fbpx Why our debates about what things cost are so flawed, and how to fix them | Harvard Kennedy School

HKS faculty member Linda Bilmes is working to change the way we think about how much government policies and programs really cost, to help people make better decisions.

Featuring Linda Bilmes
December 1, 2021
44 minutes

Barely a news cycle goes by these days without someone in public office saying "We can't afford this" or "We can't afford that" while at the same time defending the favorite budget items and tossing around mind-numbingly large budget numbers in the billions and trillions of dollars. Those debates can seem very cynical, and of course Oscar Wilde famously defined a cynic as a person who knows the cost of everything but the value of nothing. But Linda Bilmes, the Daniel Patrick Moynihan Senior Lecturer in Public Policy, says things are even worse than that—not only are we not having discussions based on value, our understanding of what projects and policies actually cost is fundamentally flawed. A former CFO of the U.S. Commerce Department and an internationally known expert in public budgeting and finance, Bilmes has made it her mission to change the conversation about cost in the public sphere, and she’s helped identify the true costs of everything from America’s wars in Iraq and Afghanistan to our National Parks to the automobile economy in Massachusetts. She joins us to talk about her efforts to improve both the discussions and the decisions that are made about public money.

Episode Notes:

Linda J. Bilmes, the Daniel Patrick Moynihan Senior Lecturer in Public Policy, is a leading expert on budgetary and public financial issues. Her research focuses on budgeting and public administration in the public, private and non-profit sectors. She is interested in how resources are allocated, particularly defense budgets, costs of war, veterans, sub-national budgeting and public lands. She is a full-time Harvard faculty member, teaching budgeting, cost accounting and public finance, as well as workshops for newly-elected mayors and members of Congress. Since 2005, she has led the Greater Boston Applied Field Lab, an advanced academic program in which teams of student volunteers assist local communities in public finance and operations. She also leads field projects for the Bloomberg Harvard City Leadership Initiative. Bilmes served as the Senate-confirmed assistant secretary and chief financial officer of the U.S. Department of Commerce under President Bill Clinton. She currently serves as the sole United States member of the United Nations Committee of Experts on Public Administration (CEPA), and as vice-chair of Economists for Peace and Security. She serves on the board of directors of the Institute for Veterans and Military Families at Syracuse University. She was a member of the National Parks Second Century Commission and served on the U.S. National Parks Service Advisory Board for eight years. She is a member of the Council on Foreign Relations and a fellow of the National Academy of Public Administration. She holds a BA and MBA from Harvard University and a D.Phil from Oxford University.

Hosted and produced by

Ralph Ranalli

Co-produced by

Susan Hughes

For more information please visit our webpage or contact us at PolicyCast@hks.harvard.edu.

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Transcript

Intro: (Linda Bilmes) I think people feel frustrated. I think people look at the budget from different perspectives, but many people, if they are familiar with the U.S. budget, they think, "How is it possible that we're spending $750 billion a year on the defense budget, and we're spending $2.5 billion a year on the parks?" And I love the parks, and I go to the parks, and I get there, and there's just a huge backup line, and I've got to wait for two hours to get in. And then I get in, and there's no toilet paper. 

Intro: (Ralph Ranalli) Welcome to the Harvard Kennedy School PolicyCast. I’m your host, Ralph Ranalli. Barely a news cycle goes by these days without someone in public office saying ‘We can’t afford this’ or ‘We can’t afford that’ while at the same time defending the favorite budget items and tossing around mind-numbingly large budget numbers in the billions and trillions of dollars. Those debates can seem very cynical—and of course Oscar Wilde famously defined a cynic as a person who knows the cost of everything, but the value of nothing. But Professor Linda Bilmes says things are even worse than that—not only are we not having discussions based on value, our understanding of what projects and policies actually cost is fundamentally flawed. A former CFO of the U.S. Commerce Department and an internationally known expert in public budgeting and finance, Professor Bilmes has made it her mission to change the conversation about cost in the public sphere, and she’s helped identify the true costs of everything from America’s wars in Iraq and Afghanistan to our National Parks to the automobile economy in Massachusetts. She joins us to talk about her efforts to improve both the discussions and the decisions that are made about public money. 

