of Obstetrics and Gynaecology, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1362332020-04-16T03:11:00Z2020-04-16T03:11:00ZUnlocking Australia: What can benefit-cost analysis tell us?<figure><img src="https://images.theconversation.com/files/328233/original/file-20200416-140735-g0disx.jpg?ixlib=rb-1.1.0&rect=0%2C334%2C2670%2C1414&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Lockdowns work. That’s the evidence from many different countries now, including Australia. To be more precise, lockdowns reduce the effective reproductive rate of the virus to the point where it is below 1, meaning that, on average, each infected person passes on the disease to less than one other person. </p>
<p>As long as this is sustained, the number of new cases will keep declining, as we have now seen. Potentially, as has been claimed to be the case in China, the number of cases will approach zero.</p>
<p>It now seems clear that the best strategy is (near) eradication, pushing the number of infections down to (or near) zero, and preventing any resurgence. </p>
<p>As has just been suggested by Health Minister <a href="https://www.theaustralian.com.au/nation/coronavirus-australia-live-updates-china-didnt-warn-public-of-pandemic-for-six-key-days/news-story/f83f1ebe40553b8cdd5bfd7904c11321">Greg Hunt</a>, it’s time to think about relaxing controls. </p>
<p>But when can we start, and which controls should be relaxed? </p>
<h2>It’s benefits versus costs</h2>
<p>These are questions which will need collaboration between epidemiologists, economists and other social scientists. </p>
<p>The problem is essentially one of benefit cost analysis: which measures can be relaxed at least cost in terms of increased reproduction rates relative to the benefits that relaxation will generate. </p>
<p>The epidemiologists have the expertise to answer the first question (as well as it can be answered with very limited evidence). Economists and social scientists have the expertise to answer the second. </p>
<p>The ideal case would come if we could confirm the virus had been wiped out completely in Australia (or in a particular state).</p>
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Read more:
<a href="https://theconversation.com/eradicating-the-covid-19-coronavirus-is-also-the-best-economic-strategy-136488">Eradicating the COVID-19 coronavirus is also the best economic strategy</a>
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<p>Then, provided all new arrivals were subject to strict quarantine, we could drop all the restrictions except those that made sense for other reasons (encouraging/requiring hand washing is an obvious example).</p>
<p>But that’s unlikely to happen soon. </p>
<p>In the absence of comprehensive testing, even if counted new cases fall to zero, it’s hard to be sure that there aren’t any uncounted cases. And it will be some time before new cases reach zero.</p>
<p>So, we need to consider which restrictions we should lift, subject to the constraint that the reproduction rate is still below one, meaning that any undetected outbreaks will ultimately fizzle out. The first step is to identify the restrictions that impose the greatest cost for the least benefit in terms of reducing reproduction.</p>
<h2>Which restrictions can go first?</h2>
<p>The worst risks of spreading the disease come when large numbers of unrelated people are together in close proximity for a long time. Cruise ships represent an extreme case, where nearly everyone can get infected. Sporting matches and mass meetings are less extreme but still dangerous examples.</p>
<p>But at least on the anecdotal and intuitive evidence we have available, the most burdensome social restrictions are those that prevent gatherings involving modest numbers of family and close friends. Such gatherings post a much smaller risk than those of larger groups with more dispersed social networks. </p>
<p>Not only are the numbers small, but if other contacts are limited, any initial infection may be confined to a relatively small group.</p>
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Read more:
<a href="https://theconversation.com/can-i-visit-my-boyfriend-or-my-parents-go-fishing-or-bushwalking-coronavirus-rules-in-western-australia-135544">Can I visit my boyfriend or my parents? Go fishing or bushwalking? Coronavirus rules in Western Australia</a>
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<p>Given the big benefits from relaxing these restrictions and the low cost in terms of disease reproduction, these seem like obvious candidates for early easing.</p>
<p>Turning to economic activity, the costs of restricting an activity involving personal contact depend critically on the availability of remote-delivery substitutes. </p>
<p>Most obviously, office work of all kinds can be done remotely. Costs associated with lower efficiency and more goofing off are offset by the reduction in commuting costs. It’s entirely possible that the benefit to workers who place a high weight on commuting costs outweighs the cost to bosses who find supervision more difficult (and colleagues who enjoy social contact at work). </p>
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Read more:
<a href="https://theconversation.com/remote-work-amid-the-coronavirus-pandemic-3-solutions-134646">Remote work amid the coronavirus pandemic: 3 solutions</a>
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<p>Conversely, as has been pointed out with a good deal of derision, there is no way of doing a haircut from 1.5 metres away. That wasn’t a good reason for excluding them from the lockdown (haircuts can easily be deferred after all) but it makes them a good candidate for subsequent relaxation.</p>
<p>The other key issue is that of <a href="https://johnquiggin.com/2020/03/17/option-value/">option value</a>. </p>
<p>If a decision can be easily reversed, at relatively low cost, it has an “option value” relative to a decision that is effectively irreversible. That’s why it made sense to lock down early, rather than waiting to see if the virus spread.</p>
<p>School closures provide an example where option values are relevant. If we reopen the schools it will be costly to close them again. </p>
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Read more:
<a href="https://theconversation.com/australian-schools-are-closing-because-of-coronavirus-but-should-they-be-133432">Australian schools are closing because of coronavirus, but should they be?</a>
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<p>So, before reopening schools, we need to make sure that all the necessary facilities for handwashing and other health measures are in place, and that there is enough testing to detect infections before they spread.</p>
<p>One final point. Apart from lockdowns, the one thing that has been shown to work well is testing. The more people we can test, the faster we learn about possible outbreaks and more closely restrictions can be matched to the threat level.</p><img src="https://counter.theconversation.com/content/136233/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Quiggin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>When we unlock, we should do it cautiously, starting with small social gatherings, and we should test widely.John Quiggin, Professor, School of Economics, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1295352020-01-16T19:02:30Z2020-01-16T19:02:30ZTake care when examining the economic impact of fires. GDP doesn’t tell the full story<figure><img src="https://images.theconversation.com/files/310409/original/file-20200116-181629-1xtqhv8.jpg?ixlib=rb-1.1.0&rect=268%2C32%2C1374%2C746&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It is possible to calculate the impact impact of fires, but not using GDP.</span> <span class="attribution"><span class="source">Shutterstock/Andrew Brownbilll/AAP</span></span></figcaption></figure><p>Estimates of the economic damage caused by the bushfires are <a href="https://www.smh.com.au/business/the-economy/economic-cost-of-bushfires-estimated-at-2-billion-and-rising-20200106-p53pac.html">rolling in</a>, some of them <a href="https://edition.cnn.com/2020/01/10/perspectives/australia-fires-cost/index.html">big</a> and some unprecedented, as is the <a href="https://www.climatecouncil.org.au/this-is-not-normal/">scale</a> of the fires themselves. </p>
