Bryan Caplan  

How to Spend a Billion Dollars: Best Answers

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Population Externality Bleg... "Craziness" and Immigration Po...
Thanks for all 115 answers to my "how to spend a billion dollars" challenge.  Two general observations:

1. When you claim that X is most efficient way for the federal government to spend an extra billion dollars, you should point to a large externality you propose to fix - and argue that the supply response will be substantial.  Answers of the form "Distribute the money equally to everyone" are weak, because all lump-sum transfers are neutral with respect to Kaldor-Hicks efficiency. 

2. When you claim that X is the maximally utilitarian way for the federal government to spend an extra billion dollars, you should start with Kaldor-Hicks efficiency, then adjust for marginal utility of wealth.  The conventional adjustment is to put higher weight on the poor, but there are equally strong cases for putting higher weight on the appreciative (people who savor better experiences) and the materialistic (people who place unusually high value on the stuff that money can buy).  The true utilitarian will want to make each and every one of these adjustments.

By these standards, stand-out answers include:


Daniel Kuehn:

I agree with RPLong on a simple shape-of-utility curves basis that redistribution is the obvious first-cut winner (and do it progressively). Anything else needs to overcome normal consumer theory with an interesting externality or multiplier story.

I think investments in neglected R&D of any sort would be a strong contender. A billion goes a long way in a prize fund too.

Fabio Rojas:

Assumption #1: Economic growth happens when people innovate.

Assumption #2: Innovation is proportional to population size.

Policy prescription: Use the $1B to subsidize child bearing, such as lowering out of pocket costs for delivery, paying for child care, etc.

Why it's better than other policies: No other policy is simple to implement. Also, when it come to innovation, it has a better chance of working than having the state pick projects to subsidize.

Kaldor-Hicks criteria: Since the size of the economy will grow, we can use the additional tax revenue to compensate childless people without raising taxes.

Criticism: Maybe the elasticity of children and money (and the implied growth) isn't enough to offset the $1bn.

I'd say Fab understates the case, because Kaldor-Hicks would count additional people's willingness-to-pay to be born, and utilitarianism would count additional people's utility of existing.

Martin:

Pay Kim-Jong Un and his key (read: most influential) supporters to leave North Korea and never come back and send them to some undisclosed location (I am sure China would be willing to receive them).

Alternatively, pay-off any third world dictator and his key supporters to leave the country and never come back.

But is a $1B payoff really sufficient to accomplish this?  And wouldn't the dictators reasonably fear a post-abdication clawback?

AMW proposes immigration subsidies.  But unless you relax immigration laws at the same time, would these subsidies really accomplish anything?  The same goes for Bob Murphy's righteous suggestion.

Ryan Murphy:

Endow a fund that spends 5% of the endowment per year on prizes for solving specific scientific problems.

A very good start, but you should specify "specific scientific problems" with especially large externalities (for maximum efficiency) and especially large effects on the poor, appreciative, and materialistic (for maximum utility).

There are several enticing proposals to spend the money improving public opinion on e.g. immigration.  But how much difference would $1B of open borders propaganda really make on policy?

Thomas May makes a good case:

Sending medicine and vaccinations to the third world is probably the way to provide the greatest happiness to the greatest number for the lowest cost. The domestic welfare state by and large isn't because people in the US tend to have a lot of money by world standards anyway, and development aid (as opposed to relief of extreme hardship) isn't either because it doesn't seem to do much of anything.

Last but not least, Floccina gets credit for citing Alex Tabarrok.



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COMMENTS (38 to date)
Alex Nowrasteh writes:

Immigration subsidies could be targeted to the H-2A visa for temporary agricultural workers. H-2A visa numbers are numerical unlimited but expensive regulations on farmers keep the numbers at ~50,000 per year. A high $5000 average subsidy to farmers per worker could bring in 200,000 people at least temporarily.

geoih writes:

Interventionist answers to an interventionist question with the presumption of intervention.

liberty writes:

The subsidizing child-rearing response is bizarre to me - it may be Kaldor-Hicks efficient, but this would just show the absurdity of Kaldor-Hicks assumptions... most countries with high population growth have low innovation, and each new child born, even if they happen to innovate, is also a consumer--there is no reason to assume they will produce more than they consume.