Ralph Ranalli: Linda, welcome to PolicyCast.

Linda Bilmes: Thank you, Ralph. Very delighted to be here.

Ralph Ranalli: I have to say I’m really looking forward to this discussion, because I think a lot of people are frustrated by how confusing and unhelpful our public policy debates are when they focus on how much things cost. So I’ve thought that perhaps the reason we don’t always make the best policy decisions is because we’re not valuing the right things. But now that I’ve gotten to know some of your work, it makes me think the problem is more fundamental than that: We really don't know the cost of everything, and not only are we not coming up with the best answers, we're not even asking the right questions. Why is it so difficult to have a meaningful conversation about cost?

Linda Bilmes: Well, I think that when we think about costs, it's very hard to understand how big is big, partly, particularly in the English language, because the numbers, millions, billions, and trillions sound the same. And so it's really easy to blur them up. And I usually start by telling my students that if they had a stack of $1,000 bills, a million is about 4.3 inches high, and a billion is about 350 feet high. It's like Statue of Liberty kind of height. And a trillion is 67 miles high. I mean, that is further than Elon Musk went in his rocket. He went 52 miles, which was just at the beginning of space. You're going really deep into space. When we're talking about trillions of dollars spent on wars, trillions of dollars spent on infrastructure, I mean, this is just an enormous number. It's unfathomable. And because of the fact that we're dealing in order of magnitudes here, it's so easy reading the newspaper, or listening to the news to just glaze this over.

Linda Bilmes: It's also very difficult to understand and bring back down to earth these huge numbers, which is one of the reasons I'm interested in costs of the local level. I mean, in Somerville, the cost of after-school basketball for a kid is like $6. I mean, how do you keep in your mind the trade offs between the $6 for the after-school basketball for a kid in Somerville and the trillions of dollars spent on the war? And all of this is made even more difficult because we don't think in terms of the long-term costs of things. One of the challenges in thinking about war costs, which I've thought about for a long time is that there are these long tails of costs. And for example, if we think about the cost of taking care of the veterans who have been hurt in the post-9/11 wars, we know from previous wars that the peak year for paying for World War I veterans was in 1969, which is 50 years after the armistice. And the peak year for World War II veterans, including my late father, who was a World War II veteran, the peak year was 1986.

Ralph Ranalli: I read that. And we haven’t even hit the peak cost year yet for Vietnam veterans, right?

Linda Bilmes: Right, we haven't hit that yet. We're just approaching it. And there were many, many more disabling conditions, and casualties, and claims, and so forth for the post-9/11 wars. It's going to be many, many decades before we really experience the full cost of these wars. And all of these things, the short-term, long-term aspect, the fact that the scale is hard to keep in your mind, make it hard for us to really think about cost in a way that's accessible.

Ralph Ranalli: You mentioned costs at the local level, and you and I talked about a year ago about your project that calculated the cost of the Massachusetts automobile vehicle economy. The total came out to about $64 billion a year for things like road construction, financing, and maintenance, first responders for emergencies, carbon emissions, land use, and a host of other associated costs. And you also pointed out that we have these conversations about public transportation here in Massachusetts, and they almost invariably revolve around how expensive it is, and whether the state can afford it, and who is subsidizing it. And we aren't comparing those vehicle economy costs to the costs of public transportation, and we aren't taking into account the fact that the people who use public transportation are subsidizing the people who use cars in that economy. Why is it, do you think, that we aren't better at having political discussions about apples to apples in that context? 

Linda Bilmes: It's a great question, Ralph, about why we don't really see the full costs of things. I think there are a number of economic explanations for it, but from the perspective of budgeting and public budgeting, if you look at it, a traditional public budget, it's what we call a line-item budget. What it shows, it would typically show a unit, a department or a unit, or something, and it will show salaries, and supplies, and maybe overtime, and things like that. I mean, essentially, what you see is inputs. You don't really see outputs. And so budget discussions tend to focus on, "Okay, it's going to cost X amount to operate the MBTA this year. And maybe there's a capital budget around, and we need to do some investments and buy some new trains, and this kind of thing." I mean, that's sort of what you see. And there is no regular kind of budget for the vehicle economy, but if we think about it, the budgets are basically around roads and maintaining roads. I mean, that's the visible part of the iceberg, but everything that goes into maintaining a car economy, everything, whether it is emergency accident and roadway assistance, maintaining entire fleet of people who chase after speeding drivers, all of the parts of cities and states that are devoted to parking, parking lots, enforcement of parking, everything to do…

