How to Spend A Billion Dollars

If you were my professor, I would suggest spending it all on incentives for reproduction (open borders, the other thing I would shill for in an attempt to win your favor, costs negative money)

I think what leads people astray is the fact that $1 billion dollars, if possessed by a single economic agent, has the power to deliver a truly awesome level of utility to that agent.

Divided equally among the total population, $1 billion amounts to about $3.21 per person. This number seems trivial. Why would it be better to give every man, woman, and child in the country less than $5 apiece than to spend $1 billion on a major social initiative? How could it possibly be better when there are so many pressing issues out there. $1 billion cure cancer. $1 billion to travel to Mars. $1 billion to solve the air pollution problem. $1 billion to eradicate poverty or stockpile flu vaccines. ONE BILLION DOLLARS!

The problem is that we have no way of knowing in advance which of these major initiatives will bear the most fruit. $1 billion might fund some good cancer research, for example, but if it could guarantee a cure, then we would already have many cures for cancer.

But if I give you $3.21 right now, you will be able to IMMEDIATELY think of a way to spend that money that will give you a good amount of utility. Maybe you’ll be a couple of MP3 downloads. Maybe you’ll buy a hamburger for lunch. Maybe you’ll use it to pay for shipping & handling on an online order of something. Maybe you’ll buy coffee and a doughnut.

Whatever you spend it on, you’ll benefit instantly and appropriately (appropriately FOR YOU).

(MU of $3.21) * 311,591,917 American citizens = a lot more U than (U of $1 billion) * 1.

Thus, I say distribute the money equally among everyone.

Meta-answer: List your best candidates for most effective public policies (ngdp targeting, freedom of migration, intellectual property reform, many others). Subsidize prediction markets on the effects of adopting these policies.

I agree with RPLong on a simple shape-of-utility curves basis that redistribution is the obvious first-cut winner (and do it progressively). Anything else needs to overcome normal consumer theory with an interesting externality or multiplier story.

I think investments in neglected R&D of any sort would be a strong contender. A billion goes a long way in a prize fund too.

Create and fund a reward system which pays voters and politicians for successfully lowering the (permanent or durable) future tax rates.

It is unclear what the best duration and payout system would be, i.e. a 5 year window paying out equal sums to all who contributed, a 10 year window paying equal sums to voters but larger sums for politicians, etc.

Clarifying the first part of the question, what I would emphasize is that the costs and benefits of any policy are the costs and benefits to specific individuals. Here, our task is a bit easier because we don’t have to worry about the costs (they come out of general tax revenue, say), so we can focus on the benefits. What we are looking for, in principle, is a policy that will provide the most benefit to its beneficiaries, as measured by how they themselves value the good or service they are receiving. It would be great if we could give something they value at more than $1 billion, but if not, and we can’t return the money in tax rebates, we’ll just do the best we can.

The natural answer is to look for public goods or goods with associated positive externalities, so that the government is getting more “bang for the buck” by benefiting more than one person with each dollar spent.

The problem with this approach, is described by economists like Coase, Demsetz, and Ostrom, and the problem unfortunately turns out to be fatal. Namely, in the real world, where there are large benefits to be captured, people are pretty good at capturing them. It is mainly within the realm of economists’ imaginations that people are helpless to solve a “collective action” or “externality” problem, and thus massive benefits of simple agreements are ripe for the picking. From clubs solving the “public good” problem of lighthouse provision, to fishing villages in Turkey solving the “tragedy of the commons,” empirical investigation has shown that the people who benefit can be made to pay, somehow or other. The simple fact is, although you may often hear people say of their friends’ business plans, “That’s a great idea, but no one would pay for it,” most ideas for products or services that are actually great, entrepreneurs have figured out a way to get people to pay for them; in contrast, most of your friends’ business ideas are pretty bad.

Take my refusal to answer as a cop-out if you want, but if I believed I had a genuinely great idea that I thought was worth more to people than it would cost to implement, I wouldn’t be spending
my time answering this question. The criterion of Kaldor-Hicks efficiency, plus the lessons of the above-mentioned economists, sort of makes this conclusion inevitable.