<p>These types of estimates will be refined and used to make – or break – the case for programs to limit the impact of similar disasters in the future. Some will be used to make a case for – or against – action on climate change.</p>
<p>But it’s important they not be done using the conventional measure of gross domestic product (GDP).</p>
<p>GDP measures everything produced in any given period. </p>
<p>It is a good enough measure of material welfare when used to measure the impact of a tourist event or a new mine or factory or something like the national broadband network, but it can be misleading – sometimes grossly misleading – when used to measure the economic impact of a catastrophe or natural disaster. </p>
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Read more:
<a href="https://theconversation.com/beyond-gdp-are-there-better-ways-to-measure-well-being-33414">Beyond GDP: are there better ways to measure well-being?</a>
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<p>That’s because it measures the <a href="https://www.afr.com/policy/economy/bushfires-crisis-unlikely-to-hit-economic-growth-jp-morgan-20200106-p53p5f">positives</a> brought about the recovery from disasters but leaves out some of the negatives caused by the destruction.</p>
<p>For example:</p>
<ul>
<li><p>building a new house has a positive impact on GDP, even if the old house was burnt down</p></li>
<li><p>a military evacuation has a positive impact on GDP, even though the circumstances that make it necessary are life-threatening and traumatic</p></li>
<li><p>bushfires stimulate GDP by creating more demand for health services, even as the victims suffer from smoke inhalation, burns or post-traumatic stress disorder.</p></li>
</ul>
<h2>It is possible to get at the full story</h2>
<p>Economic modelling <a href="https://www.cambridge.org/core/books/improving-homeland-security-decisions/economic-consequences-of-terrorism-and-natural-disasters-the-computable-general-equilibrium-approach/A62EAD73E39E5B5715E54C279925D49F#fndtn-information">pioneered in Australia</a>, and used to estimate the impact of <a href="http://www.copsmodels.com/elecpapr/g-256.htm">terrorism</a> and <a href="https://www.researchgate.net/publication/46467666_Effects_on_the_US_Of_an_H1N1_epidemic_Analysis_with_a_quarterly_CGE_model">epidemics</a> makes it possible to prepare measures of welfare that take account of the costs of disasters.</p>
<p>Among the immediate costs in the first months after a bushfire disaster would be:</p>
<ul>
<li><p>the direct cost of fire-fighting</p></li>
<li><p>the cost of temporarily relocating residents</p></li>
<li><p>health costs, such as treatment of burns and respiratory illnesses</p></li>
<li><p>loss of work days associated with firefighting, injuries, illnesses, displacement and loss of life</p></li>
<li><p>a downgrading of consumer confidence</p></li>
<li><p>destruction of assets including homes, farms, businesses and natural resources and the associated disruption of economic activity including tourism, agriculture and housing</p></li>
<li><p>the cost of replacing or rebuilding these assets</p></li>
</ul>
<p>Longer term impacts would derive from:</p>
<ul>
<li><p>health problems such as post-traumatic stress disorder leading to negative impacts on quality of life and labour supply</p></li>
<li><p>long term damage to ecosystems, including contamination of water, and extinction or severe loss of animal species including those necessary to agricultural production, such as bees</p></li>
<li><p>reputational damage leading to possible permanent downgrading of tourism activity in affected regions and in Australia more broadly</p></li>
<li><p>potential ongoing reluctance to invest in Australia </p></li>
<li><p>potential increases in cost of living in bushfire prone regions due to increases in insurance costs.</p></li>
</ul>
<h2>It involves going beyond GDP</h2>
<p>The longer term impacts of disasters on a nation’s GDP are clearly negative, deriving from a decline in productive capacity (labour, capital and natural resources) which unambiguously detracts from economic welfare. </p>
<p>In the immediate aftermath, expenditure on reconstruction of homes and other assets can add to GDP, but the funding of these activities (whether direct or through insurance) adds to debt and can drag on household consumption, either immediately or in the future. A related measure, <a href="https://data.oecd.org/natincome/gross-national-income.htm">Gross National Income</a> (GNI) takes this into account and is generally a better measure of economic welfare.</p>
<p>Bushfire-induced health expenditure stimulates both GDP and GNI but detracts from welfare.</p>
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Read more:
<a href="https://theconversation.com/with-costs-approaching-100-billion-the-fires-are-australias-costliest-natural-disaster-129433">With costs approaching $100 billion, the fires are Australia's costliest natural disaster</a>
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<p>Suffering from <a href="https://theconversation.com/disaster-recovery-from-australias-fires-will-be-a-marathon-not-a-sprint-129325">post-traumatic stress disorder</a>, for example, can hardly be considered an improvement in standard of living. </p>
<p>To offset this inappropriate “good news”, it is possible to construct an index of leisure-adjusted GNI which takes into account the downgraded quality of leisure time. </p>
<p>As a starting point for such estimates, the prime minister’s department sets the <a href="https://www.pmc.gov.au/sites/default/files/publications/Value_of_Statistical_Life_guidance_note.pdf">statistical value of a year of life</a> free of injury, disease and disability at A$182,000 (2014 dollars).</p>
<h2>And it depends on where you are</h2>
<p>Aggregated measures like GDP, GNI and leisure-adjusted GNI do not show the distribution of economic impact. </p>
<p>An event that strips a small amount from the incomes of everybody is different from one that decimates just a few regions, yet looks the same in a nationwide measure, so it is important that any economic analysis also looks at regional impacts.</p>
<p>The work is yet to be done, but it is safe to say that the conventional link between GDP and economic welfare (“more is better”) <a href="https://www.theguardian.com/commentisfree/2019/nov/24/metrics-gdp-economic-performance-social-progress">breaks down</a> when assessing tragedies, particularly ones with profound regional impacts. </p>
<p>When campaigning to be US president <a href="https://www.jfklibrary.org/learn/about-jfk/the-kennedy-family/robert-f-kennedy/robert-f-kennedy-speeches/remarks-at-the-university-of-kansas-march-18-1968">Bobby Kennedy</a> (John F Kennedy’s brother) said that GDP measures “everything… except that which makes life worthwhile”. </p>
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<p>It’d be wise to bear that in mind when considering the policy response to the bushfires.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/might-the-bushfire-crisis-be-the-turning-point-on-climate-politics-australian-needs-129442">Might the bushfire crisis be the turning point on climate politics Australian needs?</a>