I mean, we've seen a little bit of this post-pandemic, where restaurants are trying to take over little parking spots, and discovering that there's another use for that. All of the costs, in terms of the environmental costs and the emissions, and carbon emissions, and so forth, I mean, none of those things show up in any sort of budget. They don't get collected that way. In other words, the reasons that we don't see apples to apples is because we don't have the frameworks in which to compare apples to apples. And so what we have tried to do in our work, whether it's looking at the national parks, or looking at the vehicle economy, or looking at war costs has been to say, "If we actually try and put the cost of this activity, or this entity, or this thing that we're looking at, if we actually try and look at the full costs of doing this, we can more readily compare it to something for which we do have costs."

Last night I was listening to the debate between Michelle Wu and Annissa George about the MBTA, and whether to have free fares, and so forth.

Ralph Ranalli: Those are the two candidates running for mayor of Boston.

Linda Bilmes: They're the two candidates for mayor in here in Boston, and there's a discussion about whether it is realistic to make the public transit free at the point of... I mean, it's not free. Somebody has to bear the cost, but at the point of getting on and off, and of course, the candidate who is in favor of, as they call it, freeing the T. It pointed out that there is a lot of cost involved in the cost to the consumer in having to make that decision to get the monthly passes to get on and have the correct change, et cetera, and the cost to the drivers that have to collect it, and all of those kinds of things.

But that's the small cost, but the overall question of who really bears the cost of people driving in cars instead of going on public transit doesn't appear anywhere. We don't really see that cost, even though we know that in terms of children's asthma, in terms of the strain to particularly lower-income populations, the actual... This cost is real. I have long advocated more of an activity-based costing approach, which is an approach in which we think about the cost of an activity, as opposed to just a line-item budget, which encompasses thinking about indirect costs and overhead costs, and also thinking about long-term costs, as well as having a more performance-based approach on budgeting, where we're looking at what we are buying for the amount of resource that we're spending.

Ralph Ranalli: What do you think it will take, either politically or from a policy standpoint, to move closer to having comprehensive discussions like that that result in more informed decisions? Are we making progress in that area, or are we still having the same conversations based on the same flawed inputs?

Linda Bilmes: Well, your question is, are we making progress? What would it take to do this? I think that in some areas, we are making some progress in some specific areas. I think the area where we are beginning as a society to think about costs differently is when it comes to greenhouse gas emissions, and partly, because this is a measurable metric and everybody knows what it means. I mean, measuring carbon emitted, measuring methane emissions, I think, I mean, we haven't done anything about it. We've not imposed a carbon tax. We haven't actually made tradable carbon credits a reality. I mean, but I think people have in their mind, "Okay, if this leads to more emissions, this leads to less emissions, and so there is at least the mechanism through which people can think about the fact that there are long-term and additional costs to certain types of activities."

On the one hand, I mean, we look at the shift towards renewables. The shift in the business sector is in many ways leading the charge to electric vehicles, and so forth, in part, because they're doing these calculations, and many people are individually trying to figure out how to reduce their carbon footprint, whether that's going to eat less meat, or trying to figure out how to use more reusables, and so forth. I think that that is in the air. It is very much in its infancy, though, in terms of really changing our mindset. And when it comes to biodiversity and really thinking about the value of biodiversity, there is no clear metric. I'm involved, and I'm leading for the Biden administration, a group that is trying to focus on how to bring natural capital accounting, as we call it, into the United States.

The United Nations has a system of environmental economic accounting that a number of countries have adopted and are using for some things to try and value biodiversity assets, whether it's wetlands, or soil, or fish, stocks, or pollinating insects, or the ingredients that make it possible for us to eat or breathe. And yet, we don't have a clear metric. And when we look at a balance sheet or an income statement, those things don't have a measurable value. And there is some very good work on this, but it is going to take an enormous effort by everyone, government, business, civil society, to actually change the way we think about wealth so that we value biodiversity as an asset and view the loss of it as a liability.

