Helping Liberals Understand the Opportunity Cost Concept

[Xerographica]

The other day I was shocked to discover that a liberal blog I follow actually dedicated an entire post to the opportunity cost concept...Forced to Choose: Capitalism as Existentialism. What isn't so shocking is that...it's 80 comments later and still nobody has actually used the term "opportunity cost".

The opportunity cost concept is one of my favorite concepts...and I certainly would have submitted a comment sharing why I love the concept so much. The "minor" detail was that I had been banned from the blog a while back...

Crooked Timber comments threads are an opportunity to engage in conversation, not the granting of a soapbox for you to promote your private obsessions. Please go away. - Chris Bertram

Yes, I'll admit it. Trying to help people understand basic economics is my private obsession. Well...I guess it can't be too private or else I wouldn't be here right now trying to help liberals understand the value of the opportunity cost concept.

It's pretty straightforward. Basically...whether you choose X or Y reveals your priorities. If you have $10 to spend...whether you spend it on a sandwich or a book reveals which one is a bigger priority for you. At that moment...which was a more pressing concern...being physically hungry or being mentally hungry? Was your stomach growling louder than your mind was? It wouldn't be logical to spend that $10 on your second most pressing concern...which is why nobody does it. Spending $10 on your second most pressing concern wouldn't be a waste...but it certainly wouldn't be optimal. So what if you spent your $10 on your third, fourth, fifth or 1,000,000th most pressing concern? At which point do you perceive your $10 to be wasted?

When we say that a mind is a terrible thing to waste...we don't mean that a person's mind is not being used. We just mean that it is not being used to help solve problems that are a priority for other people. But how do we know whether a problem is truly a priority for another person? Their opportunity cost decisions...how they spend their money. Their spending decisions speak louder than their words. This is why when we suspect that there is a disparity between words and beliefs...we challenge the person to put their money where their mouth is. If they truly believe that something is a priority then they should have no problem spending their OWN time/money accordingly.

Giving people the freedom to put their own money/time where their mouth is what prevents scarce resources from being wasted. It's a fail-safe system. If we take people's spending decisions away from them then we remove the only thing that prevents the misallocation of limited resources. On the individual level, if I take your spending decision away from you...then whether you end up with a book, or a sandwich, or a box of tampons or a Tillandsia depends on how well I know you. On the group level, if a small handful of people take the spending decisions away from millions of people then we end up with wars when everything else was a bigger priority. Understanding the opportunity cost concept is understanding the economic value of tolerance. This is why the opportunity cost concept is the key to unlocking world peace and maximizing abundance.

As a huge fan of this concept...I've collected a few relevant passages.

Here's a good definition...

The concept of opportunity cost (or alternative cost) expresses the basic relationship between scarcity and choice. If no object or activity that is valued by anyone is scarce, all demands for all persons and in all periods can be satisfied. There is no need to choose among separately valued options; there is no need for social coordination processes that will effectively determine which demands have priority. In this fantasized setting without scarcity, there are no opportunities or alternatives that are missed, forgone, or sacrificed. - James M. Buchanan

A simple example...

By contrast, if a consumer wants a new TV set and a new washing machine and he can afford only one of these without drawing on his savings (which he dislikes), he is in a cross-road situation. He must deliberate until he arrives at a decision as to which course of action he prefers. Thus, while we have reason to assume that preference functions for alternative uses of private funds (including the savings alternative) have some firmness and consistency, our findings raise doubt whether the corresponding concept of a preference function for alternative fiscal policies is fruitful. - Eva Mueller

My favorite...

By preferring my work, simply by giving it my time, my attention, by preferring my activity as a citizen or as a professional philosopher, writing and speaking here in a public language, French in my case, I am perhaps fulfilling my duty. But I am sacrificing and betraying at every moment all my other obligations: my obligation to the other others whom I know or don’t know, the billions of my fellows (without mentioning the animals that are even more other others than my fellows), my fellows who are dying of starvation or sickness. I betray my fidelity or my obligations to other citizens, to those who don't speak my language and to whom I neither speak or respond, to each of those who listen or read, and to whom I neither respond nor address myself in the proper manner, that is, in a singular manner (this is for the so-called public space to which I sacrifice my so-called private space), thus also to those I love in private, my own, my family, my son, each of whom is the only son I sacrifice to the other, every one being sacrificed to every one else in this land of Moriah that is our habitat every second of every day. - Jacques Derrida

How many of you caught the reference to Moriah? That's an example of partial knowledge. Moriah is where Abraham was about to sacrifice his only son Issac.

Here's a Christian's perspective on Derrida's perspective...

It is through the gaze of my extinguished self that I realize the limitations that make scarcity necessary. Through this gaze into my own limitedness - a limit always established by the impending cessation of space and time for me - through this gift of death, I discover in nature the best way to be efficient. Thanks to death I must choose x rather than y. This has become a feature of 'nature' - a demystified 'nature' that bears no possibility of participation in the eternal. This is consistent with capitalism. - D. Stephen Long

From the bible...