Furthermore, subsidizing child-bearing will only encourage those less able to raise children to have them anyway, which will likely lead to a lower ratio of innovation to births...and then the answer makes the suggestion to "compensate childless people" -- which would just negate the policy of encouraging more child-bearing...

Clearly I am missing something, but I do not see how the policy will increase growth.

Daniel Kuehn writes:

liberty -
It's an assumption I also find odd in a lot of the recent unified growth theory literature. There are usually references to Smith and the division of labor, but really what we're talking about here is population density in cities, for example.

I accept the basic division of labor argument and over sweeping timespans this is a reasonable argument for why there was more innovation in 2000 AD than 1500 and why there was more in 1500 than 1000 AD - but it seems to me there are much more fundamental causes of innovation. Still, this is one of the principle motors that makes unified growth models go.

Brian writes:

liberty,

In a well-connected, free-market economy, per capita income and wealth grow proportionally with population. On average, each child born that grows to mature adulthood far outproduces the costs of growing and living. This production arises primarily through "innovation" broadly understood, which is really just the application of comparative advantage (Daniel Kuehn's division of labor). So resources such as these would be best spent on societies with well-connected economies with low child mortality, OR in helping a high-fertility society acquire these latter traits.

It will always be the case that "those less able to raise children" will have more of them. (I assume that you mean the poor.) This is a good thing and is just another application of comparative advantage. Those who can increase wealth substantially without biological reproduction should do so; the others should prodcue more producers. The key is ensuring that the new population of producers becomes fully incorporated into the economy.

Brian writes:

On a related note, I'm curious how people would respond to the following hypothetical.

Suppose society decided to give you $500 billion per year to do with whatever you want. The only condition is that you would have to receive the $500 billion each year for the rest of your life. Would you accept this offer and, if so, what would you do with it?

Think carefully about this hypothetical before responding. For my part, I don't think I would accept it.

RPLong writes:

Hey, wait a minute... DK gets a "best answer" for saying he agrees with me, but I don't get a best answer? This is exactly like growing up as the youngest of four precocious children. (Not that I'd know anything about THAT!)

Also...

Answers of the form "Distribute the money equally to everyone" are weak, because all lump-sum transfers are neutral with respect to Kaldor-Hicks efficiency.

If this is true, then I was almost certainly right when I questioned DK about distributing the money progressively, rather than equally.

But, in my defense, I didn't think I actually had to say that private spending is always more efficient than government spending. Or that managing the complex bureaucracy charged with spending a billion dollars costs $X, where X > 1 billion and less than (1 billion + writing 300 million checks for $3.21).

liberty writes:

Dan Kuehn: thanks.

Brian:
I'm not convinced. Anyway, as you say, you need a "well-connected market economy", which (properly understood) is actually a huge assumption, and as you point out, making the economy well-connected is critical. Since it doesn't really exist in the real-world, shouldn't this be the focus?

Also, as for "I assume that you mean the poor." -- no, I mean "those less able to raise children" -- which could mean drug addicts, those with little education, those too busy to care for their children, those with mental difficulties, those with anger-management problems--anyone less able to raise children, for any number of reasons.

Daniel Kuehn writes:

I stand on the shoulders of giants, RPLong :)

RPLong writes:

loooool...!

Finch writes:

> Suppose society decided to give you $500 billion
> per year to do with whatever you want. The only
> condition is that you would have to receive the
> $500 billion each year for the rest of your life.
> Would you accept this offer and, if so, what
> would you do with it?

I'd colonize Mars. Making humankind multi-planet is the most pro-natal single thing you could do, both because of the growth opportunities it would kick off and the existential risk it would mitigate.

You probably can't do it for a one-time $1 billion dollar expense, but it would be trivial at $500 billion a year.

Daniel Kuehn writes:

Agree 110% with Finch.

Philo writes:

You write that the utilitarian will “put higher weight on the poor, . . . [as well as] higher weight on the appreciative (people who savor better experiences) and the materialistic (people who place unusually high value on the stuff that money can buy). The true utilitarian will want to make [all three] of these adjustments [to the Kaldor-Hicks efficient distribution].” But the proposal was supposed to be practical, and how in practice are appreciativeness and materialism to be measured?