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<img src="https://counter.theconversation.com/content/129535/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Janine Dixon does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>GDP is well suited to many things, but not to measuring the impact of disasters.Janine Dixon, Economist at Centre of Policy Studies, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1029082018-09-10T06:37:16Z2018-09-10T06:37:16ZIf the NBN and Snowy Hydro 2.0 were value for money, would we know?<p>When Malcolm Turnbull wrote to his electorate last week outlining his
achievements he listed economic growth, jobs, same-sex marriage and a number of really big construction projects including the Western Sydney airport, Melbourne to Brisbane inland rail, and Snowy Hydro 2.0. </p>
<p>Some people will like those and other big projects, some will not. But, combined, they are going to cost more than $75 billion over the next ten years, so it is worth asking as a separate (threshold) question whether they are likely to be value for money.</p>
<p>For some of them, such as the National Broadband Network or the Gonski education
reforms, its worth asking whether we might get better value if we spent even more. Turnbull’s downsizing of Labor’s original NBN plan made it cheaper, but not necessarily better. </p>
<p>For goods provided for a social purpose, value for money is about more than profit. But social returns often get left out of the equations because they are harder to measure. In a paper to be launched on Monday night as part of the University of NSW Grand Challenge on Inequality, we put forward a <a href="http://research.economics.unsw.edu.au/richardholden/assets/social-return-accounting.pdf">mechanism for considering both together</a>.</p>
<h2>How it’s done in the private sector</h2>
<p>In the private sector any significant investment decision requires a summation of future costs and benefits discounted (cut) by a few per cent each year to accord with the reality that future costs and benefits matter less to us than immediate payoffs or costs.</p>
<p>If the project makes sense when the discount rate is set at or above the firm’s cost of capital (or hurdle rate of return) it is worth agreeing to. If its benefits are so far into the future that they only make sense with a very low discount rate it is said to be not worth proceeding with.</p>
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Read more:
<a href="https://theconversation.com/the-nbn-how-a-national-infrastructure-dream-fell-short-77780">The NBN: how a national infrastructure dream fell short</a>
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<p>There is no reason why we can’t do the same for public sector projects as well, although assessing the benefits is complicated. </p>
<p>This is where the revolution in empirical economics and social science over the last two decades comes in.</p>
<h2>How to measure what’s hard to measure</h2>
<p>Consider a proposal to lengthen the school day by two hours. The costs are relatively easy to calculate: some more teacher time, slightly larger utility bills. Maybe some more pencils. </p>
<p>The benefits are more complex. Does a longer school day lead to better educational outcomes? What does that lead to late in life? How can we tell?</p>
<p>Modern social science has a well-refined method for answering these questions – the randomised controlled trial. Take 50 randomly selected schools and lengthen their school day, then compare the outcomes on standardised tests to a group of control schools. This reveals the true, causal impact of a longer school day on test scores.</p>
<p>Test scores are obviously not an end in themselves, but these can then be mapped all the way through into high school and post-secondary outcomes, and then into labour market and later life outcomes. This would naturally involve understanding the impact on earnings, but also outcomes such as crime and physical and mental health.</p>
<p>Answering these questions persuasively is what modern social science, armed with amazing data and great computing power, does extremely well. Just as a pharmaceutical trial gives one group, say, heart medication and another group a placebo, randomised trials can increasingly guide public policy. </p>
<h2>Trying it out</h2>
<p>Our study includes a demonstration of that sort of analysis on the money that will spent on the National Broadband Network and the National Disability Insurance Scheme.</p>
<p>We find that, taking into account social benefits such as telemedicine and the expansion of skills, the money being spent on the NBN will make sense even at a very high discount rate of 15.2%. Labor’s original more expensive fibre-to-the-premises model would have made sense at an even higher discount rate of 21.1%.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/explainer-how-much-does-the-ndis-cost-and-where-does-this-money-come-from-95924">Explainer: how much does the NDIS cost and where does this money come from?</a>
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<p>The benefits of the National Disability Insurance System are harder to measure. But, when account is taken of the value of reducing stress in carers and value of independence to those being cared for, it too becomes worthwhile at reasonable discount rates.</p>
<p>Politics, and political debate, will still need ultimately to control these sorts of investment decisions.</p>
<p>But the debate would be far better if we had a common language for assessing the relevant costs and benefits, and a more principled way of prioritising the competing demands on the public purse.</p><img src="https://counter.theconversation.com/content/102908/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>We are getting closer to being able to apply private sector rigour to the examination of public sector projects with social benefits.Rosalind Dixon, Professor of Law, UNSW SydneyRichard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/864572017-10-30T19:03:09Z2017-10-30T19:03:09ZBusiness Briefing: questioning the economics of prison<p>There are more than 41,000 daily full-time prisoners in Australia, <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/4512.0">according to the latest ABS data</a>. Many of them are in private prisons - almost 20% of the prison population <a href="https://www.pc.gov.au/research/ongoing/report-on-government-services/2015/justice/corrective-services/rogs-2015-volumec-chapter8.pdf">according to a 2014 Productivity Commission report</a>. </p>
<p>But we don’t really know whether private prisons are more cost effective or produce better results. Private prison contracts are often “commercial in confidence”, and it’s hard to know what exactly we’ve paid for. All this means we have to rely on watchdogs to ensure taxpayers are getting value for money, and it’s tough for companies to really compete. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/private-prisons-and-the-productivity-commission-where-is-the-value-for-money-5109">Private prisons and the Productivity Commission: where is the value for money?</a>
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<p>Prison job programs are often touted as a way to reduce prisoner recidivism, but again there is little evidence showing a positive impact. Joanne Wodak was a research assistant on a <a href="http://dro.deakin.edu.au/view/DU:30086990">study in the Northern Territory</a>. Despite positive feedback from both prisoners and employers, Wodak says these programs don’t address other, important factors affecting recidivism such as alcoholism and homelessness. </p>
