Testifying in 1978, one public official said that economists, citing cost and benefit, recommended using a lower level of levee protection against hurricanes in Louisiana than he thought was necessary. (p. 90 of the Congressional Report on Hurricane Katrina)
Similarly, a WSJ headline tells us that “Japan Ignored Warning of Nuclear Vulnerability,” and the article then explains that, “doing so was likely deemed too costly and cumbersome.”
Should we be concerned that economists’ considerations of cost and benefit are being criticized?
The Economic Lesson
It is crucial to remember that someone who uses cost/benefit analysis to make a decision does not have a crystal ball. We cannot use current consequences to evaluate a past decision. Also, please keep in mind that economically, cost refers to a sacrificed alternative. It does not have to refer to dollars.