The standard critique of Utilitarianism is that it counsels giving all the money in the world to a single “utility monster,” but in fact, that is the answer to the second part of the question. Naturally, it is impossible to identify who the utility monster is, but I would argue that basically you can identify him for being everything that I am not. As far as I can tell, I’m about as happy as I can be spending $5,000 a year. I believe that giving me more income would basically do nothing for my happiness. So, in all utilitarian seriousness, I would propose using the $1 billion to pay for the things that more profligate people like to buy. A person who doesn’t have a job, but just spends all day doing drugs and drinking alcohol, must really like doing drugs and drinking alcohol. His main problem is he has a limited budget constraint. So, I propose that we use the billion dollars to subsidize drugs and alcohol for libertines.

This first part is east: the most efficient way is to pay out a bonus to SS recipients.

The second part: spend $1 billion on copyrighted learning materials such as textbooks. No need to offer them online, simply lift the threat of lawsuits.

I guess if you were really utilitarian and considering the average person, the money should go to entertainment companies to lift their copyrights.

Best answer if this qualifies: the U.S. Treasury should take the $1 billion and openly state it will buy $1 billion in gold to increase U.S. reserves. The value of the U.S. gold reserves will jump in value, delivering billions in profits, while the U.S. dolls would strengthen, raising the buying power of all dollar holders.

If you want a consumer theoretic justification, marginal utility approaches infinity as utility approaches zero.

Most efficient: pay for the travel expenses of highly skilled foreigners in low to medium income cuontries to immigrate to the U.S. (No money for their families’ expenses; after a year or two here the immigrants can afford to bring them over on their own dime.) Such immigrants can make somewhere in the neighborhood of two to five times their current salaries just by moving here. For a couple thousand dollars a head we could create tens of thousands of dollars of productivity per year for the next few decades. That’s efficiency.

Most utilitarian: pay for the travel expenses of low skilled foreigners from the poorest nations to immigrate to the U.S. (Again, no money to move the families; the lucky immigrant can remit money back home and eventually pay to bring the family here.) Their lifestyle will almost instantly improve dramatically, and assuming a standard-shaped utility function the gain in utility will be enormous.

Objectively speaking those answers may not be “right,” but I’ll bet they would get full credit in Bryan’s course! 🙂

Select 10,000 people at random and give them each $100,000.

@RPLong and Daniel Kuehn,

It seems to me an obvious way to improve on utilities in your redistributive scenario would actually be to not hand out the money to Americans but instead to hand it out to the world’s poorest people. If you handed out $1 billion dollars to 300 million people earning less than a $1.25 per day, then you have nearly tripled the average daily wage of 300 million people for a day, which should create many more utilitons than even focusing on handing out $17 dollars to the poorest 20% of Americans ($17 dollars being a little over half the daily wage of an individual at the US poverty line). Beyond that, cost of living typically being cheaper in nominal terms in these countries, that $3 will be able to buy more and thus produce more utilitons for those individuals than even individuals similarly impoverished in the United States.

But perhaps we can even do better than that.

I propose we spend that billion dollars flying people from the poorest parts of the world to the US to live and work in the US. With an average cost of about $2000 to fly a person from Africa to the United States we could bring over 500,000 African immigrants. As of 2008, average personal income of African immigrants to the United States was $26,000 a year which demonstrates a huge increase in income from conditions in Africa. Even assuming that the Africans brought over in this programs would, because of their low income and likely low skills, earn half that average we have a huge increase in utilitons for 500,000 people. 500,000 people earning an average of $13,000 a year per person will produce $6,5000,000,000 a year. Compare this to making about $400 individually a year and thus the total group producing $200,000,000 a year. We’ve just turned 1 billion dollars into 6.3 billion dollars. But that’s to the immigrants, if the government then declared that these immigrants would only receive non-rival government benefits (roads, defense, etc) and taxed them at 10% of their income this would mean it would receive back the billion dollars plus an extra 30% in 2 years. This could create a self-sustaining loop with the government then using the gains to bring in more immigrants increasing their utilitons, the utilitons of everyone who benefits from the immigrants increased productivity, and even potentially the government’s utilitons if they skimmed off part of the extra tax revenue for whatever increases the utilitons of government officials.