<p>Technology could drastically change what a prison is and who is in them - through the use of <a href="http://www.abc.net.au/radionational/programs/lawreport/algorithms-in-the-justice-system/7676710">algorithms that decide who gets bail</a>, for instance. But as the University of Sydney’s Sandra Peter and Kai Riemer discuss, it’s unlikely to have an impact on the jobs prisoners themselves do. Low wages mean that prisoners provide an incredibly cheap source of labour, and the economics of this is unlikely to be drastically changed by technology.</p><img src="https://counter.theconversation.com/content/86457/count.gif" alt="The Conversation" width="1" height="1" />
Prisons are big business in Australia. Companies not only run entire prisons but provide many of the services. But what does the research say about the impact?Jenni Henderson, Section Editor: Business + EconomyJosh Nicholas, Deputy Editor: Business + Economy, The ConversationLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/762582017-04-19T22:34:40Z2017-04-19T22:34:40ZCalculating where America should invest in its transportation and communications networks<figure><img src="https://images.theconversation.com/files/165883/original/file-20170419-2410-x9z679.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Which links are most important in road and information networks?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/network-connection-technology-concept-city-background-436942042">Sahacha Nilkumhang/Shutterstock.com</a></span></figcaption></figure><p>The American economy is underpinned by networks. Road networks carry traffic and freight; the internet and telecommunications networks carry our voices and digital information; the electricity grid is a network carrying energy; financial networks transfer money from bank accounts to merchants. They’re vast, often global systems – but a local disruption can really block them up.</p>
<p>For example, <a href="http://www.wsbtv.com/news/local/atlanta/gdot-state-offering-31m-in-incentives-to-reopen-i-85-before-june/511832846">the I-85 bridge collapse in Atlanta will affect that city’s traffic for months</a>. A seemingly minor train derailment at New York City’s Penn Station resulted in <a href="https://www.nytimes.com/2017/04/04/nyregion/messy-commute-for-nj-transit-and-lirr-riders-a-day-after-derailment.html?_r=0">multiple days of travel chaos</a> in April. </p>
<p>As the Trump administration plans to <a href="http://thehill.com/blogs/congress-blog/economy-budget/328586-an-infrastructure-plan-coming-but-when">invest hundreds of billions in American infrastructure networks</a>, it will be crucial to identify what elements are the most crucial to repair or improve. This is not only important for maximizing benefits; it’s also useful in preventing disaster. Is there, perhaps, a telecommunication line that would be particularly damaging if it were destroyed? Or one road through an area that has an especially large role in keeping traffic flowing smoothly?</p>
<p><a href="http://greatvalley.psu.edu/person/qiang-patrick-qiang">Patrick Qiang</a> and I are operations management scholars who have developed <a href="http://dx.doi.org/10.1007/s10898-007-9198-1">a way to evaluate network performance</a> and simulate the effects of potential changes, whether planned (like a highway repair) or unexpected (like a natural disaster). By modeling the independent behavior of all the users of a network, we can calculate the flow – of <a href="http://dx.doi.org/10.1007/s10898-015-0371-7">freight</a>, <a href="https://dx.doi.org/10.1209/0295-5075/79/38005">commuters</a>, <a href="http://dx.doi.org/10.1007/978-3-540-77958-2_14">money</a> or anything else – across each link, and how other links’ flows will change. This lets us identify where investment will be most beneficial, and which projects shouldn’t happen at all.</p>
<h2>More isn’t always better</h2>
<p>It’s very difficult to measure networks’ performance, in part because they are so complex, but also because people use them differently at different times, and because those choices affect others’ experiences. For example, one person choosing to drive to work instead of taking the bus puts one more car on the road, which might get involved in a crash or otherwise contribute to a traffic jam.</p>
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<figcaption><span class="caption">Explaining the Braess paradox.</span></figcaption>
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<p>In 1968, German mathematician Dietrich Braess observed the possibility that adding a road to an area with congested traffic <a href="http://dx.doi.org/10.1287/trsc.1050.0127">could actually make things worse</a>, not better. <a href="https://supernet.isenberg.umass.edu/braess/braess-new.html">This paradox</a> can occur when travel times depend on the amount of traffic. If too many drivers decide their own optimal route involves one particular road, that road can become congested, slowing everyone’s travel time. In effect, the drivers would have been better off if the road hadn’t been built.</p>
<p>This phenomenon has been found not only <a href="https://supernet.isenberg.umass.edu/braess/braess-new.html#BraessArticle">in transportation networks</a> and <a href="http://dx.doi.org/10.1239/jap/1032374242">the internet</a>, but also, recently, <a href="https://doi.org/10.1209/0295-5075/115/28004">in electrical circuits</a>. </p>
<p>We shouldn’t waste time and money building or repairing network links the community would be better without. But how can we tell which elements help and which make things worse?</p>
<h2>Calculating efficiency</h2>
<p>The best networks can handle the highest demand at the lowest average cost for each trip – such as a commute from a worker’s home to her office. Evaluating a network means identifying which locations need to be connected to each other, as well as the volume of traffic between specific places and the various costs involved – such as gas, pavement wear and tear, and police services keeping drivers safe.</p>
<p>Once a network is measured in this way, it can be converted into a computerized model where we can simulate removing links or adding new ones in particular places. Then we can measure what happens to the rest of the network: Does traffic get more congested, and if so, by how much? Or, as in the Braess paradox, do travel times actually get shorter when a link is removed? And how much money does a particular project cost to build, and save in time or user expenses?</p>
<h2>Going global</h2>
<p>Our method of measuring a network’s performance has been used to refine
<a href="https://ercim-news.ercim.eu/en79/rd/route-optimization-how-efficient-will-the-proposed-north-dublin-metro-be">the route of a proposed metro line in Dublin, Ireland</a>; <a href="https://www.researchgate.net/publication/313365965_Maritime_Network_Efficiency_Comparison_in_Indonesia_Nusantara_Pendulum_and_Sea_Tollway">to design new shipping routes in Indonesia</a>; <a href="http://www.cedim.de/download/14_Schulz.pdf">to identify which roads in Germany should be first on the maintenance list</a>; and <a href="http://dx.doi.org/10.1007/s11069-013-0896-3">to determine the effects of road closures after major fires in regions of Greece</a>.</p>
<p>Our method has also been applied to make supply chains more efficient, both to <a href="http://dx.doi.org/10.1007/978-1-84882-634-2_6">maximize profits</a> and to <a href="http://www.sciencedirect.com/science/article/pii/S0965856412000249">speed disaster relief supplies</a> to people in need.</p>
