Richardcyoung.com

The Online Home of Author and Investor, Dick Young

Edwards’ Law

By

Take a politician’s estimated cost for any project, then double it to get the actual cost and you have Edwards’ Law. It was created by Cato’s Chris Edwards and it is always applicable as he shows us here:

An op-ed in the Wall Street Journal today indicates that Edwards’ Law of Cost Overruns is an international standard. If a politician says that a project will cost $100 million, it will end up costing $200 million or more.

The WSJ piece by Bent Flyvbjerg and Atif Ansar examines the results of an Oxford University study looking at 245 dam projects around the world. The projects had a “dismal track record” in terms of sticking to their promised budgets. The “actual construction costs of large dams are globally on average 96 percent higher than their budgets,” say Flyvbjerg and Ansar. That means a doubling, which is right in line with Edwards’ Law.

Rachel Maddow has drawn the lesson from Hoover Dam that big government projects are really great. But Flyvbjerg and Ansar describe a more typical government project: “Brazil’s Itaipu Dam was built in the 1970s. It cost nearly $20 billion, 240 percent more in real terms than predicted and it impaired Brazil’s public finances for three decades.”

I’ve written in detail about the history of U.S. government dam building, which has been chock-full of economic and environmental mismanagement. One reason for large cost overruns is that policymakers lie or conceal. I wrote that the Bureau of Reclamation “began constructing the Grand Coulee Dam with $63 million in funding from Congress, but it later became clear that the agency had a $270 million project in mind.” And I wrote regarding Jerry Brown’s father that “in pushing for approval of the huge State Water Project in California in 1959, Gov. Pat Brown kept throwing out a bogus cost estimate of $1.75 billion, even though he knew it would cost far more, as he later admitted.”

Liberals, such as Maddow, who hunger for big government infrastructure projects would cure their misguided lust by reading Cadillac Desert. Written by an environmentalist, I think it is one of the best public policy books of recent decades.

I’ve written about government cost overruns here, partly drawing from Flyvbjerg’s excellent research on the topic.

Related video:

The following two tabs change content below.

E.J. Smith - Your Survival Guy

Preparing your investments and family for when disaster strikes.
E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.