So that’s my answer, fly over 500,000 desperately poor Africans to the United States and watch the utilitons increase.

Most efficient way: Fund $1 billion worth of scientific journals, spread across all the sensible subject areas, that only publish scientific results that confirm their null hypothesis, or try to replicate other people’s work.

This is an area of scientific work that is seriously neglected, given most people’s interest in eye-catching results. Many policy proposals thus are based on biased research. Improving the published research base could thus leverage better quality proposals across the board.

Most maximising-utility way: quite frankly, the best value spend I’ve seen of government money in terms of resulting general happiness was the tax incentives the NZ government gave to the Lord of The Rings movies, meaning that they were made in NZ. Vast numbers of Kiwis were involved one way or another in the making of the movie. The London Olympics, from living in the city, seemed to have a similar effect. Assuming that the $1 billion spend is similar one-off, as opposed to ongoing, my response is “circuses”. Some big, feel-good event that gets many Americans involved.

I don’t have time to write a full essay-question answer, but here is my sketch:

Spend the $1B to overcome resistance to open borders and to open them (with keyhole policies to make the border-opening Pareto).

Opening the borders will invite young people motivated for change to come. We will not have had to spend to raise them. But they will enter our economy and innovate. This will cause economic growth. Macroeconomic growth will benefit everyone.

Further, since most immigrants will be younger (older people don’t like to move) this will shift demographics so we can pay for extant entitlement commitments.

And additionally, an open border environment should require less border policing, reducing costs. And, an open border environment will reduce international resentment against the USA since anyone who wants to be a part of what we are doing can join us. In turn, this will decrease threats of terrorism.

The long-term cost of this proposal is likely negative to almost everyone involved. (People prejudiced against immigrants, people displaced by immigrant workers, and politicians who have built their careers generating such prejudices will need some sort of compensation.) The $1B will serve the purpose similar to a spark initiating an exothermic reaction of removing entrenched interests and misconceptions so that the nation-wide benefits of open borders can take hold.

I cannot think of another policy with such a potential for long-term ROI for the USA (except possibly for colonizing space – which would cost MUCH more than $1B and have benefits MUCH farther in the future). But when measured on a global scale, utility would increase even more because the immigrants themselves would find their utilities increasing.

My thoughts are along the line of RPLong and Daniel Kuehn. Progressive redistribution. I like lottery approaches, too. In BarryV’s example, you might possibly put money in the hands of the next Google or Amazon like founder.

The prize approach would be my choice, though. Prizes of $500, 200, 100 million with the rest in smaller amounts to non-profits who manage to provide the highest value of free medical care per patient for 1, 000 or more patients.

I spend that billion dollars finding, eliminating, and prosecuting fraudulent payments from Medicare. If we could catch even 5 or 10% of that, we’d turn that billion into $3 to $9 billion!

Certainly Most Efficient and likely Most Utilitarian:

Distribute Equally to all Full-time Govt Employees in their paycheck. Let them spend it.

$1000M/2.62M Emp (2011) ~ $382/Emp

http://www2.census.gov/govs/apes/11fedfun.pdf

I didn’t read through all the comments. Sorry if this has been stated before.

Most Utilitarian (greatest happiness for greatest number): getting as many people up to annual income of $50K/year as possible. Best way would be through jobs that make them feel that they’re doing important work. Maybe hire them as college lecturers.

Most Efficient: Create prize(s). Maybe a prize for an important gain in energy storage (batteries).

A related tactic, you could give a bonus to politicians and/or regulators per X page federal regulations are reduced.