<p>As the U.S. works to enhance its economic competitiveness, the country will need to invest in many different types of networks, to maximize their usefulness and value to Americans. Using measurement methods like ours can guide leaders to wise investments.</p><img src="https://counter.theconversation.com/content/76258/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anna Nagurney does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>When planning major infrastructure investments, it’s important to know which road, freight and information networks are most important – and which proposals might make things worse, not better.Anna Nagurney, John F. Smith Memorial Professor of Operations Management, UMass AmherstLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/423572015-05-27T04:30:30Z2015-05-27T04:30:30ZGiven the value of emissions cuts, solar subsidies are worth it<figure><img src="https://images.theconversation.com/files/83027/original/image-20150527-25080-qew9lk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A new Grattan Institute report suggests solar panels in Australia might be more trouble than they are worth.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/thelastminute/7461522300/in/photolist-cnmfCd-cnmeKs-qhL1FR-8LWH5d-qhL8mz-qhC8H5-pCpQKc-pCpYGK-qz1bRv-qhL97c-4oAtfc-m8cEd-5bQH6S-hBnQNf-34exQw-boEhkg-naBnws-boEmDi-4AuLME-m8cE5-m8cEc-m8cE9-pCpUoV-dtnbeY-pCbgG5-qhBtSd-qhJo3K-qz1f2i-qhJkut-qz7iEj-qzb5oz-qhJsi8-pCbk9W-pCbkFN-qhBkQb-qhBkbL-ynMyd-4Aqwit-4AuMAQ-4Aqxw6-4AuKXw-boEdWt-boEgS2-7W5F5H-dgt8hx-jzUjyw-boErp8-hQtuBJ-8F2dvG-7xLcL3">Duncan Rowalinson/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>Earlier this week the Grattan Institute released the report <a href="http://grattan.edu.au/report/sundown-sunrise-how-australia-can-finally-get-solar-power-right/">Sundown, sunrise: how Australia can finally get solar power right</a>. It looked at the cost of solar subsides and explored emerging challenges and opportunities for solar power to “find its place in the sun”, and generated widespread reports of its headline figure, that the cost of solar photovoltaic take-up has outweighed the benefits by almost A$10 billion dollars. </p>
<p>That figure (A$9.7 billion, to be precise) was generated by comparing the benefits of greenhouse emission reductions from solar, against the capital and maintenance costs. The first part of this calculation is therefore dependent on the assumed carbon price of A$30 a tonne, which gives a total benefit to society of A$2 billion by 2030. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/82915/original/image-20150526-24754-8hx64s.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/82915/original/image-20150526-24754-8hx64s.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=405&fit=crop&dpr=1 600w, https://images.theconversation.com/files/82915/original/image-20150526-24754-8hx64s.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=405&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/82915/original/image-20150526-24754-8hx64s.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=405&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/82915/original/image-20150526-24754-8hx64s.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=509&fit=crop&dpr=1 754w, https://images.theconversation.com/files/82915/original/image-20150526-24754-8hx64s.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=509&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/82915/original/image-20150526-24754-8hx64s.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=509&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Grattan Institute’s analysis says that rooftop solar photovoltaic panels have come at a large cost to society. Figures (in 2015 dollars) refer to benefits and costs of solar PV systems installed from 2009.</span>
<span class="attribution"><span class="source">Grattan Institute</span></span>
</figcaption>
</figure>
<p>But why A$30 per tonne? And what is the actual cost of carbon emissions? </p>
<h2>The real cost of carbon</h2>
<p>One metric commonly used is the “social cost of carbon”. This is an estimate of the economic damages from the emission of one extra unit of carbon dioxide (or equivalent). There is a huge range and debate about what the social cost of carbon really is. </p>
<p>Earlier this year, <a href="https://news.stanford.edu/news/2015/january/emissions-social-costs-011215.html">a paper</a> in Nature Climate Change estimated the social cost of carbon to be US$220 per tonne. This significantly changes the cost benefit analysis.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/82942/original/image-20150526-24769-1wfja05.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/82942/original/image-20150526-24769-1wfja05.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=370&fit=crop&dpr=1 600w, https://images.theconversation.com/files/82942/original/image-20150526-24769-1wfja05.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=370&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/82942/original/image-20150526-24769-1wfja05.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=370&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/82942/original/image-20150526-24769-1wfja05.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=465&fit=crop&dpr=1 754w, https://images.theconversation.com/files/82942/original/image-20150526-24769-1wfja05.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=465&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/82942/original/image-20150526-24769-1wfja05.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=465&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Rooftop solar PV has come at a large cost to society Aggregate net present benefits and costs to society of solar PV systems installed from 2009, $2015, with a carbon price of $220 per tonne.</span>
<span class="attribution"><span class="source">Authors illustration</span></span>
</figcaption>
</figure>
<p>Last year, Nicholas Stern and Simon Dietz updated their internationally renowned model, <a href="http://www.lse.ac.uk/GranthamInstitute/publication/endogenous-growth-convexity-of-damages-and-climate-risk-how-nordhaus-framework-supports-deep-cuts-in-carbon-emission/">finding that</a> a carbon price between US$32 and US$103 was required <em>today</em> to avoid more than 2C of warming, (rising to between US$82-260 in 2035). </p>
<p><a href="http://www.nature.com/nature/journal/v493/n7430/full/nature11787.html">Other work</a> suggests that should global greenhouse mitigation continue to be delayed, a carbon price of US$40 per tonne of CO<sub>2</sub>-equivalent would reduce the probability of limiting global warming to 2C by only 10–35%. </p>
<p>The Grattan report argued that “subsidies are expensive and inefficient”, but arbitrarily used a A$30 per tonne cost, significantly underestimating the most important subsidy: the fact that polluters are allowed to emit carbon dioxide for free.</p>
<p>While the choice of carbon price and costs significantly changes the calculus, looking only at the emissions and avoided generation really misses the point of the support mechanisms in the first place. </p>
<h2>Why do we have renewable energy support mechanisms?</h2>
<p>The Grattan report concludes that “Australia could have reduced its emissions for much less money”. </p>
<p>This is undeniably true. As the report points out, the federal government’s Emissions Reduction Fund has purchased emissions abatement at an average price of A$13.95 per tonne, and the <a href="https://retreview.dpmc.gov.au/">Warburton review</a> estimated the cost of the large-scale Renewable Energy Target to be A$32 per tonne up until 2030. </p>
<p>However, the objective of renewable energy policy is not solely for cheap and efficient emissions reductions. In fact, the objectives within the legislation of the renewable energy target are to:</p>
<ul>
<li>encourage the additional generation of electricity;</li>
<li>reduce emissions of greenhouse gases;</li>
<li>ensure that renewable energy sources are sustainable.</li>
</ul>
<p>It is not particularly fair to assess a support mechanism against objectives it was not designed to achieve. Only assessing the efficacy of the renewable energy target against emissions abatement efficiency misses an important component of renewable energy support policy: industry development. </p>
