Scott Sumner  

Don't forget about opportunity cost

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This story in the usually reliable FT caught my eye:


It is central London's first new moated building since the medieval era. The new US embassy in Nine Elms is a paradox, a heavily defended delicate glass box. Its architect calls it a "crystalline radiant beacon"; in fact, it resembles a corporate cube.

It is also one of the world's most expensive embassies, costing a cool $1bn. Remarkably, not a cent of US taxpayer money has been spent. Speaking at the press launch on Wednesday, Ambassador William Moser, principal deputy director of the Bureau of US Overseas Buildings Operations, confirmed that the new building "was entirely funded from the proceeds of real estate sales".

That real estate consisted of two US-owned properties on London's Grosvenor Square, including the former US Embassy, sold to developers Qatari Diar to become a five-star hotel.


A classic case of wasting taxpayer money. And yes, the proceeds from government real estate sales most definitely are taxpayer money. Remember this story the next time a progressive tells you that cuts in government spending will take food away from homeless people.

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PS. In a recent post I compared Switzerland and Venezuela. Some commenters objected that it's possible to have a relatively successful welfare state. That's obvious (as I pointed out in my post, citing France and Sweden) and completely misses the point. The point was that there is very little evidence that welfare states make people better off, whereas there is overwhelming evidence that neoliberalism makes people better off.

There may or may not be good arguments that governments can make people better off by spending 30% of GDP, but there is virtually no evidence that bumping that number up to 40%, 50% or 60% will improve on the results from 30% of GDP.


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CATEGORIES: Cost-benefit Analysis




COMMENTS (8 to date)
RPLong writes:

Your post script is excellent and warrants its own stand-alone post. Diminishing marginal utility of welfare spending should be a concept even welfare proponents accept.

Hazel Meade writes:

I love beautiful architecture, but a BILLION?


Regarding the post script, the problem with Venezuela wasn't the welfare state but the efforts to control prices in defiance of the market. You can actually have a welfare state and not have it be a complete disaster. I'd be much happier if progressives limited themselves to handing out welfare and left market prices alone.

Floccina writes:

I am pretty sure, most welfare in the USA goes to people who would not need it if it did not exists. The biggest welfare programs being Social Security, Medicare and public education.

And how much of SNAP is captured by landlords in places with slow growth policies?

Lorenzo from Oz writes:

Off topic, but stabilising nominal spending being treated as if it is simply the obvious best policy for central banks.

Mark writes:

Hazel Meade:

"You can actually have a welfare state and not have it be a complete disaster. I'd be much happier if progressives limited themselves to handing out welfare and left market prices alone."

I think the point was that you can also not have a welfare state not have it be a disaster. The presence or absence of a welfare state isn't what generally makes or breaks a prosperous society. However, whether a society embraces 'economic liberalism' does often make the difference.

What I think Scott's point was that the big difference between Venezuela and Switzerland isn't the welfare state (gov. spending as % of GDP is 40% in Venezuela and 34% in Switzerland per wikipedia, so not tremendously different) but rather that one has much greater economic freedom than another.

You are right of course that how much of a market economy to have and how big of a welfare state to have are not essentially the same issue. I do however think that a welfare state has significant economic costs beyond what is needed to pay for them, in that they disincentive working and saving. I would bet France's generous unemployment and retirement benefits are part of what keeps workplace participation so low; additionally, one might also argue that money saved and invested to pay for one's own retirement and healthcare (or invested by one's insurance company) is more productively invested than money collected by the state waiting to be redistributed.

TMC writes:

"I love beautiful architecture, but a BILLION?"

You could get, like, half a website for that.

Thaomas writes:

How do you get from a justifiable complaint about wasteful spending on paranoia-driven state security to attacking the welfare state? :) I agree that every program, including social spending, should be subject to cost-benefit analysis.

BTW, I do not think of "neo-liberalism" an alternative to "welfare state" but rather policies that advance it (including generating resources for it) more efficiently --subsidies for individuals to purchase health insurance rather than employer "provision," progressive consumption taxes instead of taxes on business and the SS-Medicare wage tax, carbon tax instead of subsidizing specific technologies, higher EITC for minimum wage, etc.

Juan Manuel Pérez Porrúa Pérez writes:

Not to mention that the building is an eyesore.

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