You also write: “Kaldor-Hicks would count additional people's willingness-to-pay to be born . . . .” Well, it *should* count this, but how often do economists actually take this into account? (Notice that none of your commenters does so.)

Andrew writes:

I hate to be "that guy" but perhaps Bryan should read a few more posts from one of my favorite authors...

http://econlog.econlib.org/archives/2013/04/the_grave_evil.html

This guy seems to believe that there are better ways to re-distribute rather than through just another government program.

I'm proud to call myself a free-market economist. But free-market economics can and should improve. Our cavalier and callous attitudes about unemployment are deeply misguided. Free-market economists should eagerly share their insights on how to alleviate the grave evil of unemployment instead of putting their heads in the sand and calling idle misery "optimal."
Rob writes:
The conventional adjustment is to put higher weight on the poor, but there are equally strong cases for putting higher weight on the appreciative (people who savor better experiences) and the materialistic (people who place unusually high value on the stuff that money can buy).

And yet this is not optimal. Maximally utilitarian means to create as much pleasure as possible, the solution to which is counter-intuitive and unconventional: Research and subsidize technology that creates raw pleasure in high amounts, make it maximally resource-efficient, then fill the universe with it.

This could be computing power simulating small pleasure minds in a state of superorgasm, or cloning small orgasmic brains and keeping them alive artificially, or some other variety.

Maximally utilitarian does not even focus on humans living normal lives.

Brian writes:

Rob,

I don't think there's any necessary connection between utilitarianism and maximizing pleasure. Utilitarianism is about maximizing what we value; this need not be pleasure. In fact, it likely is not. Otherwise we would see a lot more drug addicts.

Brian writes:

Finch and Daniel Kuehn,

OK, colonizing Mars seems like a reasonable thing to do. But I'm not sure that would use much of the $500 billion each year. I think it's been estimated that we could send a manned mission to Mars for much less than $100 billion, spent over many years. Even though colonization would potentially cost much more, I doubt you could spend it that fast. So what elese do you spend it on?

Perhaps more to the point, is there any reason to think you would do a better job of spending it than the free market and governments already do?

Rob writes:

Brian:

Who is "we"? If it includes not-yet-born minds, the optimal solution is to create many energy-efficient minds who value something and then get that thing. Since you can design what these minds value, you can design them to value stimuli you can cheaply and repeatedly deliver (pleasure or otherwise).

If you define utilitarianism only to care about what "we-the-debate-partners-here" value, then you are defining it very differently from its common definition, and clearly differerently from what was implied by Caplan.

I know this solution sounds like science-fiction or even cheating. But research can improve technology, and it is the correct answer to the question - you can still, of course, personally reject utilitarianism.

Finch writes:

I suspect that you could do it for much, much less than $500 billion/yr. But I also suspect it would benefit from higher spending up to some large dollar value where the benefit would begin to drop off. I don't think the exact point is well explored, but you could probably usefully employ even that vast sum. You can launch twice as many ships for twice the money to some very high limit.

> Perhaps more to the point, is there any reason to
> think you would do a better job of spending it
> than the free market and governments already do?

Well, the free market has no-one who can buy $500 billion per year items. It just isn't large enough. If those are necessary, they won't be bought without multiple people coordinating right now. Government buys perhaps four things of this magnitude: 1) Medicare, 2) Social Security, 3) Defense, and 4) Everything Else. They're all expenditures spread around over a lot of people with benefits spread over a lot of people.

I just don't think enough people agree with me about the importance of new paths for growth that we'd be willing to give up, say, Medicare to fund it. That's because they are wrong and I am right. I take a page from Taleb here; people underweight tail risk. We should worry more about existential risk. If we survive long enough I figure the market will take care of it, but if I had that kind of money I'd take care of it right now.

RPLong writes:
Agree 110% with Finch.

I think this is the best comment that has been posted so far...

;)

Brian writes:

liberty,

I'm not sure that the well-connected condition is as difficult to achieve as you think. It's not really an idealization. It happens approximately in most industrialized free-market economies. By well-connected I mean something along the lines that every person trades indirectly with every other person by multiple pathways.

