Category Public Policy

Charities Should Perform Experiments

Danny Vinik Leave a comment

The most recent episode of This American Life spends the first part of the show examining two different charities, GiveDirectly and Heifer International. GiveDirectly is a revolutionary new organization that gives money to poor people in Kenya. Its philosophy is pretty straightforward: poor people know what they need most so just give them the money to do so. It has seen remarkable results in Kenya and The Life You Can Save ranks it as the fourth most effective charity. It was started by a group of grad students in a development economics class who decided to give money to Africans and see what happened. More importantly, they’re very data-centric and are committed to figuring out whether giving poor Africans money is effective. The grad students are so committed to it that they’re running a randomized controlled trial where researchers are traveling to two villages right next to each other, one where the residents received money from GiveDirectly and one where they didn’t. It’s a massive survey with hundreds of questions that are trying to isolate down how the money affected all aspects of the Kenyans’ lives:

Have health outcomes improved? Has your income improved? Have you been able to feed yourself and have basic nutrition? How have family dynamics evolved? Do you feel like you have more respect in the family? School attendance, all these sorts of things. You do those in both cases and you compare.

Heifer International, on the other hand, takes a different approach to helping poor Africans: it gives them a cow. Planet Money’s Jacob Goldstein, who travelled to Kenya for this report, commented on how large the cows were:

And let’s just say right off, these were some very impressive cows. They looked strong and healthy. They looked like they could eat the other cows we saw in Kenya.

You can imagine how helpful a strong, healthy cow would be for poor, rural Kenyans. Overall, both charities are looking to improve the lives of impoverished Africans, but that doesn’t mean we shouldn’t be looking to figure out which charity is best at doing so. Yet, that is basically Heifer International’s position, at least according to the Vice President of Heifer’s Africa programs, Elizabeth Bintliff. GiveDirectly challenged Heifer International to a charity-vs-charity competition in the same manner of the experiment above. They’d take two villages right next to each other and GiveDirectly would give money to residents of one while Heifer would give cows to the residents of another. Then they’d have independent researchers come in and collect all the data and figure out which one improved the lives of the Kenyans the most. This is the exact type of research that charities need to be doing. But Bintliff declined:

I mean, as an African woman, that sounds to me like a terrible idea. I mean, it sounds like an experiment, and we’re not about experiments. These are lives of real people and we have to do what we believe is correct. We can’t make experiments with people’s lives. They’re just– they’re people. It’s too important.

Bintliff obviously is very committed to Heifer and has devoted her life to helping Africans. It’s very noble, but her hesitance to use data hinders the ability of charities to help people. Maybe Heifer is very effective at improving the lives of Africans. Maybe it isn’t. We don’t know right now, because we don’t have the data. Yet, we have every ability to collect the data! Researchers actually can do a pretty good job of measuring happiness. And I understand that Bintliff doesn’t want to perform experiments, but charities will be so much more effective and help poor Africans even more if we do perform experiments. It’s a shame, because GiveDirectly has seen such promising results that I’d be fascinated to see how Heifer stacks up. But it looks like we’ll never know. In the end, Bintliff’s refusal to perform the experiments hurts those who she’s looking to help.

Fiscal Cliff v2.0

Danny Vinik 1 Comment

Just a quick post with my thoughts on Treasury Secretary Jack Lew’s announcement today that by mid-October the U.S. will only be able to make payments with the cash it as each day. In other words, we’re hitting the debt ceiling a couple of months early. Kevin Drum posits that this means negotiations over the budget are going to be lumped in with the debt ceiling:

If mid-October really is the drop-dead date, it means that budget negotiations in late September and debt ceiling negotiations in early October pretty much run right into each other. It’s Fiscal Cliff v2.0.

I don’t quite know what this does to John Boehner’s fragile attempts to keep the lunatic wing of his party under control. Nothing good, probably. I’m also not sure what it does to President Obama’s promise not to negotiate over the debt ceiling. If all of this stuff get munged together, then everyone’s going to get mighty hazy mighty fast about what exactly is being negotiated.

The budget negotiations and debt ceiling running into each other will hurt President Obama and Democrats on both those issues. Raising the debt ceiling should be a technicality that no American would consider holding hostage. We know that House Republicans don’t believe that though. We also know that most Americans don’t follow politics closely and asking them to differentiate between Obama’s willingness to negotiate over the budget, but refusal to do so over the debt ceiling is difficult. Most aren’t going to understand the difference. and will expect Democrats and Republicans to compromise since there are two issues.

