Fixing the World, Bang-for-the-Buck Edition: A New Freakonomics Radio Podcast

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(Photo: European Commission DG ECHO)

(Photo: European Commission DG ECHO)

Here’s $2.5 trillion. You have 15 years to spend it. How do you distribute this money in a way that will achieve the most good for the world?

This isn’t a hypothetical. In September 2015, the United Nations will set its Post-2015 Development Goals,  continuation of the Millennium Development Goals it set in 2000.

But with every interest group imaginable (and then some) scrambling for a slice of the  aid pie, how do you decide which goals are the most worthy?

That’s the question addressed by this week’s episode. It’s called “Fixing the World, Bang-for-the-Buck Edition.” (You can subscribe to the podcast at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript, which includes credits for the music you’ll hear in the episode.)

Bjorn Lomborg has a few ideas about how the money should be spent. A self-proclaimed “public intellectual” and adjunct professor at the Copenhagen Business School, Lomborg also runs the Copenhagen Consensus Center, which tries to calculate the best return on investment (ROI) for each dollar spent on development aid.

Lomborg doesn’t actually perform these cost-benefit analyses. Since 2004, the Center has worked with 288 economists, 6 of whom are Nobel laureates (including Finn E. Kydland and Thomas Schelling), to carry out the studies.

When setting the Millennium Development Goals, then Secretary-General of the U.N. Kofi Annan worked with a close-knit team of advisors. Current Secretary-General Ban Ki-moon has overseen a considerably more open process; a call for public input yielded more 5 million recommendations. At the U.N., a High Level Panel (chaired by Indonesian President Susilo Bambang Yudhoyono, Liberian President Ellen Johnson Sirleaf, and British Prime Minister David Cameron), worked with an Open Working Group to represent the interests of 70 countries. This process, while laudable for its inclusivity, has created a different issue: 169 potential goals. And not all of them provide a good ROI.

The Copenhagen Consensus Center isn’t officially part of the U.N.’s decision-making process. But Lomborg that with so many billions of dollars about to be spent, it can perhaps provide some useful guidance on spending that money wisely

LOMBORG: We’re not the only input to this conversation, but if we’re just part of that input, it becomes harder to ignore really, really great opportunities, and it becomes harder to ignore that some of the proposed targets are not very good. We like to think of ourselves as constructing a menu for society. Imagine if you go into really expensive New York restaurant and you get this wonderful menu but there are no prices and sizes on it. Unless you have a very good expense account, you’re going to feel a little uncomfortable ordering. But what we try to do is we put prices and sizes on those different menu points. Now, that doesn’t mean that the champagne or the caviar might not be your first choice anyway, but at least now you’ll know that you can afford less for dessert. So in some sense, what we try to do is we give people a sense of proportion. Now, this is not the only thing they’re going to use, but if they’ll just use a little bit of it, chances are we’ll end up with a slightly less inefficient, if you will, outcome. And that’s still great.

A hat tip for this episode to Matt Ridley and his Wall Street Journal article “Smart Aid for the World’s Poor.”


Jaybelle

I went to donate, but you have no PayPal option. Sort this and you can have my money!

Roland

Dear Jaybelle, thank you for wanting to support our work! We do have a PayPal donation page you can access it here http://www.copenhagenconsensus.com/make-donation, here is the direct link: https://www.paypal.com/cgi-bin/webscr?cmd=_s-xclick&hosted_button_id=CBL9255RVGMG4

We are a not-for-profit 501(c)(3) organization, donations are eligible for tax exemption in the US.

Have a great weekend!

hm

I believe Jaybelle was complaining about the lack of PayPal donation options for WNYC and the Freakonomics program.

Isabel

What a great topic to pick! It's quite right that this is such a big, important area that making a tiny difference to it comes out as a huge difference in the end. So I hope that this podcast is a bit influential (though I know how difficult that is). I also found the comparisons between what does and doesn't work fascinating.

Laura

FASCINATING Freakonomics podcast this week. With so much bad news lately, it was heartening to hear that people are spending so much time and effort to fix things, to fix things right, and to make the most impact possible.

Halbin

How could we take someone who says water pollution got better to argue environmental pollution got better? Since when? Only about a 100 years ago you could drink from almost any water source while hiking. That is no longer true. Easier access to bottled water or to cleaner tap water does not mean, water pollution got better. Also the argument if we try to fight global warming we only delay it by couple years is lame. Yes of course you cannot avoid the future consequences of last 50 years, but that does not mean you need not stop now. And why is the choice between fighting global warming against childhood poverty. Why not fight against both adequately and stop spending so much money on wars?

pawnman

Because there are political and financial constraints on what decisions can be made. If you were dictator of the entire world, maybe we could put all our money into childhood poverty and global warming at the expense of the military. There are others who feel differently. How do we balance all the priorities?

The global warming one is, frankly, a lost cause. The US and EU could reduce their emissions to zero (hypothetically), but China, India, and developing countries will more than make up for it.