<p>Market mechanisms, such as carbon pricing, are widely acknowledged to be the most efficient method to reduce emissions. However, they are not sufficient by themselves and do not address other market failures. </p>
<p>In fact this is something that the Grattan Institute itself previously reported on in a previous report, <a href="http://grattan.edu.au/report/building-the-bridge-a-practical-plan-for-a-low-cost-low-emissions-energy-future/">Building the bridge: a practical plan for a low-cost, low-emissions energy future</a>, which said:</p>
<blockquote>
<p>Governments must address these market failures, beyond putting
a price on carbon</p>
</blockquote>
<p>and</p>
<blockquote>
<p>…in order to develop, demonstrate and deploy the technologies that are likely to be lowest cost in the longer time frame of meeting the climate change targets, further government action is essential.</p>
</blockquote>
<p>As indicated, deployment policies are an essential policy to tool to develop the renewable energy industry, and ensure the lowest cost in the long term. Typically, in the context of renewable energy deployment policies sit between R&D on one hand, and pure market mechanism (such as carbon pricing) for mature technologies on the other.</p>
<p>Such deployment policies are essential to enable learning-by-doing and realising economies of scale. The cost reductions enabled by this simply cannot be developed in the lab, or be captured in the market by individual companies (due to knowledge and technology spillovers and other similar positive externalities). </p>
<h2>The cost of reducing emissions</h2>
<p>The report concludes that solar schemes have reduced emissions at a cost of A$175 per tonne to 2030. This figure has been derived by using the net present costs and for the emissions abated to 2030, which includes the capital cost of older and significantly more expensive systems. </p>
<p>If carbon costs were price at A$220 per tonne, the cost of abatement becomes negative, that is, a saving.</p>
<p>An alternative measure looks at the subsidy paid today. Households are currently purchasing solar systems subsidised by the RET at rate of approximately A$0.80 per watt installed, while receiving cost-reflective (unsubsidised) feed-in tariffs. Over an expected 25 year life, and an average grid carbon intensity of 0.85 tonnes per megawatt hour, the cost of abatement would be approximately A$28 per tonne.</p>
<p>Comparing this with the cost of abatement only a few years ago (in the order of several hundred dollars per tonne), the support mechanisms look very successful in delivering on objectives of industry development, and delivering cost reductions. </p>
<p>Most would agree that some renewable policies have previously been poorly implemented, and the Grattan report is right in highlighting these. However measuring their costs against objectives they were not intended to achieve is unfair. </p>
<p>The simple cost benefit analysis fails to incorporate all benefits of renewable energy support policy, and underestimates the avoided costs of carbon emissions.</p><img src="https://counter.theconversation.com/content/42357/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dylan McConnell has received funding from the AEMC's Consumer Advocacy Panel</span></em></p>The Grattan Institute has reported that the costs of solar panels have outweighed the benefits by almost A$10 billion in Australia. But the real benefits of cutting greenhouse emissions are much larger.Dylan McConnell, Research Fellow, Melbourne Energy Institute, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/309582014-08-29T04:52:15Z2014-08-29T04:52:15ZNBN cost-benefit suits Abbott’s ‘video entertainment system’<p>When the Rudd government announced the construction of the National Broadband Network in 2009 with an estimated cost of A$36 billion (and public sector contribution of $28 billion), it did so based on a political position, with a business case rather than cost-benefit analysis.</p>
<p>The now <a href="http://www.communications.gov.au/__data/assets/pdf_file/0003/243039/Cost-Benefit_Analysis_-_FINAL_-_For_Publication.pdf">completed CBA,</a> released this week, considers three possible scenarios for the future from here, against a base of the work that has happened to date (which of course cannot be rewound). </p>
<p>The first is to complete an unsubsidised roll out (i.e. provide a variety of technologies based on commercial feasibility); the second mixed technologies (MTM) including fibre to the premises, fibre to the node, and fixed wireless and satellite – consistent with the NBN strategic review; and the last fibre to the premises (FTTP) – or the NBN as it has been evolving till now.</p>
<p>To the cynical there is no surprise as to the core conclusion of the study - it supports the political position of the Abbott government – that the FTTP scenario is possibly the worst of all outcomes. These results formalise what is implied in Malcolm Turbull’s <a href="http://www.theguardian.com/world/video/2014/aug/26/malcolm-turnbull-nbn-internet-speed-whiteboard-video">five minute explanation</a> of why the MTM scenario is better.</p>
<p>The conclusion of a CBA is of course based on a comparison between cost estimates – which can generally be ascertained with a degree of accuracy – and estimates of benefit, which are usually far less certain, and that is the case here.</p>
<h2>Standard approaches, but a conservative view</h2>
<p>Assessment of the veracity of the cost estimates in the study is best left to engineers. But from an economics point of view an interesting choice in the cost estimates in the analysis is the inclusion of a deadweight loss through taxation impacts in the context of public funding. This adds 24% to the costs of publicly provided infrastructure. While this has some theoretical justification it is not commonly used in CBAs for other public infrastructures.</p>
<p>In addition, the report uses (and provides some justification for) what many would consider very conservative approaches to some general assumptions – such as the residual value included (depreciated cost rather than ongoing benefit) and the choice of discount rate (higher than the standard Treasury recommendation).</p>
<p>In terms of private benefit estimates the CBA uses a triangulation approach – the use of choice modelling to investigate willingness to pay, the use of a technical assessment in terms of what higher speeds would be used for and the value that creates, and observed historical take-up rates of NBN speed plans.</p>
<p>These are very standard approaches – but one has to question the applicability in the context of a product that is rapidly evolving in terms of its impact. </p>
<p>The private benefit estimates – all three methods – are based on current perspectives of how the internet will impact our lives and how it will be used into the future – as reflected in not only take-up rate (which reflects the marginal consumer), but value in terms of surplus (the value above what has to be paid – which can be very high for some customer groups). All of this is discussed in the report, and to some extent addressed in the sensitivity analysis. </p>
<h2>More than a ‘video entertainment system’</h2>
<p>But the reality is the way we all use the internet now is very different to what it was 10 years ago – and it will be very different again in another 10 years – and this is very hard to envisage and even harder to value. </p>
<p>Could the study have done anything different? Maybe not, but it’s important to recognise that any estimates constrained by current perspectives as to use are almost certainly going to be conservative. It should also be noted that sensitivities to the assumptions used (greater take-up rates) support the MTM scenario even further.</p>