Ralph Ranalli: How does that all relate to your groundbreaking work on the valuation of the National Parks Service and its lands and programs? 

Linda Bilmes: I served on the National Parks Board for 10 years. And before that, I served on what was called Second Century Commission, which was a bipartisan commission in which we tried to think about the fact that 100 years ago, we had created the national parks, and we feel so great about the fact that we did that. And we tried to think, "What can we do now that 100 years from now, we will look back on as favorably?"

We were thinking about the national parks in wide variety of ways. The people on the commission were fantastic. They included Sandra Day O'Connor, and the leading historians, and Senator Rob Portman, who's a Republican from Ohio, and a national park friend, and I were the financial team on this commission. Anyway, one of the things that I looked at is, when you think about the value of the national parks and protecting the parks, the value in them, what we want to go for is a perpetuity value, but their funding mechanism is an annual hand-to-mouth operating funding. There is an enormous disconnect. And one of the things that we try to do is to think about, "Well, what is the value of the national parks?" And the national parks actually has a way of valuing itself, its own value, which we discovered is a purely touristic value. The way they value it is in terms of the jobs created in the Denny's restaurants, outside of the parks, or in the hotels, or the various touristic type of activities, maybe the jobs in the nearby airport at Bozeman or something. I mean, these are mostly economic values, mostly related to jobs. And they estimate that the value of the parks is around $35 billion on that basis. Now, that compares to less than 3 billion in the parks budget. It's already a big delta, but what we realized was that that is a kind of a value, but there are many, many, many more types of value. For example, we measured the carbon sequestration in the parks. We measured the botanical and animal protection in the parks. We measured all of the historical and cultural conservation in the parks, and all of the curriculum for school teachers.

Every school teacher in this country uses, when they teach you about bears or things, they use materials that are developed by the parks. We measured the intellectual property. There have been thousands of films and TV shows. Star Wars filmed in Death Valley. And we actually interviewed some of the Star Wars producers, and they had paid $25 to film in the Star Wars per set. I think the total amount that they spent was $25 a day, and they filmed for seven days or something, and that those films grossed four or $5 billion, and a lot of other intellectual property. We were able to say that just on those kind of basis, I mean, it was a huge multiple, like 10 times bigger than the touristic value. We also asked people doing an economic conjoint analysis, willingness to pay study, how much would they be willing to pay to not lose some of the parks? And people said that they would be willing to pay, based on what they actually earn, $92 billion to not lose 20% of the parks. I mean, including actually paying higher taxes.

The affection that people feel for the national parks, people love the national parks. They really feel proud of them. They want them to be maintained in pristine condition. And all of these kind of values don't get captured in the traditional valuation, and they certainly don't get reflected in the budget, which is a three, two and a half, $3 billion a year budget, and has stayed basically flat for 20 years through Republican and Democratic administrations.

Ralph Ranalli: What's the consequence of that when you have this greatly undervalued asset and this comparatively small budget, and there's this giant gap in between those two things?

Linda Bilmes: I think people feel frustrated. I think people look at the budget from different perspectives, but many people, if they are familiar with the US budget, they think, "How is it possible that we're spending $750 billion a year on the defense budget, and we're spending $2.5 billion a year on the parks?" And I love the parks, and I go to the parks, and I get there, and there's just a huge backup line, and I've got to wait for two hours to get in. And then I get in, and there's no toilet paper. I mean, how is that possible? I mean, people are like, "This is my vacation, and I saved up for it to take my kids here. And this whole place is so amazing, but it is kind of a mess, and there isn't any place to stay. And why do we spend trillions of dollars on the F-35s, and who decides how many F-35s we need, considering that they're barely ever flown, and the cost overruns get higher and higher every year?"

People feel frustrated, and people feel frustrated that they have fought in the wars and they come back and they have to fight for months, and months, and months, and months, and months to prove that they were affected by a burn pit when everybody knows that we had burn pits the size of football fields burning 24/7, and every single mouse study that examines that knows that that causes respiratory illness. I mean, I think people get really frustrated because they feel that they can't affect the way that we have prioritized our spending. And you see, and I want to... I think this is something that is... Let's see how to say this. I mean, I think in different ways, it is both Democrats and Republicans who feel this frustration when it comes particularly to things like public lands, and environment, and cultural heritage, and things like that. But it's one of the reasons why I am very favorable around the idea of participatory budgeting. 