In any case, increasing the population increases the number of people with which we can trade, which increases everyone's wealth. Breeders get a bad rap, especially those "less able to raise children." They end up investing their own scarce resources to create more producers, but we all benefit through increased wealth.

re: "I'd say Fab understates the case,"

Perhaps there is evidence I'm unaware of it, but it would seem to depend on whether the culture of those receiving subsidies who wouldn't have had children without them is likely to lead to a high enough percentage of innovators vs. warm bodies. It is not clear what the ROI is.

re: paying North Koreans to leave, it is not clear why the US should be that worried about it (South Korea might have a different view). It isn't clear what sort of covert marketing effort (especially given their isolation from the net) would be needed to get the message through explain the rest of the world they know nothing about is better and to get them to believe it and to leave and to resettle/retrain them to function elsewhere It is not clear the end result in terms of numbers will have much of an impact.

re: "I agree with RPLong on a simple shape-of-utility curves basis that redistribution is the obvious first-cut winner (and do it progressively)."

Odd, so naive Keynesian consumer stimulus wins out, rather than funneling the money to the investment side which is lacking at the moment, to those who in some way give evidence they are most likely to grow the economy (as my options attempted to address).

re: " Endow a fund that spends 5% of the endowment per year on prizes for solving specific scientific problems."

One note is it isn't clear where the rest of the "endowment" money is supposed to be "invested" since if the government borrows it and spends it and then needs to come up with that 5% it doesn't seem too useful.

That is using a competitive process, but as you note it doesn't specify *which* scientific problems and how their importance/value is assessed and by whom. There are many scientific questions that from an economic standpoint aren't too useful to answer, or may not even be considered of merit by the scientific world rather than having been determined to be of merit by a political process.


It is odd that your prior post mentions the lack of libertarian impulses among students. Unlike some of what you focused on here, many of the posts dealt with ways to try to steer things from the inefficient centrally planned government sector to the more efficient private sector or to make the private sector more efficient by say reducing regulations. Perhaps you need to hang out with more entrepreneurs vs economists who are naturally going to be more inclined even without realizing it towards central planning when proposing options.

happyjuggler0 writes:

floccina's link doesn't work; i.e. there is no clickability.

James A. Donald writes:

Your question is left wing since it assumes a benevolent and effective government bureaucracy to do good with the money, and many of the answers are even more left wing. For example: fund left wing propaganda, or fund official science. Since official science manufactures official truth, this is pretty much the same thing as funding left wing propaganda.

I have noticed all academic libertarians are moving leftwards in lock step. Did the ministry of truth issue new, more restrictive, limits on how libertarian you are allowed to be? Were they published in the New York Times in the form of an editorial setting the difference between "moderate libertarians" and "extremists"? Or, since libertarians in Academia are little tolerated outside of economics and architecture, were they perhaps published in an economics journal?

Why is someone who used to be an anarcho capitalist asking for benevolent uses of government money? Surely public choice theory, not to mention anarcho capitalism, tells us that government money will not be spent benevolently, but to do do harm.

Graciella writes:

Let's face it, any money spent on anything that's not the illegal bombing of Iraq, Afghanistan or soon-to-come Iran, would be an improvement.

It's always appalled me that so many Americans don't seem to be concerned that their taxpayer dollars are spent on killing people halfway around the globe.

liberty writes:

Brian: But, again, how to you know they will be producers? Even without welfare, it is always possible that people will consume more than they produce, even in the well-connected economy defined as you define it. For example, the new kids might end up requiring charity, etc -- but more importantly, think of the whole generation:

In country A the people are happy and productive in a well-connected economy and as such they are less interested in having children. So they create a small next-generation, but instead they pay attention to their careers, and innovate, and raise the few children they have to do the same. They go on this way, managing to have enough children to keep the population alive, but also focusing on innovation, careers, and life generally, not only breeding.

In country B, the people are encouraged to have children via some cultural routes (religion, say) and they might have lots of children and hence a large next generation--higher overall population--but they all must take moderately productive jobs, and/or half of them only work in the household (because they must raise the kids). They then teach these kids to do the same--so they keep having a larger population but this population spends a huge amount of its resources focusing on having children, raising children, encouraging child-bearing, etc.

Which society will really be more innovative and productive?


A few other things:

"You also write: “Kaldor-Hicks would count additional people's willingness-to-pay to be born . . . .” Well, it *should* count this, but how often do economists actually take this into account? (Notice that none of your commenters does so.)"