Spend it on a project to get foreign countries to pay us for defending them to cut down on military costs, while still letting the military industrial complex get money so they are less likely to fight this than real defense cuts.

Or obviously funding privatization efforts throughout government, e.g. spinning of the FDA into a competing safety label

You could have the utilitarian benefit of seeing liberals scream bloody murder by giving it out to the public in a regressive fashion, giving the money given out to the public based on their share of total investment income as a proxy indicating some likelihood they might spur economic growth (rather than the contest I suggested).

I’m sure there are better ways, these were what popped to mind in the first few seconds.

After reading through the bullet points that Prof. Caplan linked, I am not sure I see a material difference between K-H efficiency and utilitarianism. I get that one measures in dollars while the other measures in utility (or happiness), but why would we expect them to diverge into different policy recommendations?

Are there any textbook examples that show how a situation can be K-H efficient but not utility-maximizing (or vice-versa)?

Question for Ken P and Daniel Kuehn:

Is there an economic reason why you favor progressive redistribution? I haven’t thought much about it, but my gut reaction is that we have no a priori reason to assume that $1 offers a poor man more utility than it offers a rich man – am I missing something?

Efficiency is dollar denominated while utilitarianism is “happiness” denominated. Given diminishing marginal utility, this means that the most utilitarian method is likely to help the poorest and most miserable, who are for the most part outside of the US. The most efficient method is likely to help the (relatively) wealthy, who have more money to reveal their preference for things by buying them.

Ideally, the best solution will involve positive externalities. Goods that are under produced because the benefits are not captured.

Deregulation is not “spending” the money. I’d lump advocating deregulation in the same category.

Buying off dictators is tempting, as their subjects are the most miserable, but how are you going to guarantee their replacements are better? Also, I don’t think a billion dollars is enough to get NK sold to SK – which is the most plausible way to improve a terrible regime.

So:

Utilitarian: Buy out a billion dollars worth of patents for medicines that treat diseases of the poorest people of the world e.g. AIDS and malaria. Put them into the public domain. The ill poor are the most miserable of the miserable. We can buy the patents of proven drugs, rather than speculate on what might wind up the most helpful.

Efficient: Give the money away to members of the highest tax bracket, as they have the greatest revealed demand for money, expressed in money terms. Obviously, I’m punting on positive externalities here, but at least the recipients would be able to apply their own tacit knowledge as to how to spend the money. An obvious alternative would be to buy out patents for medications which treat diseases of the (relatively) rich.

Efficient? Whatever has the largest positive externalities; probably basic research funding granted to universities.

Utilitarian? Use it on a subsidized low income worker program. Us it to transport third world workers into The States. The money could be spent advocating for open boarders, but no amount of money could overcome the strong opinion of the public against the idea. It isn’t open boarders, but it’s the closest thing to it for $1 billion.

Sending medicine and vaccinations to the third world is probably the way to provide the greatest happiness to the greatest number for the lowest cost. The domestic welfare state by and large isn’t because people in the US tend to have a lot of money by world standards anyway, and development aid (as opposed to relief of extreme hardship) isn’t either because it doesn’t seem to do much of anything.

I’m not sure refusal to give this answer is entirely unconnected to libertarian beliefs (speaking as a libertarian), although some of the “bad” answers seem to be people trying to prove they’re smarter than the question and apparently failing.

(As an aside, I doubt AIDS is actually worth treating with a sum as small as $1 billion. Yes it causes a lot of harm but it’s also extremely expensive to treat and treatment only delays progression. There are enough really easily preventable diseases about like measles.)

Alright, there’s this guy named Peter Thiel. He’s sorta like Brian. Libertarian. Bigtime education skeptic and democracy skeptic, etc. So he’s operating under OUR assumptions.

And he’s a great capital allocator! A lot of the commenters ideas require someone to distribute the cash. Innovation=positive externalities, right? Someones gotta hand out the cash to the innovators. Sounds like a job for Thiel. Give him the billion.