Ralph Ranalli: I’ve heard that term participatory budgeting, but I feel like it’s one of those concepts that you think you probably know what it is, but you really don’t. Can you explain it for us?

Linda Bilmes: Yes. Participatory budgeting is a global phenomenon that started in Brazil about 20 years ago. And what it is, is a method of giving actual citizens a direct say in how local funding is spent. And typically, the way it is done, and I was involved through my former student, Michelle Monsegur, in setting this up in Cambridge, Massachusetts, is that the local community sets aside a certain amount of money which individuals can decide how to spend. And what they do is people come up with ideas, the city helps them cost through the ideas, and they have, usually, a very wide set of voters, which in Cambridge includes, I think anyone over the age of 16 or maybe 14. You don't have to be a citizen. Anybody who's in Cambridge can vote on this. And the literature on this has showed that people find it very empowering. And, among others, people, including Archon Fung, have written a lot on the theory of this and why it works. But I have to admit I was somewhat skeptical at first, but having now been through it for a number of years, it is incredible how people who felt very disenfranchised from the system, people who felt like they were going to this park and seeing this swing that was broken, it was broken, broken, broken, like, they were there and they just have no place to go with it, and all of a sudden, they can get money to fix the damn swing. And things that people, that they ... even in local government, which tends to be more responsive, things that local government doesn't necessarily see or prioritize can get prioritized.

In Cambridge, for example, one of the priorities that came out of one of the rounds was that people really wanted public restrooms in Central Square. Now, this was something that, as you know, if you go into pretty much any country in Europe, there are clean public restrooms which are available. If you go to Costa Rica, there are clean public restrooms available, but in the U.S., if we have them, they're horrible and grubby. And they set them up in Central Square, and because this was just an overwhelming desire among people to have this. And so some of these things are humble. We have done it in our class. We're going to be doing it again, another round as I teach it, where we have actual money set aside by the student body of the Kennedy School, and I match it, so the students can actually choose. And they take it very seriously. They make up a list, we cost out the things. We don't always... The charging station is up on the top floor. The Kennedy School came out of a vote from our class. They also voted for nap pods, but the administration didn't allow them for reasons which I can't repeat on this podcast. But we're doing it again this year, and I think this is not, of course, a panacea, but the popularity of participatory budgeting all over the world, wherever it's happened, kind of shows this disconnect in people's frustration, that they can't seem to somehow influence how resources get allocated.

And I mean, when we were doing all of the national parks work, we had focus groups all over the country. A lot of the people in the focus groups were new Americans. They had immigrated from Guatemala, or someplace else. And they expressed this incredible affection for these national parks and how much this meant to their kids. And they didn't understand why there is no transportation, how to get there. There's no public transportation. They didn't have a car. I mean, just somehow, we don't allocate resources. I mean, when these people came to the focus group, they didn't know what we would be talking about, and these are people who are going to give up an entire evening for 50 bucks. These were not wealthy people coming to there, but there was such a strong desire to contribute to the environment, to protect the environment, and so forth, and a frustration that we weren't allocating our resources in accordance with that.

Ralph Ranalli: Right. Well, I'm fascinated by the concept of a nap pod, but I did want to pick up on what you said about the military budget and relate that to how the media handles the issues of how much things cost. There has been a lot of criticism lately of the political press for its handling of the discussions around the Biden administration's Build Back Better bill and how this $3.5 trillion cost number is being thrown around but they’ve omitted the context of that number being a 10-year spend figure, and that the yearly spend is actually $350 billion. And when you compare that to the $750 billion defense budget, all of a sudden, it doesn't seem quite so large and it becomes a different conversation. How much should we be holding the media to a higher standard in terms of how they present numbers and figures so that they're prioritizing, not the figure that's going to shock, but the figure that's going to elicit the greatest understanding and most productive discussion?