However, changing childhood poverty, especially through education, will help to move more people out of those manufacturing jobs and into higher-wage, less-polluting alternatives.

u14015481

I completely agree with you "pawnman" , putting all the money into childhood poverty and all the related problems in the world ,equally will never be reached it is too difficult to balance all these priorities !!! How will the world achieve this ??*

When more money are put into childhood poverty,more people will have better jobs in the end ,earning more than they would've uneducated. Giving the economy a major boost and developing individuals that will contribute to the economy with skills that was earned from education.

Mike

I usually agree with the topics covered in the Freakonomics podcasts - and more importantly - feel enlightened afterwards. This one...not so much. For average Joe Schmoes like me, it totally makes sense to spend my money based on ROI. Jeans, groceries, whatever everyday small stuff. But for world governments? That doesn't make sense at all. Spending money to do BIG things is the main reason we have governments. Large organizations with vast resources were created thousands of years ago by cavemen so BIG things can be accomplished when individuals cannot do it themselves. By Bjorn Lomborg's logic, polio would never have been erased from the earth, no one would ever go to the moon, the internet wouldn't exist, and Hitler would've been too expensive to stop. Just because something is hard to do doesn't mean we shouldn't do it. His calculations of ROI does not account for (at least it was not mentioned in the podcast) future inventions, discoveries, and scientific progress. On any given subject - cancer, climate, poverty, etc - we could spend millions of dollars on research and end up with either nothing or something completely unexpected and wonderful. But we won't know until we try. Lomborg's logic discourages trying right from the start...based on what? Based on what concludes as the final outcomes of PAST efforts. That's incorrect. All the subjects mentioned by him are not past efforts. They're still on-going and smart people everywhere are still trying very hard to solve these problems. Lomborg's "Monday-morning quarterbacking" is an incorrect way to guide governments (or foundations) in their missions. When it comes to scientific and social progress...the mission should be "research everything and try everything and aim for the moon". Without that kind of attitude, we would never invent anything or discover anything. The biggest, worst problems in the world would never be solved. One last point...this ROI theory is completely based on the predicted future of how certain things could influence the world. However, Lomborg (I'm sure he is a very smart guy) only has the same ability to predict the future just like anyone of us - almost zero.

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samiam

"When it comes to scientific and social progress…the mission should be “research everything and try everything and aim for the moon”. Without that kind of attitude, we would never invent anything or discover anything. The biggest, worst problems in the world would never be solved."

I'm sure you would be willing to fork out the money to 'research everything and try everything', right? Until your answer is 'yes', I don't think you have any moral high ground to claim that prioritization is unimportant. Focus on the problems that are within reach-that's how you get stuff done!

A lot of people have been working for a long time 'trying everything' all over the world with no measurable results, and yet they CONTINUE working in the same way because the international aid industrial complex is a business unto itself. Foundations each have missions, but if their mission is consistently yielding nothing, why give them money? What good does that actually do? We've been involved in trying to 'Save Africa' for over 4 decades--we have spent millions and gotten nothing in so many areas. We know to a large extent what doesn't work, so saying 'we never know unless we try' doesn't really apply here.

FYI, Polio still exists in the Middle East and Northeast Africa.

And no, Lomborg's logic for smallpox or polio would likely have been based on an economic epidemiological model, which suggests huge returns to vaccinations (and strong interventions to remove the last portions of people disincentivized to vaccinate).

Let's draw an example from something you mention-cancer. You have $1 million to spend on either breast cancer or pancreatic cancer treatment research. How much do you spend on each?
The 5-year survival rate for pancreatic cancer is less than 7%--that's 1/8 the survival rate of breast cancer--meaning there are really no effective treatments. If you're even thinking about it, you demonstrate Lomborg's point plenty well enough for all of us here.

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Oliver H

"I’m sure you would be willing to fork out the money to ‘research everything and try everything’, right? Until your answer is ‘yes’, I don’t think you have any moral high ground to claim that prioritization is unimportant. Focus on the problems that are within reach-that’s how you get stuff done!"

No, it isn't. Quite the contrary. It's how you substitute one problem with another one, for failure to understand what you are meddling with.

You illustrate the problem with Lomborg's logic: In order to calculate anything, he has to use input from sciences and feed them back into the process of science. Unfortunately, he doesn't understand science a bit.

An example: The Philadelphia chromosome, a mutation occuring in the vast majority of cases of chronic myeloid leukemia, was discovered in 1960. It took several decades to figure out how this mutation caused the cancer. It took almost as much time to come up with a drug that blocks that mechanism and turns a disease that was a death sentence into a chronic disease that is managable and allows patients a reasonably normal life - with an apparent chance for some to one day stop taking the drug that needs further research.

Without either of the steps, that drug would not have been possible. Calculating an ROI on research investments is utter nonsense, since the return sometimes manifests only decades later.

You have $1 million to spend on either breast cancer or pancreatic cancer treatment research. Let's assume you believe that one has a higher ROI and you spend your money there. But in the end, you come up empty-handed - always a possibility in research. What's your ROI now?

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Marie

I have spent a lot of time thinking about this subject exactly lately. I was thrilled to hear there is an actual foundation to achieve this end. (And thank you for posting the donation link, I WILL be donating!)