One word of caution. He might use the money to build a border fence! (google numbersusa thiel)

Use the money to create a public repository for all government funded research results, papers, code, and data.

Use it to pay down the federal debt.

Followup:

Paying down the debt has no (or as close to 0 as you can get) administrative costs. (Efficient!)
Paying down the deby will also deliver returns by reducing future interest payments on the debt. Which will in turn be utilitarian by providing benefits over the long term to our children and grandchildren (i.e a much larger number of people than are living today, spread over a longer timespan).

If you think an inability to borrow, as in Greece or Spain, is one of the few things that can constrain government spending, you would not use your windfall to pay off government debt if you are a libertarian.

Hire more police for crime ridden areas. This makes those areas safer and therefore more valuable. It should also reduce the number of people going to prison a big gain. And it is the core function of Government and so least like to cause crowding out.

More Police, Fewer Prisons, Less Crime
by Alex Tabarrok on January 26, 2013

Paul Ralley,

You suggest the US hands out 100,000 grants of $10,000 plus a green card by lottery. I could make a pareto improvement to your suggestion by handing them out instead by IQ test.

I don’t know if this [paying off dictators] is the best way to spend $1 billion for the people of the U.S., but I sure wish economists would explore this idea much more extensively.

Economists would hopefully note that when you reward a particular behavior, you get more of it.

Pay all TSA employees to stay home for the next 4 years.

We can use the same arguments for open border propaganda and for pro-life propaganda. The 55 million or so young people that we have lost to abortion after Roe v. Wade would have certainly contributed to economic growth. And they would have far fewer costs of cultural assimilation than immigrants. As a bonus, with a younger demographic structure, our government might be more focused on ambitious projects with high return and less on entitlements – more moon shots, less medicare.

Steve Jobs was given up for adoption by his impoverished mother. Had he been born in the 70s or later he would have ended up a lump of cells in a medical waste bin.

A billion spent strategically could conceivably win you a majority in both chambers of the legislature without breaking the law (~$1.7b was spent on campaigns in total for both chambers in the most previous election, so this is so not unrealistic).

Use your newfound political clout to push through fundamental tax, immigration, and trade reform, and other legislation to get rid of big deadweight losses due to poorly designed/implemented government policies. Stopping here maximizes efficiency.

Redistribute some of the welfare gains from this policy to the most destitute. This maximizes utility.

Most efficient: Write $100,000 checks to the 10,000 random small businesses. The check wont be enough for them to close up shop and retire and will most likely be invested. We could have some sort of application process, but that would eat into the efficiency of the process and would get political. Random it is.

Most utilitarian: Buy a few of the patents of some the commonly used and more expensive cancer drugs and make them public domain. Generic manufacturers will rush in and drive down the prices to market levels. Utilitarian in that every one is personally or has close relative affected by cancer.

Only question: I have no idea how much these patents are worth ($1B could be laughably low).

One possibility is to to employ the market to solve this problem via an X-prize like approach, assuming the distributed mass of minds out there might invent ideas we as central planners might not come up with. Use part of the money, $X million to reward those that come up with the best answers to say make government more efficient, with the reward amounts based on the savings actually realized (rather than predicted). Ideally more than one idea would be chosen to be funded, since none are guaranteed to succeed, just like with venture capital. Use part of the savings to fund the next round, etc. Meant to post that earlier but had to run, variation on earlier themes.

I’m assuming you are somehow oddly in control of how this is spent, and might use it in a way Congress and the president might not approve of. Since we are engaged in fantasy, this is a speculative idea that needs data I don’t have to assess its viability. If so, an issue I’ve never looked into is what % of what the federal government does has never been challenged in court as being unConstitutional, yet stands a decent chance of being declared so if it were challenged. If the budget is in the $billions then since the current leadership wouldn’t end the programs, hand the funds to outside law firms to challenge them. Venture capital investments don’t count on all investments succeeding, just some, so the potential return on this investment.

@Mark

“I don’t know if this is the best way to spend $1 billion for the people of the U.S., but I sure wish economists would explore this idea much more extensively.”