Should it? I forgot to say, but I meant to criticize this too -- how can someone have a willingness-to-pay to be born? Before they are born they don't exist! It is a complete figment of the economists' imagination. There is no such thing and it should certainly not be counted.

On the $500 billion, I completely agree with Finch also; and Mars is just the start -- there is a whole universe to explore! Ain't you ever seen Star Trek?

Karim Jebari writes:

I would use the money to eradicate malaria in the poorest countries in Africa. 1 billion would suffice to significantly reduce the burden of disease. Malaria kills 1 m per year, mostly kids. Survivors suffer from brain damage, resulting in massive loss of human capital. Endemic malaria has on average a growth penalty of 1,3% per year, according to Jeffrey Sachs. So eliminating malaria has a decent rate of return and those resources would go to the poorest people. It would also directly eliminate a lot of suffering.

Jeffrey Sachs & Pia Malaney The economic and social burden of malaria Nature 415, 680-685 (7 February 2002) | doi:10.1038/415680a

Thomas Boyle writes:

Two objections to the "best answers"

1. You cited the marginal utility of wealth but I don't see any "best answers" that actually adjust for it.

2. High marginal utility of wealth is not necessarily materialism. They are different. Wealth may be valued for the (non-material) security it brings, or for the (non-material) status, or for the (non-material) sense of achievement, or for any of a number of (non-material) psychological reasons. Or it may be valued because it gives the acquirer the ability to be a philanthropist, which meets only a very peculiar definition of materialism.

Thomas Boyle writes:

Third objection: the transfer of the money from the government, equally to the entire population, is not Kaldor-Hicks neutral. If the government already has the money, then transferring it from the government to the people is a clear Kaldor-Hicks win (since they can use more local information about how to deploy it than the government can). If the government must first tax the money to redistribute it, it is a clear Kaldor-Hicks loss (at best it is taken from everyone equally, then given back to everyone equally, imposing an efficiency loss from the overhead of accomplishing this - and more likely it will be taken from those who value it more and on average given to those whose revealed preferences show that they value it less and for whom it will, in any case, be "found money" which is known to carry less value - see the voluminous research about people in casinos).

RPLong writes:
Odd, so naive Keynesian consumer stimulus wins out, rather than funneling the money to the investment side which is lacking at the moment, to those who in some way give evidence they are most likely to grow the economy (as my options attempted to address).

Not sure how giving money back to the people from whom it was taken qualifies as stimulus, though.

Brian writes:

liberty,

If the quote and comment about Kaldor-Hicks was aimed at me, as it appears, you have the wrong guy. I didn't comment on that.

Regarding producers, it's never possible to know what an individual will do, whether they will be a net producer or consumer, but averaged over large populations human beings are always net producers. As long as people are living through their productive adult years (not dying young), production to consumption is on the order of 5:1, I think. A person has to be REALLY unproductive not to produce more than they consume.

Note that this overproduction is fairly obvious, since the continuation of the human species implies it. Anyone who raises multiple children not only has to produce enough for themselves but also for the children. And our productive capabilities are even more enhanced above subsistence in the modern, industrialized free-market economy.

The answer to your scenario is that Country B will have higher wealth per capita growth rates. How do I know? Well, historical wealth data imply it. In your Country A, all growth comes from innovation (none from population growth). But global historical data indicate that there has never been a time on century-or-larger scales when growth rates from innovation alone have exceeded population growth rates. So Country B with substantial population growth plus reduced-but-nonzero innovation growth will certainly outstrip the innovation only Country, if past trends are indicative.

Now, I can't rule out that the future will be different. We may well discover some form of hyper-innovation growth, perhaps through the use of synthetic intelligence. But this would require something very different from what human beings have ever seen before, outstripping even the industrial revolution.

liberty writes:

Brian,

Sorry, the second part ("a few other things") wasn't aimed directly at you.

But, to the kids question: The way we measure growth will include much of the production that is merely used to raise kids, and if the population is continually growing than even per-capita numbers will include growth that is being used to raise more kids with--if kids are a "consumption good", if we value them, then great! However, that is relying upon their inherent worth. If we are having kids in order to produce more, well this is a good short-term individual strategy for some (if they work the farm) though less and less in industrialized societies. However, in industrialized and developed countries, we tend to have high growth rates despite often *declining* populations.