I had wondered if it would be possible to crowd source the information to get the data needed. Throwing the top 30 subjects out there and seeing which PhD students would be able to complete the research? If there are Non-profits related to the subject at hand that would be able to collect and share their data? See if there are universities willing to tackle one of the subjects? Or if there could be some (dare I say, social sharing?) website akin to Wikipedia that people could contribute their own observations, opinions, and information? I think there could be some marvelous opportunity there that would bring the cost of this information down significantly.

Nisha

I usually enjoy listening to freakonomics podcasts , even when I may disagree with some of the conclusions or approaches discussed. By dedicating a full podcast to the views of one person , I think you have done great disservice to the topic being discussed. Development aid and priorities are not like picking what I want to have for dinner tonight. By choosing to invest in systems that allow for more people to be economically better off in the long run, I might have to forego some short term gains and any comprehensive analysis should take that into account. It might have been a better podcast if you could also bring in the other perspective that believes in longer , more systemic investments as opposed to picking short term bandaid solutions that look good and are easy to sell .

MHavenga

What an interesting idea to start with. I once watched a story with a similar concept where a group of individuals started with a large amount of money and an assistant that they could call to order what they want done with the money. When the game ends, the winner is the one that improved the world the most. They had such different ideas, yet all helped. The best thing is probably to focus on long term solutions. As bad as it sounds, charities might not be the best place to start but if you want to solve a problem, you have to start at the root of it. For example, why build hospitals for AIDS patients when the money can go into research for a cure and similar examples.

Woudri

This is a great topic! So many times I wonder where should I make a donation that will actually make a difference.
I believe constant short term solutions will end up making a long term difference and help to plan long term solutions. It is great to see people making the effort. Seeing people trying to make a lasting impact.

Oliver H

"I believe constant short term solutions will end up making a long term difference and help to plan long term solutions."

Tbat is hardly possible, since the short term solutions will not tell you in which direction you have to go to solve the larger issue at all. All they are is quick fixes - and herein lies the crux of Lomborg's attitude: He believes he can fix things without even remotely understanding them. He's an economist trying to do open heart surgery because he feels it's worthwhile doing so. The patient might disagree, but in Lomborg's case, the patient unfortunately has no voice.

Isabel

It strikes me that looking for projects that you can see will work may systematically discriminate against longer term projects, as it may be generally harder to show they will work. And naturally it will inherently discriminate against high risk projects, which could sometimes be a bad thing, because risk can cut both ways, and some of those projects may have the best *potential* returns. Even taken together, though, those issues don't convince me that we should not be going after projects we can demonstrate will work. Although they do make it slightly less of a no-brainer.

Dominic

First off, I'd like to say that I can see both pros and cons to the approach Lomborg is taking, but I think it's a valuable exercise (if done well), and politicians can then make their judgements. As someone who has only really heard negative things about Lomborg, due to his points on climate change, I was also grateful for a chance to get his side of the story.
However, I do have to say that I find his stance on climate change rather bizarre. Climate change is not a problem that sits in isolation. If we choose not to fight a particular disease on cost benefit grounds, there are implications for the population affected by that disease, but there are very few ramifications for all the other things we might be trying to 'fix'. However, if we do nothing about climate change, this choice will undermine progress on almost all other fronts - millions will have their homes flooded or destroyed, food production will be undermined, myriad ecosystem services we rely on will be impaired, and climate refugees will present a major threat to national security around the world (as predicted by that radical organisation, the US military). Surely, given all these knock-on effects, any reasonably comprehensive cost benefit analysis must conclude that mitigating climate change is worth spending more money on than pretty much anything else? This is all without getting into the argument about whether climate action even costs us anything anyway, as many would argue that energy efficiency and switching to renewables actually represent a massive economic opportunity (albeit one that works against the interests of very rich fossil fuel and utility lobbies).
I think it's a shame that Stephen didn't ask this question of Mr Lomborg in this episode, since it's pretty much the most controversial point Lomborg has made. I'm genuinely interested to know what his response is - what did their analysis of climate change cost/benefit include? (Or at least any chance of signposting us to a detailed paper online so we can read it ourselves? And yes, I'm sure I can google it myself if no answer is forthcoming!)

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Daniel Wenny

The Bang for the Buck podcast was interesting but it seems that Bjorn Lomborg either doesn't understand or deliberately obfuscates what sustainability is all about. While the goal of helping the most people now is laudable I think he puts too much emphasis on now and that leads to the same short-term economic thinking that led to some of the predicaments we are in now. For example, he says that we should build coal-fired electricity plants rather than invest in renewable energy because it would yield the cheapest electricity for the most people now. Yet he doesn't mention all the externalities associated with coal (or fossil fuels). So his plan would yield electricity now but have higher costs in the future and those communities would then also have to pay to replace coal. The real question is how can we develop energy to benefit people now but also have lasting, stable and low-externality energy generation over the next 50 - 100 years. Lomborg says sustainability would be nice but it is cheaper now to go with fossil fuels. With that logic he would never invest in sustainability.

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