Military material is expensive. I am sure freer world will also be a safer world. It would probably alone already be earned back through the peace dividend over time.

Not to mention that in 50-60 or so years you might have another South Korea. How valuable would that be trade-wise to the USA?

The danger with this idea, and Rent-Coup, is that you have to figure out what the alternative would be then. Syria seems dangerous, but who knows.

The big difference between perfect efficiency and maximum utility is that in utilitarianism there is no discounting of the future, as there is in economics. The efficiency maven is overweighting short-run payoffs; the utility maximizer is taking a *very* long view.

Award prizes to people who solve (or contribute significantly to solving) specific scientific, technological or other (e.g. politico-strategic) problems whose solution would make a great difference to the well-being of a lot of people in the world.

For example, the billion dollars can be divided as follows: 5 prizes of 100 million dollars each, 5 of 50 million, 5 of 25 million, 5 of 10 million, 5 of 5 million, and 50 for 1 million.

Some problems will require significant investments to solve, others less so, which is in part what explains the difference in prize money per problem. Of course urgency and gravity of the problem also play a role in deciding how much money to reward. There can be various ways in which decisions can be made about which problems should be included and how much to award to their solution.

Some examples of problems: design cheap and safe ovens for people in developing countries to use so that their indoor air pollution goes way down; find cure for types of cancers; find effective strategies for reducing or resolving conflicts between governments; etc.

—

The rationale behind this way of spending one billion dollars is that while science and technology can greatly improve the lives of so many, currently due to its institutional structure the markets for science and even technology right now are quite distorted, benefiting the status quo and being not generous enough toward out of the box thinking / thinking by relative outsiders to a field.

By rewarding prize money to whoever solves some problem, one in a certain sense bypasses the institutional structure and changes the incentive structure so that new and better ideas to solving some serious problems may emerge.

My answer

Burn the Money. Just pile it up and set it on fire.

By destroying $1B in currency, the total money supply will decrease
therefore increasing the purchasing power of the remaining currency.

This is the most efficient mechanism of providing a benefit (although small) to everyone.

I’m going to answer the question “What is the maximally utilitarian way for the federal government to spend this sum?” first, since I forgot about the other part of the question when I was thinking about it.

If I want to give the money to those for whom it has the most utility, I should give it those who would get the most utility from it – or, in other words: those who would pay the most for it. What does it mean, though to pay for money? The obvious answer is a loan.

I would auction off the right to borrow the money for some fixed period – say, amortized over 10 years. To lower the overhead, it would be auctioned in fixed chunks (say, $10,000 per person) and the money could only be used to pay off all or part of an existing loan in good standing to a federally insured institution and only be given to a taxpayer who appears from the last few returns to be capable of paying it. The payments would be automatically deducted from the taxpayer’s income through payroll deduction and would not be dismissible by bankruptcy.

This makes the assumption that willingness to pay interest is a good proxy for actual utility of having the money. This seems to me a reasonable assumption, but I could understand challenges to it – however, I would expect such a challenge to propose a better way of evaluating said utility.
This, of course, kicks the problem down the road, as the money will be paid back eventually and must be returned. But the incentive seems OK to me – in fact, this kind of program could have ameliorated the housing crisis, IMO – issue loans at very low rates to those who *don’t* have bad loans, rewarding them and freeing up existing capital at well-manage banks that can then be re-loaned. So the second-order effects of this policy are also good — capital is freed up to go where it will be most productive.

In any case, I hope the key issue – find out who has the most utility for the money and give it to them – is clearly addressed. Only markets have the power to easily distribute a good (even money) in a way that respects utility.

Most efficient: Allow the Federal Reserve to use those billion dollars to serve as replacement for the billions of dollars they replace as ‘worn out’ having deemed them ‘unfit for commerce’ annually. For example, in 2010, the Federal Reserve removed from circulation and destroyed almost 5 BILLION notes. ()

This would be the most efficient because I’m assuming the $1-billion to be real, cash money. As such, this achieves the same result as burning the money (effectively taking $1-billion out of circulation), with the added benefit of saving the cost of printing $1-billion that would otherwise have to be printed to replace old, worn currency with new currency.