Linda Bilmes: I think that like most Americans, some of the mainstream media—that is not the financial media, I mean, I think the Financial Times does a pretty good job on this, the Economist does a pretty good job on this—but like most people, the issue that I mentioned at the beginning of the podcast around this orders of magnitude and the scale of difference between a million, a billion, and a trillion, just gets lost. And so the biggest problem is the fact that in the same sentence, you will see million, billion, trillion thrown around, and it is really difficult if you're not a budget person to just bear in mind how different those numbers are. Now, in this case, it's definitely true that when the $3.5 trillion bill was announced, that's over 10 years, so it's roughly... I mean, it's not exactly, but if you wanted to put it this way, you could say that's $350 billion per year, which is less than half of what we spend on the military every year. As a matter of priority, if we're spending double on the military per year what we're spending on the Build Back Better, that's sort of a way of thinking about it that's different than thinking about 3.5 trillion.

I think, though, that there are other issues which complicate the discussion of money and how much money we're really spending. One of the issues that is really important is that when we think about budgeting, we're thinking about revenues and expenditures, how much we're spending and how much we're taking in. But because of the tax system, we can spend money, but on the revenue side. In other words, we can give a tax deduction. I can give you $100, or I can give you a tax deduction for $100. Now, if I give you a tax deduction, I'm spending the money, but it's showing up in lower revenues. And because the whole structure of these bills is a combination between how much revenue we're taking in through, not just new taxes, but tax deductions and adjustments to the tax deduction, it becomes complicated to explain, how much are we really spending, net? And that whole issue has not, I think in the media, been covered in a way that people can really understand it. What I see when I'm reading is people talking about, "We're going to spend XXX, and then taxes," as if this thing is completely different, the tax policy. And we might have the sole tax, or the billionaires tax, or corporate tax, or whatever. I mean, it's not just the corporate tax, it's what are we already giving in terms of tax deductions? And we are already spending trillions of dollars in tax deduction, but it shows up in lower revenue. When we think about the deficits and the growing deficits, it's the interaction of those two things. That doesn't really happen.

I mean, the second issue is that the difference is made up through debt. Now, we have just spent, depending on how you count it, at least four, probably, five or $6 trillion over the last 20 years on the Iraq and Afghanistan wars. Let's call it $5 trillion. None of that money has actually been spent. It's all been borrowed. I mean, we have borrowed that money, and it has been hidden from view because of the fact that, first of all, we budgeted for it mostly for 10 years as emergency money. Now, emergency money is like, if you have a hurricane or an earthquake. And so it doesn't get put into the regular budget for next year. The objective is to get it out really quickly, and to get it out without a lot of vetting and kicking the tires, because you just want to get the money out. But for 10 years, we were spending trillions of dollars through this emergency mechanism, even though we knew the war was going to go on. Then we shifted to another system when the sequester was brought in in 2011, in which the war spending was exempted from all the budget caps. It was in the budget, but it was not. It was still not subject to the regular oversight and budget process because it was outside of the limits. There was a kind of budget arbitrage that the Defense Department used, in which the stuff that was subject to caps, which was not the war spending was reshuffled so that they could put it through the war spending money, the so-called OCO budget. With all these budget shenanigans, we ended up with $5 trillion of war spending, which has not hit yet. I mean, this is a debt for the future. Now, there is also a huge amount of interest that will be payable in this debt.

Some of my colleagues at the Costs of War Project like to add in some huge amount of $10 trillion in debt. I don't like to do that because I feel like when you buy a house, you say, "I spent 600 on a house." You don't say... You don't put in the debt, the mortgage payments, but it's still there. And so the way that budgeting is done, and the way that we don't reflect how it's being paid for and how it's being financed is very troublesome. And we know from many, many academic studies that people don't experience spending if it's through debt in the same way as if they're paying for it through taxes. In every single previous U.S. war, every single one, the War of 1812, the Spanish-American War, in the Civil War, in World War I, World War II, the Korean War, Vietnam War, taxes were raised a lot to pay for these wars. And President Truman, who coined the phrase pay as you go, raised taxes to 92%, top marginal rates, to pay for the Korean War. There were 90 something percent at the end of the World War II. Lyndon Johnson, who hated raising taxes, raised taxes to 75%, top marginal rates, to pay for the Vietnam War, which he didn't want to. But as he said in his inimitable words, he said, "I'm trying to feed the hungry, and in this country, at the same time, I've got to pay for this fucking war."

