The Fatal Flaw in Cost-Benefit Analysis

In Part I of this commentary on the Sarkozy-Stiglitz Commission on the Measurement of Economic Performance and Social Progress, the focus was on the social engineering perspective underlying the search for such an index. But at the end of that commentary, I noted that the Commission’s discussion of different indices was rather “academic” since there is one dominant index used in governmental decision-making: the monetized gains minus the monetized losses of cost-benefit analysis. A proponent of cost-benefit (CB) analysis would roll up all the Commission’s discussion into the question of the better “costing out” of all the direct and indirect impacts of a social decision.