“Philanthropy, Benefit-Cost Analysis, and Public Policy,” Remarks by Jonathan F. Fanton at the 2008 Benefit-Cost Analysis Conference
June 25, 2008 | Speech | Policy Research, The Power of Measuring Social Benefits

Thank you, Mike, and thanks to Richard Zerbe and his colleagues at the Benefit-Cost Analysis Center for organizing this important conference.

Participation in this conference by our country’s most distinguished benefit-cost scholars is gratifying. We also are pleased that MacArthur’s support of the Center helped stimulate the creation of an International Society for Benefit-Cost Analysis. To those of you here for the Society’s meeting, a warm welcome to you.

The MacArthur Foundation is best known for the so-called genius grants and support of public radio and television, but that is only a small fraction of our 300 million in annual philanthropy.

MacArthur works in 60 countries around the world on issues like conservation, population, human rights, arms control. And at home we have initiatives in the preservation of affordable rental housing, reform of juvenile justice, community and economic development, and improving education through technology.

Many of these programs are applied, creating national parks, combating human rights abuse, improving urban neighborhoods. Perhaps less well known is that about 20% of our funds go to research. I want to talk to you about a major commitment we are making to a program which we call the Power of Measuring Social Benefits.

But first a little background is in order.

An historian by training, I always ask: Where are we on the arc of history? While I cannot prove it, my instincts tell me we are at a watershed moment in our domestic history. We have been through a long dry season, a period with no name and, more importantly, no animating core idea. Many of us fondly look back to the big ideas of the 20th century – the Progressive Era, The New Deal, The Fair Deal, The Great Society, perhaps New Federalism.

These periods drew inspiration from ideas and ideals: laissez faire had its limits; government had a central role in opening opportunity and providing security; many were certain that inequality could be reduced and poverty mitigated; wealth creation could replace income maintenance as a more durable foundation for building economic self-sufficiency; and devolution could put responsibility for essential public services closer to the people and make politicians more accountable.

A century ago Theodore Roosevelt observed, "The welfare of each of us is dependent fundamentally upon the welfare of all of us."

Franklin Roosevelt reminded us, “The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”

Lyndon Johnson challenged us, ”The Great Society rests on abundance and liberty for all. … But most of all, the Great Society is not a safe harbor, a resting place…. It is a challenge constantly renewed, beckoning us toward a destiny where the meaning of our lives matches the marvelous products of our labor.”

And Richard Nixon said, “It is time for a New Federalism in which power, funds, and responsibility will flow from Washington to the States to the people. … This new approach aims to make it possible for people – wherever in America they live – to receive their fair share of opportunity.”

And while the 20th century saw expanding rights and opportunity, and broadening social safety nets, our high aspirations remain unfulfilled.

But our faith in our basic values remains strong: the belief that America should be a society dedicated to fairness, justice, security, and opportunity endures, even when challenged. Optimism is engrained in our national character, matched by a dogged determination to turn our dreams into reality.

When I suggest we are at a watershed moment in our history, I do not mean to be precise about the timing – down to the year or the election. The yearning for change is a powerful theme in the current political discussion, but it may require a few years to take form. The Progressive Era did not begin with Theodore Roosevelt or in Washington.

Fundamental change most often comes not just with a popular leader but when impulses and insights are shaped by a coherent theoretical spine – a central idea. Discerning that idea and giving it form is a goal that underlies our project on The Power of Measuring Social Benefits.

Toward the end of the 20th century, the domestic reform movement ran out of steam. Maybe we asked too much of government or government was not up to the challenge. Maybe those in trouble or those in need could not be helped at a cost the larger society was able – or willing – to pay. Or perhaps, the programs were found wanting, showing too little progress for the money.

As progress slowed and appropriations failed to keep pace with aspirations, advocates drew heavily on the language of rights and guilt. But that approach has not been effective politically. In fact, the language of rights and guilt reinforces the notion that the interests of people in need are at odds with the interests of the larger society. It also signals that the assertion of guilt trumps rationality and sound policy, a proposition with which I profoundly disagree.

The question now is what arguments will reunite us in pursuit of our core values? What idea will give tangible form to the yearning for change, especially among young people, engaged now in record numbers in our political process? Is there a new paradigm, based on solid evidence that shows that there is a coincidence of interests between those in need and the larger society? Is there a more complex lens, over a longer time frame, through which to view the responsiveness and effectiveness of government – even the role of government itself?