I think that the conversation we're having now, the national conversation in which we're saying, "No, we can't raise taxes. We can't raise carbon taxes. We can't raise gas taxes. We can't impose a higher top marginal rate. We can't raise corporate taxes at the same time that we are spending. We have already just spent $5 trillion that we got to pay interest on on these wars, which went entirely sort of under the table, and through which, basically, apart from the all-volunteer force, none of us fought, none of us paid yet." It's irresponsible in my view to just pass this on to the next generation, but all we see in the media, and not just the media, but it sort of is this number of, well, it's 2 trillion, or 3.5 trillion, or whatever on this kind of thing. We're not seeing the overall structure of how we are thinking about spending money and paying for things. Secondly, I probably said secondly a couple of times, but secondly, when it comes to spending, there are different... Spending has different consequences. If I spend money on my son's education, I expect to have a different consequence than if I spend that money on a restaurant. I mean, they both go into the economy, but in different ways. Spending money on early childhood education, spending money on education, vocational education, good quality childcare, and whatever, infrastructure in particular has a much higher multiplier in the economy than say, spending money on packing sandbags in Iraq.

Because of the very short-term way in which we look at the long-term consequences of this spending, we're not looking at the return on investment. Now, if you're a business, you're always going to look at the return on investment. Now, that's return on investment as it pertains to your shareholders. It's [inaudible 00:44:12], but we are the shareholders, as it were in the United States, and globally when it comes to the environment, but we don't have a good way of looking at the return on this investment. In other words, in short, what we see is we see... In the media and elsewhere, we see information about spending, which is not exactly understandable because of the problem with the millions, billions, and trillions. We see it in which we're not comparing apples to apples in terms of the say, $750 billion annual defense budget being compared to a $3.5 trillion 10-year social budget. We're seeing a picture of the budget in which we're not seeing the interaction between spending on the revenue side and spending on the spending side. We're not seeing all the implications of taxes and tax expenditures, and we're not looking at the long-term impact and the long-term return on investment of different types of spending.

Ralph Ranalli: Can we talk about you for a minute? You started out in consulting, and then you moved into government yourself, you had a top post in the Commerce Department under the Clinton administration, and then you went into academia. You also recently got named to the United Nations Committee of Experts on Public Administration. Can you tell me just a little bit about that journey from there to here? And where along the way did you figure out that this was where you wanted to concentrate your effort and your work?

Linda Bilmes: I guess, like everybody, I have a lot of interests. I'm the daughter of musicians, but when I was working as a management consultant, and I was based in London, Madrid, and Moscow at the time, Boston Consulting Group was a very pretty young company then. We had a small number of offices around the world, and I think that we had five or six offices in Europe. I worked a lot on the industrial sector, industrial practices, particularly in Eastern Europe, and starting in the Soviet Union, and then as it became Russia. I was looking at heavy industries, like steel, and footwear, and cement, and shipping, and I became interested in how the cost of commodities, that a tiny fraction of the penny in the commodity world could completely shift the whole global economy for that commodity. And so, I had to spend a lot of time really understanding cost structures. And I realized that cost structures were the key to a lot of these industries. And as a lot of the Eastern European countries were trying to restructure their industrial base in order to be competitive and to reenter the West, particularly in Poland, Hungary … At that point, Hungary was making most of the world's rubber and tires, and the whole thing had been aligned so that they made the rubber and the tires for the Star trucks, which were made in Poland. And the trucks were used in the Soviet military, and the whole system was stitched up in that way. And I started looking and unpacking that, not to mention in the global footwear industry in Latin America, and so forth. 

I became really interested in cost structures then, and when I then left BCG to go to the Commerce Department, where I was assistant secretary and CFO of the Department of Commerce. The Commerce Department is a very ... It's kind of like a holding company. It has many, many different units. We had the Census Bureau, we had NOAA, which of course has the fish and also the dry side with weather satellites and things, as well as the Economic Development Authority, and the International Trade Authority, and the Patent and Trademark Office, and various other agencies that were under it. I had then, for several years, this wide span of control in the Commerce Department. And so, I was looking at the costs, and the budgets, and the financial structure of all of these different agencies. All of that together kind of cemented my interest in budgeting, and in costs, and in how the public sector figures out how to allocate resources.

