Last night John van Reenen tweeted that the controversy about HS2 shows that we need a better way of making decisions about big infrastructure projects. He's right. Economists have known the answer here for years. We should use a demand-revealing referendum, as proposed by Ed Clarke.
The idea here is simple. We hold a referendum in which everyone in the country is asked to state the net benefits to them of HS2; as the scheme is likely to cost each voter at least £700, these benefits will be negative for some/many voters. Then we add up all the answers, and if we get a positive number we go ahead, and if it's a negative one we do not. Finally, we check the net total benefit against individual voters' stated benefits. If any voters stated so large a sum that their vote was pivotal, they must pay a tax equal to the difference.
This method has some huge virtues.
One is that it's decentralized. Instead of the HS2 decision being taken by a few special interest groups after what John Kay calls a "dismal" cost-benefit exercise, the decision is taken by everyone. Sure, voters' stated benefits will be wholly subjective. But this is a feature not a bug; as James Buchanan argued, costs (and benefits) are subjective.
Secondly, it's incentive-compatible. If you state too small a sum, you risk not getting your preferred option. If you state too big a sum, you risk being taxed. A demand-revealing refernedum thus forces voters to be honest.
Thirdly, if the use of such referenda were to be widely adopted, it would improve out political culture. There'd be no place for blowhards and windbags who overstate their case. Instead, they would have to proportion their estimate of net benefit to the evidence. We'd get much more reasonable, grown-up politics.
Herein, though, lies a paradox. Demand-revealing referenda are in theory wholly consistent with neoliberal ideology, because they reject the top-down central planning of Whitehall-run cost-benefit analysis in favour of a market process. And yet such referenda fall well outside the Overton window, and are proposed only by cranky extremists like me.
There is, though, a simple solution to this paradox. Adopting demand-revealing referenda requires that politicians and vested interests give up their power. And this won't happen. Power trumps ideas.