<p>But to me, for all of this, a critical factor is the smallness of the public benefits concluded as being present, estimated at 6% of the total benefit - relative to private benefit at 94% - mainly linked to private use for entertainment purposes. </p>
<p>Again maybe this finding is not such a surprise given Tony Abbott had a number of years ago described the NBN as a white elephant, and a <a href="http://www.computerworld.com.au/article/525840/his_own_words_tony_abbott_nbn/">“video entertainment system”</a>. </p>
<p>The low benefit outcome in the study is in large part due to the reviewers ignoring any social benefits that are not dependent on household or business connections (many of the identified public benefits fall within the government sphere) and further ignores benefits that will not differ between the identified scenarios. </p>
<p>This effectively means the public benefits of an effective high speed broadband infrastructure are largely underestimated. It should be clearly noted that there are many studies that support much higher estimates of public and social benefit. The study could also at least reference the academic literature that concludes widespread adoption of broadband has been strongly linked to <a href="http://www.sciencedirect.com/science/article/pii/S0308596109000962">economic growth</a> and <a href="http://www.emeraldinsight.com/doi/abs/10.1108/02635570910939380">social well-being</a> and especially so for <a href="http://www.emeraldinsight.com/doi/abs/10.1108/02635571111161307">regional communities</a>.</p>
<h2>The verdict</h2>
<p>A very important point made in the report (in support of the MTM scenario) is the real options value that is present in limiting the roll out in the context that technologies and consumer preferences are hard to predict. It is great to see a CBA that takes real options value into account.</p>
<p>In short – the CBA certainly does its job in the context of supporting government policy – and largely does so by using appropriate and defensible methodologies. </p>
<p>But, and in my view it is a big but, the worry is that it’s overly conservative in the estimated value of benefits of improved broadband infrastructure. While it is not proposed, it would certainly be detrimental to all our futures for the study results to be used to support the unsubsidised case as the way forward – to go this route would miss many of the private and public benefits that are conservatively estimated in the assessment. </p>
<p>On alternative assumptions and methodology – the net national benefits of public investment in significantly improved broadband infrastructure are very clear.</p><img src="https://counter.theconversation.com/content/30958/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Barry Burgan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>When the Rudd government announced the construction of the National Broadband Network in 2009 with an estimated cost of A$36 billion (and public sector contribution of $28 billion), it did so based on…Barry Burgan, Professor of Management, Bond UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/297782014-08-25T20:50:18Z2014-08-25T20:50:18ZThe Abbott economy at one: open for business, closed to real reform<p>In his victory speech on election night last September, prime minister Tony Abbott declared Australia was “under new management and … once more open for business”. There were, of course, specific promises such as repealing the carbon and mining taxes, balancing the budget, and building lots of new roads. But the “open for business” line foreshadowed a broad increase in confidence in the economy.</p>
<p>In terms of confidence since then there has been little good news about the economy – and some bad, especially regarding unemployment. The Westpac-Melbourne Institute consumer sentiment index is 10.8% below its post-election peak. </p>
<p>Treasurer Joe Hockey has told us there is an imminent debt crisis, but can’t persuade parliament to pass his budget. The trade minister, Andrew Robb, has said budget blocking puts Australia’s credit rating in jeopardy. The confidence of those receiving family tax and other benefits has been shattered, as has the confidence of those of us who are happy to see our tax dollars spent to make real the promise of opportunity for those less fortunate – a promise that has always been at the core of Australia’s social compact.</p>
<p>I get it: the first step to recovery is recognising that you have a problem. But so far the government seems to have scared global financial markets a fair bit, but not scared the Australian public and their representatives enough to do anything about it. And that’s largely because we don’t have an imminent debt crisis. We have a long-term structural budget problem caused by an ageing population — a problem shared by most OECD countries. </p>
<p>Yet, despite the dramatic rhetoric, nothing has been done to address the structural problems. To say the least, this is not great “expectation management”.</p>
<p>A major election promise was to repeal the carbon tax – legislation that was passed last month. It remains to be seen whether the so-called “direct action” policy on climate change will be implemented, but this is one area where business is certainly happy. </p>
<p>And why not? Under a carbon tax or Emissions Trading Scheme businesses pay if they pollute. Under direct action they get bribed not to pollute. It is, however, clearly bad policy for the economy as a whole — a fact that everyone except for hardcore climate change deniers acknowledge.</p>
<h2>The infrastructure case</h2>
<p>Abbott aspires to be known as “the infrastructure prime minister”. But investments of the type Abbott promised take a long time – even to start – so it’s too early to tell whether he will be remembered as he wishes to be in this respect. </p>
<p>If we can glean anything it comes from the yet-to-be-passed federal budget with nearly A$60 billion in infrastructure projects. Abbott has pledged that these and other projects will be subject to “rigorous cost-benefit analysis”.</p>
<p>If so, that’s exactly why some of them might not happen. As an economist I can hardly be against weighing up costs versus benefits. But costs are usually pretty easy to quantify (how much will it cost to build “X”); benefits, not so much. Projecting how much traffic flow there will be on a road is not so hard, though tell that to AMP which is suing its consultants over forecasts of Lane Cove Tunnel traffic flows. Projecting the benefits of genuinely new types of infrastructure is much harder. </p>
<p>What’s the economic benefit of really fast internet access? It’s tough for even the most seasoned consultant to know what to put in the line in the spreadsheet that reads “stuff we never even knew it could be used for”. </p>
<p>So, paradoxically, Abbott’s legacy as “the infrastructure PM” may actually involve not being so wedded to standard cost-benefit analysis, but being prepared to take an educated guess about what a country like Australia will need to face the economic challenges of the coming years.</p>
<h2>Getting taxes right</h2>
<p>On the mining tax, unlike many economists, I give the government some credit. Although there are intelligent arguments that those who benefit from digging up Australia’s natural resources should pay a good chunk for it, the mining tax was designed as a “super profits tax”. If that sounds like the last refuge of banana republics that’s because it basically is. “You foreigners are stealing our future”. That is, at best, a cheap caricature of the Australian mining sector. </p>
<p>I’m still yet to hear a coherent definition of what a “super” profit is and how exactly it differs from an “acceptable” profit. Oh, and the mining tax didn’t raise any money, either. It was a bad idea, poorly executed. It’s good to see the back of it.</p>