I'll have to look over the data you are referring to, but from where I stand it is not obvious that true per-capita growth will be higher in Country B more than is necessary to make up for the higher mouths to feed, and on things that the population wants, without assuming that they truly want children for their own inherent value.

geoih writes:
Not sure how giving money back to the people from whom it was taken qualifies as stimulus, though.

Robbery can be so stimulating.

Brian writes:

liberty,

The data to which I refer is the work by folks like Angus Maddison and Brad DeLong. The work attempts to estimate worldwide GDP at PPP in 1990 dollars.

The production we do to raise our kids is certainly part of the GDP calculation, but the per capita GDP won't grow from that unless we are producing more for our kids or raising them more efficiently. So population growth by itself doesn't lead to per capita GDP growth. This can be seen in the historical data, where populations tended to grow slowly but per capita GDP grew even more slowly. The exception has occurred in the last 200 years with the rise of a well-connected global economy, courtesy of free-market capitalism.

Finally, with regard to industrialized countries with low growth rates, please don't confuse country-scale issues with global-scale ones. If a country is connected to the global economy, the country's population growth rate won't matter much as long as the world growth rates are still high. But if world population growth rates fall precipitously, economic growth rates will be much harder to maintain. This is because most per capita economic growth is driven by increasing the number of available trading partners. In a well-connected economy, population growth is the main way to increase the stock of trading partners.

Joe Cushing writes:

Give the money back to the people it was stolen from in the first place.

re: " Not sure how giving money back to the people from whom it was taken qualifies as stimulus, though."

Likely too late to add this, but when I said "naive Keynesian consumer stimulus" I should have put the word "stimulus" in quotes to imply skepticism of the it as being stimulus, I was merely referencing the liberal conception of it. In addition he had stated that tax cuts weren't an option. It seems that if you make the presumption that we have a "progressive" tax system, and the money is given back "progressively", it is not clear whether that options isn't really much different from a tax refund, i.e. a tax cut, in disguise. I guess the intent was for it to be more progressive/redistributionist.

David Adsit writes:

As I read these two posts and some of the comments, I can't help but think that this $1B would be an amazing opportunity to affect public opinion and, eventually, public policy.

It seem to me that the 2 groups who have the most interest in speaking publicly about the effects of capitalism on the common man are news organizations who prefer to report sensationalized scandals and technocratic intellectuals who delight in pointing out the failures of capitalism. Capitalists as a group tend to be too busy creating wealth and employing their neighbors to spend time properly explaining how free trade and free enterprise have affected the course of human history.

I would, therefore, spend the entire amount on a broad and deep advertising campaign extolling the virtues of the free market and capitalism in general. I am no marketer, but I am certain one could find some genius marketing firm who could spend that money to good effect.

I think this would be the most effective use of the money in that it would, hopefully, lead to greater public understanding of how destructive policies like protectionism really are. This in turn would alter the incentives and behavior of politicians. If the public opinion had not drastically shifted after the $1B expenditure on marketing, then I think we could have learned a valuable lesson about human nature and that, too, would be worth the cost. We could then give up all hope of laissez-faire political policy and focus all of our efforts on more productive (in the light of the failed experiment) endeavors.

Eric writes:

Dr. Caplan is right that $1B spent directly on propaganda probably wouldn't change policy. But $1B spent subsidizing an organization that did issue-based fund-raising and transformed immigration into a moral issue like slavery could have a dramatic effect.

If you invested the $1B in starting an organization with fundraising like Dan Pallotta mentions in his TED talk. You'd have fund drives for opening the borders. "Walk to the border" marches. TV interviews with prospective, attractive immigrants. Book deals.

Used directly $1B gets you a 50% chance at being President. But if you have more time, you can use the money to make the money that will put a steady pressure on public opinion and finally cause a policy change.

One of the great truths of Scientology (possibly its only truth) was stated by its founder: "The way to get rich is to start a religion." To make the immigration issue rich, and eventually self-evident, $1B would be enough to start a minor religion like the "cure xx" religions to which adherents devote some part of their lives and receive in return fulfillment, society, and meaning.

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