No deadweight costs, no crowding out, no negative externalities.

Maximally utilitarian: Place $20-million bounties on the heads of 40 of the world’s most wanted (say the Top 10 worst dictators, the FBI’s 10 most wanted, and Interpol’s 20 most wanted). But, you say, that’s only $800 million. The additional $200 million would be placed in a trust fund charged with providing for the costs of asylum in perpetuity for the immediate family members (parents, significant other, children) of anyone cashing in on a bounty.

This would be maximally utilitarian in that only people who deemed it worth the risk would pursue the bounty, yet virtually everyone else would receive the benefit of happiness/pleasure that would go along with the technical success of the program. Even before the first bounty was cashed, each of the targeted individuals would immediately become more distrustful of their inner circle, their cost of doing business would go up, and their criminal/despotic regimes would become less effective.

[broken link fixed–Econlib Ed.]

Pile up the money in the middle of a mine field. Anyone who goes in to get it must want it BAD!!!

hire outside consultants to identify, appraise, market and sell underutilized government assets – land, buildings, aircraft,
typewriters, executive departments, whatever.

take the proceeds and repeat.

In a Kaldor-Hicks Utilitarian sense, the most costly policy is that poor non-US workers are not allowed to work/live in the US (or comparable Western country).

The ostensible solution is to give opponents what they require. That is, pay states and even low-skilled US workers, to compensate for adding non-US workers to the US. That is, fund SS, small increase in the minimum wage or better EITC where supported immigrants can work, and use the money to support local government like hospitals.

If I would be a part of decision making body to spend the extra one billion dollars, I will plan and invest the money in a scheme that will provide loans to low income but enthusuastic people with a sound business plan. I will advocate for giving loans to such people who have brilliant ideas to generate more income, employment and social utility goods. Therefore, I will ensure that, that extra one billion dollar should be a germinating seed for new budding talents.

Agree to a onetime bonus to the president if he agrees to repeal all previous Executive Orders, without re-enacting them later. We might also ask for a blanket pardon of all drug offenders.

Addendum to 2): this is under assumption you can’t spend it on non-US poor of course!

Shouldn’t you just stick it in an index fund or something like that? Or could you give it to the hottest venture capitalist or stock broker at the moment? Someone’s already figured out the most efficient use of capital, so just give it to them.

$1 billion dollar prize for carbon sequestration.

I don’t think global warming is nearly the problem that others do but $1 billion is much cheaper than anything else we’d do.

1. Forget about new functions of government or radical shifts in existing policy; there would be too much resistance, and it already does too much.
2. Does the government already spend it’s existing budget in K-H efficient manner?
3. If not, spend as much as the US$1B figuring out how to reallocate and then do it. Huge gains in efficiency! The most utility-per-dollar productive programs are expanded, the most wasteful programs are shrunk or even eliminated.
4. Once equal marginal rates of transformation are established, spend whatever is left proportionally amongst all existing government programs.

Coda:

If you had achieved equal MRT’s across the entire government and had to cut the budget then you would do so … proportionally across all programs. Except Air Traffic Control, obviously. See: “Sequestration”. If think Sequestration is “dumb” then you’ve got a model of the relative ranking of very unequal MRT’s across government programs, and your real beef is that Congress didn’t do the above process.

Pay off $1b of government debt, allowing future taxes to be $1b plus interest lower. Any government spending on actual programs will most likely reduce both efficiency and utility in the future in way that I cannot possibly predict now. See public choice theory for why.

Max

Why aren’t tax cuts an option?

@Steve Z:

Nozick’s essay “The Experience Machine” discusses a virtual reality machine that gives pleasure… The best way to maximize utility with one billion dollars is to hasten the development of such machines.