As I think about these questions, I connect them to findings from a generation of MacArthur interdisciplinary research networks that have explored compelling problems of significant public interest. Our network on Adolescent Development and Juvenile Justice found that juveniles given alternatives to incarceration rather than adult jail time were only half as likely to reoffend. With the annual cost of imprisonment at $60,000, the savings to taxpayers could be significant, not to mention greater public safety. Our network on Depression and Primary Care revealed that depression costs employers $44 billion annually due to work absence and reduced performance.  An effective depression treatment, costing less than $500 per patient, increased time at work by four weeks over two years.

We learned from the network on Youth Mental Health that one out of five children has a mental illness that interferes with their ability to learn – and their schools’ ability to serve all students.  Half of all children with mental illness will drop out of school before completing high school. Many will end up in the juvenile justice system and incarcerated – again at the cost of $60,000 a year. And this number does not include costs over time born by children whose education is disrupted by the behavior of others. Programs that help troubled youth stay with their families and attend school, rather than go to a group treatment center, were shown to yield $7 in benefits to society for every dollar in program costs.

These and other data points had not yet come together for me as a theory until I met the late Edward Gramlich in November 2003 at the kickoff event for MacArthur’s Window of Opportunity initiative, which is focused on the preservation of affordable rental housing. We sat together at lunch, and I was musing about MacArthur’s research agenda. It may surprise some of you, but I did not know about the Perry Preschool study until Ned told me about it.

As you certainly know, the Perry Preschool study, begun in 1962, was among the first carefully controlled social experiments that quantified the costs and lifelong benefits of early childhood education. To me, what was so insightful about the study was that it looked at the impacts of early education on a much broader range of outcomes, and over a much longer time horizon than most other policy analyses of the time. I was intrigued by how a carefully designed preschool experience affected future employment and income, federal taxes paid, and money saved over time by less involvement in the criminal justice system, and lower demands on welfare. No wonder that Perry became a model for Head Start and for much social policy experimentation that evolved over the ensuing decades.

In short, Perry opened my eyes to complex benefit-cost studies that not only measure the effectiveness of a program but also calculate a net return on public investment: In Perry’s case, more than $16 dollars in inflation-adjusted return for every public dollar invested.

The MacArthur research network findings and the Perry Preschool study stimulated me to think about the possibility of “flooding the market” with benefit-cost studies in many fields. And so we began.

Our early efforts included literature reviews of benefit-cost studies in our domestic areas of interest; meetings with economists who could help us understand the challenges and constraints of using benefit-cost analysis across multiple domains; and a few studies, particularly in housing – a major domestic priority for us.

It was my strong belief – certainly my hope – that the studies would reveal a pattern: well-run public programs for people in trouble or in need would help them but also benefit the larger society. Could this be a new paradigm that would animate the next wave of domestic reform and revive our faith in effective government?

Here my own sense of the American people comes through. With no apologies, I firmly believe that, when the people have good information they can trust, they make sensible decisions – decisions that reflect the core values of our charter documents.

I may be sounding a bit evangelical and that is a problem. We know that research can be commissioned to support any world view. Fortunately, Mike Stegman entered the picture before our project took off.

With his background as a public policy scholar and senior government policy advisor, he made sure we were testing carefully crafted hypotheses, not commissioning studies to confirm my hopes. Mike also wanted to find out whether the public is willing to pay more for effective programs that tackle important social problems even when the benefits are indirect and come over time. And he understood that we needed many studies, in different domains, with different methodologies, but all done by first-rate scholars for us to have any credibility or impact on policy over the longer-term.

So MacArthur’s strategy is to develop at least one high quality benefit-cost study in each of our domestic interests, looking especially for those in which the policy environment is ripe for action. Here are just a few examples of work currently underway:

  • At the Urban Institute, looking at whether modest investments in ex-offender pre- and post-release programs can cut recidivism, drive down crime and related costs, reduce burdens on welfare, and guarantee more positive tax flows as returning ex-offenders become employed;
  • At Johns Hopkins, exploring whether modest resources that put seniors as mentors and tutors in elementary schools enhances the seniors’ health, reduces medical costs and improves learning for the students;
  • At the University of Chicago, asking what are the short and long-term effects on individuals and society of extending the upper age for foster care to 21;
  • At New York-based MDRC, examining what can be learned from a synthesis of the benefit-cost studies and policy lessons from 15 years of welfare reform;
  • Also at MDRC, testing the effects on individual children, the classroom environment, and the experience of other children of placing mental health professionals in Head Start classrooms; and
  • At the Research Triangle Institute, applying stated-preference surveys to measure Americans’ willingness to pay to reduce significantly the intergenerational cycle of child poverty, and to understand this important variable in the task of bringing benefit-cost analyses to bear on social policymaking.