Ralph Ranalli: So what's next for you? I heard you're working on a paper soon to come out about reparations with Professor Cornell William Brooks.

Linda Bilmes: Yes. In the past... I have two or three more main activities at the moment. I have a book called The Ghost Budget, which is coming out Cambridge University Press in 2022, which is around how we paid for and financed the post-9/11 wars. I have a lot of work that I'm doing now on natural capital accounting, and I'm working closely with John Kerry's office, and the Assistant Secretary of State for the environment on how we can begin to introduce natural capital accounting into the US. And I also work with the United Nations on this issue. 

And domestically, I have been involved in a project with Cornell Brooks, and a number of students for the past year in which we are looking at reparations, and that we have a really innovative, very, very different perspective on this issue. We call it reimagining reparations. And the way that we have looked at it is we have looked at all the ways in which the federal government spends money to provide financial restitution for all different kinds of actors in society that have suffered harms. And we have juxtaposed that against the fact that we have provided almost no financial restitution for the harms that have been inflicted, either deliberately or accidentally on Black Americans. This is going to be published in The Atlantic, and we are presenting it at the American Economic Association in the first weekend of January. And we've had just an amazing team of students who have worked with us over the last year on this. And it is really, really fascinating. I didn't know a great deal about this subject when I started this, but I'm very, very grateful to be having this opportunity to turn some of my thinking onto this topic.

Ralph Ranalli: Well, that sounds fascinating. I'm looking forward to that, and to your book. As we wrap up, can you give us the name of the book again and when it's going to come out?

Linda Bilmes: Yeah. It's coming out in 2022. It's a little delayed. The book is called The Ghost Budget, and Paying for the U.S. Wars in Iraq and Afghanistan. And I have called it The Ghost Budget because one of the characteristics of the more than 200 reports of the Special Inspector Generals for Afghanistan Reconstruction, and the Special Inspector Generals for the Iraq and for the Afghan Reconstruction, and the Pentagon Inspector Generals is the number of times that the word ghost appears, as in ghost soldiers, ghost projects, ghost teachers, ghost schools. This is where we spent money. It wasn't that we spent money to paint the school blue, and we way overspent, or that we painted it, and/or that we were supposed to paint it, and we didn't paint it. It's where the school doesn't exist, or the soldiers don't exist. I mean, the actual thing doesn't exist. And we were so plagued all the way through with spending money on these ghost projects that I have called it this book, The Ghost Budget. And it goes through some of the reasons for this kind of ghost spending, the extraordinary lack of oversight over the spending, how the Defense Department became addicted, like sort of crack cocaine to this kind of budgeting mechanism, and how the financing worked. And among other things in the book, I went back and I looked through, that it took a very, very, very long time, all of the times that the Senate and House financial and budget committees, and appropriations committees had considered the cost of the wars in Korea and Vietnam compared with the past 20 years. And it is absolutely shocking. I mean, we spent such a lot of time during Korea and Vietnam, whether you look at presidential speeches, or presidential budget transmission memos, or congressional hearings, looking at the cost of these wars, and almost no time whatsoever in the past 20 years on the cost of these wars. Hopefully, at least this topic will be encapsulated for perpetuity in this book. It's been five years of research.

Ralph Ranalli: Well, I'm very much looking forward to reading it. And thank you so much for this great conversation. I've really enjoyed it.

Linda Bilmes: Oh, thank you, Ralph. Thank you so much for doing it.

Ralph Ranalli: Thanks for joining us. One note to our listeners: This episode was recorded while negotiations for the Build Back Better Act were still ongoing. The total cost of the bill is now estimated at $1.75 trillion dollars over 10 years, or an average of $175 billion per year. Please join us for our next episode, when our guest will be HKS fellow and 2021 Nobel Peace Prize laureate Maria Ressa, who will talk to us about her fight for press freedom and against the weaponization of social media by politicians—including in her native Philippines—trying to subvert both a free press and democracy.