If the two were separate, Democrats could bargain with Republicans over the budget and come to a deal (or a continuing resolution). Then, a few months later, they could refuse to negotiate over the debt ceiling and explain to the public that this isn’t debatable. We don’t debate paying our bills. The two issues running into each other just muddies the water. That will allow Republicans to escape some blame on both topics and give the GOP more leverage in negotiations. It may even force the President to bargain over the debt ceiling (or do so subtly). Either way, Republican elites should be pleased with this outcome. It may make their party a bit harder to control during the process, as Drum points out, but the increased leverage they have over the President is a worthwhile tradeoff. As for Democrats, there’s nothing good about this at all. Get excited for Fiscal Cliff v2.0.

Conservative Hatred for the Social Cost of Carbon is Infuriating

Danny Vinik 6 Comments

Conservative reporter Matt Lewis of the Daily Caller was on Fox News this weekend denouncing the Obama Administration’s decision to increase the social cost of carbon (SCC) and also wrote a short post this morning titled, “4 reasons you should be outraged by Obama’s new microwave regs.” Lewis is a thoughtful conservative voice, but he’s overreacting here.

Let’s start with his first reason: this was a unilateral decision by the Obama administration. Well, yes it was. But this isn’t a new law. It’s a measure used in the cost-benefit analysis of regulations. In the microwave rule that Lewis is so furious with, the Energy Department (DOE) also made assumptions about annual energy use, the product cost, product lifetime and forecasted efficiencies. When it’s making rules that estimate costs and benefits for decades, the DOE has to make assumptions. There’s no way around it. Congress is not going to pass a bill for every assumption in every regulation. That would be the end of regulation. Lewis doesn’t like this assumption so he complains that the action was unilateral, but that’s how the DOE (and all federal regulators) operates.

That gets us to reasons number two and three: “it was hidden” and “the price is arbitrary.” Lewis calls the social price of carbon a “guesstimate” and that regulators have lots of autonomy in their decision-making, but this is unfair too. Calling the price a “guesstimate” makes it seem like it came out of thin air. But that’s not true whatsoever. The Department released a 21-page document explaining its reasoning for the change in the social cost of carbon. The first page of it lists 11 different agencies that were involved in the process and the report goes on to cite a number of academic studies. Lewis is right that the social cost of carbon is tough to calculate, but what should we do instead? Just ignore the costs and pretend they don’t exist? That’s a terrible idea. Instead, we should try to calculate them as best we can, using both public and private resources. That’s what the Office of Management and Budget (OMB) did and that’s the number that the DOE used for its microwave regulation.

In addition, if you dig into the final rule, there is a part devoted entirely to explaining the old social cost of carbon and the new one. There is also a paragraph that warns about the uncertainty of the estimate:

It is important to recognize that a number of key uncertainties remain, and that current SCC estimates should be treated as provisional and revisable since they will evolve with improved scientific and economic understanding. The interagency group also recognizes that the existing models are imperfect and incomplete. The National Research Council report mentioned above points out that there is tension between the goal of producing quantified estimates of the economic damages from an incremental ton of carbon and the limits of existing efforts to model these effects. There are a number of concerns and problems that should be addressed by the research community, including research programs housed in many of the Federal agencies participating in the interagency process to estimate the SCC.

Does that sound like an agency trying to cover up a guesstimate? The Obama Administration didn’t announce the change in the SCC with a big press conference or a media blitz, because It’s a change in an assumption used in the cost-benefit analysis of complicated regulations. That’s not to say that Administration didn’t try to downplay it. It is a big (justified) change and the Administration announced it on a Friday afternoon in late May. It was a classic news dump. But they also didn’t try to hide it. In the very brief (five paragraph) press release on it, a full paragraph is devoted to the new estimate. That’s not an attempt to hide a massive regulatory change from the American people.

I actually agree with Lewis’s final reason: “it’s a big deal.” I’m going to quote him at full here:

This could impact the cost of almost everything you consume (including, yes, the cost of microwaves). What is more, the new regulations will impact the projected cost of building and maintaining power plants — and the Keystone XL Pipeline project. (When calculating a cost-benefit analysis, these new regulations will increase the (supposed) cost, making it less likely that new energy projects will be green lit.)

Lewis is exactly right. The SCC has big implications for a number of other projects. Lewis is complaining that this update has far-reaching effects, but that’s exactly why it’s so valuable that we revise it. This isn’t a reason to oppose the regulation. On the contrary, it’s a reason to praise the DOE and other agencies for updating their assumptions. Lewis and other conservatives may dislike the idea of the SCC and oppose any update to it that raises it’s price, but it’s a vital consideration in regulatory policy and should be a pillar of conservative policy. After all, taking into account the SCC is internalizing a negative externality that the market doesn’t take into account. It’s a step closer to a free-market system. Shouldn’t conservative embrace that?