But MacArthur also recognizes that expanding the supply of social benefit-cost studies alone would have little policy impact. So we are also working to increase demand for the studies in two ways, one direct and the other indirect.

The direct way is by encouraging government agencies to require evidence of effectiveness and benefits to society as a basis for budgeting and priority setting.

As one example, we are supporting Jon Baron and the Coalition for Evidence-Based Policy, a nonprofit, nonpartisan organization sponsored by the Council for Excellence in Government – the host of one of the panels at this conference. The Coalition has worked effectively with OMB and executive agencies like Education and Justice to strengthen the links between research and policy. The Coalition’s work led to Congress’s decision to include in the recently passed Second Chance Act, a 2 percent set-aside for rigorous evaluations that generate evidence on which approaches are most effective in facilitating prisoner re-entry into the community.With our grant, the Coalition will seek champions in other agencies and support their efforts to create a culture of evidence-based policymaking.

The indirect way is to make the products more useful for policy purposes. With our support, the best theoreticians and methodologists can work to overcome conceptual, technical, and measurement issues that do not apply just to social benefit-cost studies, but to all such studies. Highly respected, influential thought leaders, like those of you in this room, will influence the direction of the field; you will help leading academic journals and professional societies see new applications of benefit-cost analysis as legitimate areas of intellectual and empirical inquiry.

Under our latest grant to the Benefit-Cost Analysis Center, experts in the field will focus on clarifying principles and standards for the conduct of benefit-cost studies, including such critical issues as:

  • the minimum elements required in a benefit-cost analysis;
  • the need for consistent treatment across government agencies;
  • ways to account for uncertainty in the size of potential benefits and costs; and,
  • reasonable default shadow prices for critical social benefits.

Strengthening and extending the reach of benefit-cost analysis requires respected peer reviewed outlets for scholarly and applied publications. These are not only the life blood of the academy but the proving ground for new ideas, theoretical advances, methodological innovations, and creative applications.

We have learned that economic journals publish benefit- cost analyses when a new methodology is demonstrated. But there are few journals that appeal to practitioners, and policymakers, as well as academics, and that would be vital to the long-term success of projects like The Power of Measuring Social Benefits.

That is why I am pleased to report we are working with Dick Zerbe and the University of Chicago Press to develop a new Journal of the Benefit-Cost Society. With start-up support from MacArthur, this journal will include articles by practitioners and policy analysts, as well as theoretical articles by academics. We hope that it will stimulate dialogue among academics and practitioners and policymakers alike and advance new applications of benefit-cost analyses.

The journal will welcome articles from a variety of disciplines besides economics, such as law, social welfare, policy, decision sciences, and philosophy. And, as a distinctive feature, the journal will actively link practitioners with academic partners to co-author articles on new studies.

So there you have it: The Power of Measuring Social Benefits. Funds for more complex benefit-cost studies, assessments of the public’s willingness to pay, an investment in advancing the methodology, efforts to persuade Congress to require evidence of effectiveness, and a new journal that will be a meeting place for all who are determined to see sensible policies based on solid evidence.

But the key word is power – the power of an idea to animate a new era of domestic reform. And this idea – call it a hypothesis – is that public investments in programs that help those in trouble or need open opportunity for them but also contribute to a healthier, safer, more cohesive and globally competitive society that benefits all of us.

This election, I predict, will be seen as an inflection point in our history – a moment in time when a comfortable majority of our people expressed a yearning for change. A new generation, fueled by America’s resilient optimism, wants its chance to realize America’s promises of a fair and just society with opportunity for all.

We are embarking upon a journey with a direction. Now we need to agree on a destination and the means to get there.

The scholars gathered here are a testament to the power of measuring social benefits. We will help people of good will arrive at sensible policies that will define the destination and accelerate the pace of purposeful change.

MacArthur is proud to make common cause with you. Thank you.

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