Saturday, September 03, 2005

Budgets

I read an article in the Washington Post criticizing Bush for "Repeatedly request[ing] less money for programs to guard against catastrophic storms in New Orleans than many Federal and State officials requested."

Let me explain to you about budgets. Why do we use budgets? We use budgets because there is not enough money to do everything we want to do. So we create a budget, with which we (for the sake of argument I'm pretending pork-barrel policies don't exist) try to get the biggest bang for our buck. We assess the riskiest ventures, and then see how much money we need to spend to reduce that risk below the level of our next most important risk. There are two reasons we stop spending, one is that there is no more money. The other is the law of diminishing returns.

The more you reduce a risk factor, the more money and effort it will take to get even more marginal results. Just as one can increase one's lifespan considerably by adopting a super-low-calorie diet, most people are unwilling to pay the price (in terms of enjoying the bounties of the earth) needed to reduce their risk of dying. Heck, most people are unwilling to turn down the extra Ritz cracker a day that will make them gain 20 lbs. in 14 years.

So President Bush took a risk: he bet that the limited resources available to him were better used elsewhere (I'm pretty sure the same people that are complaining about the lack of money for the Army Corps of Engineers are also complaining about the lack of money for body armor.) As it turns it, he took a risk and missed. What we don't see is the other catastrophic things that would have happened had we not used our money to reduce risks elsewhere.

1 Comments:

Blogger Noumenon said...

The problem is the same one Steven Levitt points out about your doctor: only he's qualified to tell you if you need surgery, but he's the one who's selling it. The only people with the expertise to know when we get to the point of diminishing returns on the levees would be the Corps of Engineers, but you can't trust them. In principle, and because they were caught manipulating their economic study for a billion-dollar Mississippi River project in 2000. If Bush had given the Corps the money, there are many boondoggles it might have gone to instead of a useful project. (Your article says right there the extra money would not have prevented this flood at this time.) So he made the decision based on ideology, patronage, visibility, the usual budget suspects. (Rational diminishing-return analysis unlikely to be in the top three.) And he actually slayed some pork.

he bet that the limited resources available to him were better used elsewhere

If he bet wrong, it's fair to hold him accountable for that. He overestimated the threat of terrorism and repurposed the Corps budget and FEMA emergency response into homeland security. That was a mistake. (It seems kind of silly to imagine that the President had a personal input on this decision, but let's just talk about him symbolically as if he did.)

(I'm pretty sure the same people that are complaining about the lack of money for the Army Corps of Engineers are also complaining about the lack of money for body armor.)

Nothing wrong with that. It's not a guns or butter tradeoff. It's a guns, butter, or massive handouts to corporations/medicare/investors/lobbyists. I am normally unsympathetic to special interests grubbing for funds, but when the budget cuts they suffer are not to save money, but just to reward more favored special interests, it's a little different.

What we don't see is the other catastrophic things that would have happened had we not used our money to reduce risks elsewhere.

What we're seeing is the catastrophic things that do happen when you use your money to reduce risks elsewhere, such as the risk you won't get re-elected.

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I don't actually think federal budget choices had much of anything to do with this. It's more org chart choices or a local thing. I'm just responding because the anti-spending arguments you're using here can apply to any bureacracy demanding any money at all to reduce any risk. I think this is a case where those arguments shouldn't be applied without some real knowledge about the risks and costs involved. New Orleans flooding was ranked as one of the top three "most catastrophic, most likely" disasters by FEMA in 2001. Don't just assume we were spending enough to reduce that risk to diminishing marginal returns. Maybe we weren't, and the crisis lets the Cassandras finally be heard.

12:05 AM  

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