<p>The Abbott economy at one doesn’t look terrible. But it doesn’t look great, either. Unemployment is up, growth is flat, and confidence is down. For Australia to really be “open for business” at two will require a year ahead with: less scaremongering about non-existent debt crises, fewer ad hoc taxes like the so-called debt levy and the 1.5% tax on the top 3000 companies, and no more draconian cuts to lower-income families struggling to raise kids and get ahead.</p>
<hr>
<p><em>Read the other articles in The Conversation’s Remaking Australia series <a href="https://theconversation.com/au/topics/remaking-australia">here</a>.</em></p><img src="https://counter.theconversation.com/content/29778/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden is an ARC Future Fellow.</span></em></p>In his victory speech on election night last September, prime minister Tony Abbott declared Australia was “under new management and … once more open for business”. There were, of course, specific promises…Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/301472014-08-06T04:18:08Z2014-08-06T04:18:08ZCost benefit analysis can help or hinder good policy<p>Big infrastructure projects, such as the National Broadband Network, cost big money. So, how do we use public money wisely? For communications minister Malcolm Turnbull and the Coalition government, a <a href="http://www.aph.gov.au/%7E/media/02%20Parliamentary%20Business/22%20Chamber%20Documents/223%20Tabled%20Papers/Documents%20Presented/Out%20of%20session/040814_audit_report">cost benefit analysis provides the answer</a>. </p>
<p>Indeed, Turnbull supports <a href="http://www.theaustralian.com.au/national-affairs/politics-news/turnbull-wants-public-scrutiny-of-big-projects-after-nbn-audit/story-fn59nqld-1227013724434?nk=a5afc03985b052b8aac34836151b2d8f">a proposal</a> that all infrastructure decisions over $1 billion should be accompanied by a cost benefit analysis. This will inform us whether the infrastructure upgrade is warranted and which the most cost effective model. </p>
<p>Is this faith justified? Cost benefit analysis, as its name suggests, requires calculation of the costs of a particular project or policy and its benefits. <a href="http://benefitcostanalysis.org/about-sbca">For proponents</a>, the optimal policy is the one suggested by the analysis to provide the highest benefit for the least cost most, often - but not always - expressed in dollar terms. </p>
<p>This simple premise is met by a difficult and complex calculation. Diligence is needed to ensure all costs are identified, and skill required to ensure cost estimates are realistic. The calculation of benefits are equally if not more challenging. It is generally more difficult to quantify benefits, while economic benefits are more accessible and quantifiable than social benefits. Skill, diligence and integrity also requires good data. A rigorous cost benefit analysis, then, depends on a robust research base. </p>
<p>Critical decisions lie at the heart of a cost benefit analysis. In the calculation of costs, for example, who bears the cost, and based on that decision, whether it should be included as a cost for the purposes of the final calculation is one contentious point. </p>
<p>In terms of benefits, the problem of “we don’t know what we don’t know” is highlighted. For the NBN, we do not know what technological innovation may arise during its lifetime. Whatever model ends up being implemented, we don’t have the luxury of trying different models to see which yields a better outcome before we make a decision. </p>
<p>Economists sometimes deal with this uncertainty by including in their analysis a calculation of “Net Present Value” accompanied by a discount applied to the economic estimate of benefits. The size of the discount rate also alters the value placed on the assumed benefits of a policy to future generations. Techniques such as these are based on assumptions that help tame the inevitable uncertainty that accompanies cost benefit analysis calculations.</p>
<p>To have policy impact, a cost benefit analysis requires political support. Even the most well-credentialed calculation can be discredited and dismissed. To see this at work one need only to look at the fate of the carbon tax. The tax was heavily supported by a similar form of economic reasoning that underpins cost benefit analysis, one that <a href="http://grattan.edu.au/home/energy/mechanisms-to-reduce-pollution/">weighed economic cost and benefit</a>. </p>
<p>This reasoning was rejected by the current government since the analysis did not fit with their stated policy. In contrast, calculations based on thin or selective evidence can be cited to justify policy. With cost benefit analysis, this can be easier, rather than more difficult, to achieve. A small change in assumption can make a big difference to the outcome. A strategic use of a cost benefit analysis can contribute to the problem of policy driving evidence or “<a href="http://www.ncbi.nlm.nih.gov/pmc/articles/PMC390150/">policy-based evidence</a>” as opposed to its more respected cousin, evidence-based policy. </p>
<p>Can a cost benefit analysis assist, then, in ensuring good policy? Interesting evidence comes from a <a href="http://onlinelibrary.wiley.com/doi/10.1111/rego.2009.3.issue-2/issuetoc">2009 debate</a> about the merits or otherwise to policymaking of utilising a costing technique for human life incorporating the risk trade-offs people are prepared to make to achieve improvements, known as the value of a statistical life (VSL). VSL is commonly used in cost benefit analysis calculations, particularly in the United States.</p>
<p><a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1748-5991.2009.01052.x/abstract">Proponents</a> argue that such quantification is critical to assessing the merits of proposed policies, not only does it provide a rational base for decisions but the very process of calculation allows for necessary reflection. It takes a heated political issue into a reflective realm and allows us to test our assumptions and beliefs. But, they also point to a pre-requisite for this to occur, namely a strong boundary separating the science (in this case those undertaking the technical analysis) and politics. </p>
<p>Critics of cost benefit analysis are more sceptical of its benefits. They argue its calculations are inevitably premised on particular values (for instance, the benefit of economic competition to human wellbeing) since neither science nor economics are value free. Further, cost benefit analysis reassures us that our policies are rational only under certain cultural conditions, namely where quantification itself confers legitimacy and signals rationality. </p>
<p>Yet, we are adept at building our rationality around our values, selecting numbers consistent with those values. Under polarised political conditions, expecting a cost benefit analysis to generate a rational basis to bridge disparate values and so enhance our collective future may be a tall order indeed. </p>
<p>Ulitmately, the role that can be assigned to a cost benefit analysis is limited. Done well, it can enhance public debate as well as inform political decisions. Done poorly, it merely masks a pre-determined political position.</p><img src="https://counter.theconversation.com/content/30147/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Fiona Haines does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Big infrastructure projects, such as the National Broadband Network, cost big money. So, how do we use public money wisely? For communications minister Malcolm Turnbull and the Coalition government, a…Fiona Haines, Professor of Criminology, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.