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.”


Sara Thornton

I would like to learn more about the research on the cost of domestic violence. Could you please provide the source?

Krisanka Redelinghuys 14004217

This is a very interesting blog, as I read it over and over. What would one do if you have such a great portion of money? Of course the first though would be to help those that have less...but now the question is how? One never really thinks that this money will be available. 'The world needs fixing, and its our job to fix it.'

The world is divided into such a great unbalance between the rich and the poor. To get equality would be wonderful, to reach an equilibrium. To get health, education and basic income therefore social, economical and political levels equal.An overall healthier population would benefit the world greatly as less sick people would increase the countries economy and capital growth and the families will continue getting income. Therefore better medical care and more hospitals with educated doctors would be a great place to begin. Incredible progress can be achieved if a clear goal is set and a drive and passion drives one towards it. Vaccines against illness to improve human condition needs to be delivered to those most effected. Eg. clinics, family farms etc. Polio vaccine for example and health care available to all countries in cases of critical outbreak of viruses and bacteria like TB, which could spread. With education , more local teachers could be appointed and helped to sculpt new minds.

Anything is possible and I believe with a strong mind, set goals, ambition to drive and a love for society we can manage to change the world, step by step.

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Elize Schoeman

I agree fully!

John C.

I thought it was unfortunate that the Copenhagen Consensus Center seemed to gloss over why the fade-out effect doesn't apply to their pre-school recommendations. The research into whether pre-school has permanent benefit and the factors involved is hardly settled research. While head-start may be of benefit in the U.S. no economist would say it has a 33x ROI. The debate is whether there is a positive ROI. At a minimum the center is losing some credibility by confounding inputs (e.g. confusing education benefits with preschool education benefits.

Mark

I agree with Lomborg on pretty much everything, but I wanted to hear more about his view on post-secondary education, where he talks about giving scholarship to poor kids to go to college (at 32:40).

Economist Bryan Caplan (who showed up in Freakonomics a few times) thinks college education is economically hurting the majority of those who decided to pursue it (simply by the fact that they don't finish it, and that the economical value of going college mostly comes from finishing).
http://econlog.econlib.org/archives/2014/09/what_every_high.html

I'm not sure about the policy implications (other than that the government should probably have to be careful about spending such money), but can you invite Caplan and do an episode on this topic?

Ali

This budget is going to be very theoretical and the actual numbers are going to be way off. $2.5 trillion to be spent in over 15 years. There's no way I can believe that they will get it to be accurate. There are just too many variables and unknowns. What we can predict accurately is that consultants will make good revenue out of this.

Andre

While this podcast episode was as fascinating as the rest, what I find most interesting about discussions that involve budgets, money, investing, and the like is that they don't seem to honestly or thoroughly take into account near-term and future trends involving computers, automation, and robotics.

From what I have seen and read, simply through informal and casual research, computers, automation, and robotics stand to change virtually every facet of the lives we live. Not surprisingly, part of this change will involve technological unemployment - the jobs of hundreds of thousands temporarily or, more likely, permanently eliminated. Sure, some new jobs will be created for those who will be initially required to build the robots, develop the automation systems, and design the computers. However, as these types of technology become so advanced as to build, repair, and replace themselves, people will simply no longer be needed for these endeavors. Besides, who among us should have to collect rubbish or clean the sewers if they don't have to?

Furthermore, money, in its various forms, is far too limiting a medium, and its fungibility – particularly electronically – quickly allows for abuse and corruption. As such, the use of money in any form as a token to represent real, tangible resources is simply wasteful and unproductive. Combine this concept with the notion of technological unemployment, and one might quickly begin to see the benefit of eliminating money (credit, and barter) altogether.

Instead, why not develop a concise set of global rules for the proper allocation of global resources? These rules could be roughly based on Maslow's "Hierarchy of Needs," and might look something like this: every human is entitled to 1) clean water, 2) healthy food, 3) safe shelter, 4) advanced healthcare, 5) a well-rounded education (this is essential to solving many of our problems), and 6) the freedom to travel the globe. People from around the world should be able to reach their greatest potential, and - in doing so – will benefit all those around them.

So, instead of relying on money - or a lack thereof - to do (or not do) something, why not simply do what we can based on the actual, available resources? We have the knowledge and we have the technology. Why not use our ingenuity - developed and aggregated over the course of thousands of years - to solve our problems and make life better for everyone? Think about it…

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George T

The solution is simple. Take $2.5 Trillion and create a hedge fund. Governments around the world will do anything you want. Tell politicians to end poverty or stop getting campaign funding.

Jen C

I love this topic! I agree that knowing the scale of each problem and how much it (roughly) costs to fix them is really, really important! E.g, I'm really motivated to donate towards stopping domestic violence when it's more than 10x more damaging than civil wars!

Andrea Ferraro

Dear Mr Lonborg, I would like to point out that when setting standards in ranking project because this will drive how new targets will be set. This means that any ways of ranking will steer next ideas to try and be phenomenal. Also do not make a mistake, as we currently do in our society, of not taking into account the impact that the target will have on environment as maybe you will be helping but with a negative effect on our environment leading to possibly larger problems in the future. From the podcast it seems to transpire that the economist interrogated still did a cost-benefit analysis without taking into account the extra greenhouse gasses that the target will produce. As I said it only appears but as no more information is given on what are the criteria’s to be a phenomenal target I cannot confirm or dismiss this. I would like to say that this is a great initiative to stop non achievable and “buzz” targets.

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Dwayne Baraka

So excited to see Freak-Onomics tackling this topic, and i wholeheartedly agree with the premise of the thinking. In fact my whole business is connected directly to the premise.

What is disappointing is the shoddy economic analysis that fails to take account of long-term consequences, externalities, systemic analysis, tipping points and so many of the other concepts that are otherwise carefully and wonderfully explained elsewhere on this site.

Perhaps that is caused by a lack of time in the podcast, but its hard to see how proper analysis has been done outside flawed macro-models that fail to take account of real world effects. That's especially true because the main speaker has expertise in game theory and presumably things like Monte Carlo analysis techniques. One example is the persistenly decreasing cost of renewable energy, related tipping points and the mitigation costs of carbon reduction/climate change.

Thoughts?

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Doug G

I thought this was one of the best programs I've heard on Freakonomics. Thanks for covering the topic.

pcvnica

What are some books that I can read on this subject?

Paul Goodling

Hello, I really enjoy your show. I have been an avid listener for years and I read your first book forever ago. However, until now I haven't been able to contribute to helping the world solve it's problems. There were two shows that recently got my attention. This one above, Fixing the World, Bang for the Buck Edition and the interview with Jim Yong Kim, who seems like one of the most fascinating people. Anyway, I want to give to someone that is doing the right thing, that is finding innovative ways to solve the worlds problems in the most efficient way. The problem is, I don't know where to go to make sure I give to the right people and to those that I can be assured are not wasting my money. Can you help?