Review of How to Spend $50 Billion, edited by Lomborg

I recently finished How to Spend $50 Billion to Make the World a Better Place (hereafter, $50 Billion), edited by Bjorn Lomborg. I thank Jeffrey Anderson of FSB Associates for providing me a review copy.

$50 Billion has an introduction by Professor Lomborg, and nine chapters written by other scholars that discuss the following world problems: global warming, communicable diseases, civil wars, lack of education, poor governance, population growth and migration, hunger and malnutrition, unhealthy drinking water, and trade barriers. Each chapter discusses the magnitude of the problem, and some potential solutions. Each chapter is followed by a brief statement of “opposing views”. $50 Billion concludes with a summary of the answers given by eight distinguished economists to the question, “What would be the best ways of advancing global welfare, and particularly the welfare of developing countries, supposing that an additional $50 billion of resources were at governments’ disposal?” The economists rank as the best uses for the money projects for controlling HIV/AIDS, providing micronutrients to people in poorer countries, liberalizing trade, and controlling malaria. They rank as least attractive uses projects to reduce global warming.

As an advertisement—a “poster” at a scientific conference—for an interesting and potentially useful research program, the book is fine. But a reader looking for more is apt to be disappointed. I think non-social scientists will find the book dry, as illustrated by this passage:

Taking the national level first, one clear cost of civil war is a reduction in economic growth. Using a conservative estimate, one year of conflict reduces a country’s growth rate by 2.2%. Since, on average, each civil conflict lasts for seven years, the economy will be 15% smaller at the end of the war than if the war had not taken place. During the post-war recovery, even though the economy grows at an annual rate of more than 1% above the norm, it will take roughly 10 years to return to its pre-war growth rates (that is, 17 years after the conflict started). 21 years after the start of the original war, the GDP has returned to the level it would have achieved if no war had occurred. The total economic cost, expressed as a present value at the start of the war (using a 5% discount rate), is 105% of the GDP at that point. This seems to be a fairly conservative estimate, as a more detailed analysis shows the annual figure to lie in the range 41-305% (90% confidence limits). (p. 40)

On the other hand, technically inclined readers will find details of the analyses almost completely absent. In most chapters, the key assumptions and details of the models are little discussed and there aren’t bibliographies or even footnotes to the relevant papers.

A lot more space should have been devoted to the book’s major news: spending money to reduce global warming seems unattractive (see especially the “opponents’ views” on pages 14 to 18). But the book leaves important questions about this conclusion unanswered. How were the eight economists who judged the proposals chosen? If we replaced the panel’s Robert Fogel, Douglass North, and Vernon Smith, say, with three other, randomly-chosen distinguished economists, would the panel’s conclusions have been different? (I think the answer is likely “yes”.) How was “50 billion” chosen, and why is it the right amount? (Even if spending on global warming has a benefit-cost ratio that’s low relative to other projects, as long as the ratio is greater than one we should pursue it if we consider spending a large enough amount.) The global warming chapter touches on—but far too lightly—a key issue: what is the appropriate discount rate to use in assessing the possible benefits of reducing global warming? The chapter's author, William R. Cline, states that in the economic literature on social cost-benefit analysis, a discount rate for “pure time preference” is “set at zero”. Mr. Cline briefly defends this, but I wanted a lot more discussion. (Some additional discussion and some references are available in a piece by Tyler Cowen.) A second key issue, also discussed too little, is the low but non-zero probability of global warming causing catastrophic harm. How should we evaluate and deal with that? (Richard Posner, for one, argues that we should spend more. I find attractive Aaron Wildavsky’s approach: we should focus on getting educated and getting wealthy, because that gives us the most flexibility to react to disasters, both foreseen and unforeseen.)

I have one last complaint, not with the book as much as with the research program it advertises. The determination that spending money on anti-malaria measures and on clean water and on improving diets would be very cost-effective is not new. Governmental and private donors have known this for decades. The difficult question is how to make sure that aid from wealthier nations is actually applied to these problems. $50 Billion devotes a chapter to government corruption and takes ample note of the problem in other places (see pp. 33-35 and 71-72, for examples). But it should be the focus of this research, maybe even the entire research program. We urgently need to know how to make aid effective. For this claim, generally, see William Easterly’s recent writings or this short piece by MIT professor Abhijit Banerjee. For the specific example of the World Bank’s problem in fighting malaria, see this New York Times article. And that research is just part of a larger, even more important research program: how are political and social systems that foster economic growth created and how are they maintained? Why, for instance, after several decades of stagnation, did India rather suddenly adopt some pro-growth policies? Why have those policies, so far, survived? Why is Botswana relatively successful for a sub-Saharan country? Why is Chile “special"?

Economists are investigating this, but in keeping with standard academic form, I’ll close by stating that “more research is needed”.