The Experience Machine is not optimally funded by government, it will be a natural outcome of entertainment consumer market evolution.

However, what the Experience Machine lacks is incentive for the individual to reproduce, as well as optimal energy-efficiency of the overall system. This is why the invention and funding of hedonium/utilitronium is optimal, i.e. technology optimized to create as many pleasurable/desirable mental states per joule as possible.

Aaron Zierman already took my answer a mere 18 hours ago, but I will flesh out the details:

• –

buy each literate person in the US an econ 101 textbook, or perhaps the Art of Thinking Clearly

• –

with the remaining money, offer a substantial payment to anyone who can demonstrate that they have read the book (and provide for payment to the examiners)

One can substitute an Econ 101 course for the book itself, but that may be less efficient.

This has a number of virtues:

• –

we all assume that increased economic literacy will result in better choices, which means increased happiness and increased efficiency in all activities

• –

the scheme is unlikely to appeal to the wealthy or to the economically literate, leaving more of the remaining pot to the marginally economically literate and those of lesser means (where poorer economic decisions tend to be made) – you won’t have the $3/person problem

• –

illiterate people will be incentivized to gain literacy to participate in the program, a massive gain

• –

almost all of the schemes noted in other comments would actually become either policy or unnecessary the more successful this scheme is

In other words, the poor personal, social and political choices that many of the suggestions above are meant to address could be avoided or seriously reduced in this plan. You can have it all!

Rob:

Quite right. Cheerfully modified.

Buying off dictators is tempting, as their subjects are the most miserable, but how are you going to guarantee their replacements are better? Also, I don’t think a billion dollars is enough to get NK sold to SK – which is the most plausible way to improve a terrible regime.

Suppose this: You offer $50,000 to up to 20,000 North Korean soldiers under the rank of general. The amount is payable when Kim Jong Un is removed, and democratic elections are held.

South Koreans (on the own dime) are encouraged to move in with non-profit aid and for-profit companies that take advantage of the lower wages paid to North Koreans.

I realize this is off-topic a bit, but this is something I really think economists should be thinking about. Imagine how much better place the world would be if the countries that are ranked lowest in freedom by Freedom House had the chance to have an internally generated regime change followed by democratic elections.

After all, what has the average person born in North Korea or Cuba done to deserve their respective lots?

P.S. Other things economists could think about are things like: maybe the reward should be reduced by some amount for significant numbers of people killed in the transition process?

Have each agency that prepares a budget prepare two budgets for next year. One if no extra funds were received this year and one if some (specified funds) were received this year. Find the combination of agencies with the largest net present value of savings. This value may be negative, but it will still indeicate the best use of the $1 billion today.

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1. Cop-out answers: “There’s no such thing as efficiency or utility.” “It’s impossible to know what’s efficient.” “It’s impossible to know how happy someone is.”

Shame on you for confusing “opt-out” and “cop-out”!

Since your question involves a Federal Government doing the “spending”, these are apt answers. Are you claiming that a Federation of governments has some way to observe or calculate how happy any one or any collection of people are? Efficiency presumes some scarcity, but you’re not asking what the government should do with the last $1B it will ever have! You’ve only asked where an effectively omnipotent bidder in the market should next interfere – so you need to define what “efficiency” might mean for that incremental application of raw force.

I think the theories you’ve cited might have some validity for individual rational actors, but your students are only pointing out how the very terms you use are inapplicable to the force monopolist.

Implicit in your question is the idea that another $1B increment in government spending can effect some Good. Opting out of that assumption is possibly the first sign of economic sanity.

I found Joe Smith’s answer a bit ironic, because a universal anti-addiction treatment may already exist. It’s called n-acetylcysteine. See the “addiction” section of this meta-analysis. I’ve successfully managed to cure an addiction of mine with the stuff, so there’s anecdotal evidence that it works.

As far as I can tell, at this point only small studies have been done, and larger studies only haven’t been done because NAC is impossible to patent and there’s no money in it. But someone in the drug industry should tell me if this explanation is plausible or not.