For what shall it profit a man, if he shall gain the whole world, and lose his own soul? - Mark 8:36

Again from the bible...

For God so loved the world, that he gave his only begotten Son, that whosoever believeth in him should not perish, but have everlasting life. - John 3:16

From Greek mythology...

‘Hercules, (says she,) I offer myself to you, because I know you are descended from the gods, and give proofs of that descent by your love to virtue, and application to the studies proper for your age. This makes me hope you will gain, both for yourself and me, an immortal reputation. But before I invite you into my society and friendship, I will be open and sincere with you, and must lay down this as an established truth, that there is nothing truly valuable which can be purchased without pains and labour. The gods have set a price upon every real and noble pleasure. If you would gain the favour of the deity, you must be at the pains of worshipping him; if the friendship of good men, you must study to oblige them; if you would be honoured by your country, you must take care to serve it. In short, if you would be eminent in war or peace, you must become master of all the qualifications that can make you so. These are the only terms and conditions upon which I can propose happiness.’ - Joseph Addison

The opportunity costs of war...

Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement. We pay for a single fighter plane with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people. This is, I repeat, the best way of life to be found on the road the world has been taking. This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron...Is there no other way the world may live? - Dwight D. Eisenhower

The moral of the story is...I don't decide what my actions are worth to you...you do. Ignoring this simple truth is the cause of every war and every other man made catastrophe. How long will liberals choose to ban those who try and help them understand this simple truth? Any amount of time is too long. Don't let your sacrifices be in vain. For goodness sake go out there and try and help a liberal understand the value of the opportunity cost concept. Hopefully you will succeed where I have failed.

[Ifreann]

NSG is not your blog.

[PapaJacky]

I think this is actually from a lack of funding to public education. In my highschool, a mandatory semester long course of (market) economics was taught, and there we learned about concepts including opportunity cost. As far as I know, the only insinuation you've made towards "Liberals not understanding opportunity cost" is the lack of the usage of that term in 80 comments on a blog. Could you perhaps be more specific in defining how and or why Liberals do not understand opportunity cost?

[Tubbsalot]

We're all aware that people spend their money according to what they want, but thanks for the input. Now if you can explain why the economy of scale the government and other large organisations have access to is somehow useless and doesn't benefit anyone, that would be peachy.

Now if you'll excuse me, I'm off to enlighten some STUPID LIBERTARIANS because they don't know things! Hoo hoo! So stupid! Hoo hoo hoo hoo hoo hoo hohoofhoshjodfgllk

[Tubbsalot]

Just to be clear I'm making fun of you for your apparent belief that liberals are universally brainless shitfucks, which is a belief which is embarrassingly wrong and which you should be ashamed of holding.

[Ifreann]

Just to be clear I'm making fun of you for your apparent belief that liberals are universally brainless shitfucks, which is a belief which is embarrassingly wrong and which you should be ashamed of holding.

Yes you should, OP. Yes you should.

[Xerographica]

I think this is actually from a lack of funding to public education. In my highschool, a mandatory semester long course of (market) economics was taught, and there we learned about concepts including opportunity cost. As far as I know, the only insinuation you've made towards "Liberals not understanding opportunity cost" is the lack of the usage of that term in 80 comments on a blog. Could you perhaps be more specific in defining how and or why Liberals do not understand opportunity cost?

If liberals understood opportunity cost then they'd understand the value of allowing taxpayers to choose which government organizations they gave their taxes to.

[Tubbsalot]

If liberals understood opportunity cost

HURR HURR STUPID LIBERALS, LOL

[PapaJacky]

I think this is actually from a lack of funding to public education. In my highschool, a mandatory semester long course of (market) economics was taught, and there we learned about concepts including opportunity cost. As far as I know, the only insinuation you've made towards "Liberals not understanding opportunity cost" is the lack of the usage of that term in 80 comments on a blog. Could you perhaps be more specific in defining how and or why Liberals do not understand opportunity cost?

If liberals understood opportunity cost then they'd understand the value of allowing taxpayers to choose which government organizations they gave their taxes to.

I think Liberals understand the negative effects of having that happen, so I do think, at least, an indirect knowledge of opportunity cost was applied to these Liberals when pondering on that subject.

[Xerographica]

We're all aware that people spend their money according to what they want, but thanks for the input. Now if you can explain why the economy of scale the government and other large organisations have access to is somehow useless and doesn't benefit anyone, that would be peachy.

An economy of scale that does not accurately reflect our priorities is simply an economy of massive waste. Do you think it matters if I can very efficiently spend your money on something that you do not want, need or value? Please please please say yes. I will be very happy to provide you with my paypal e-mail address. Unfortunately, I get the feeling that you're not going to put your money where your mouth is.

[Ceannairceach]

I think this is actually from a lack of funding to public education. In my highschool, a mandatory semester long course of (market) economics was taught, and there we learned about concepts including opportunity cost. As far as I know, the only insinuation you've made towards "Liberals not understanding opportunity cost" is the lack of the usage of that term in 80 comments on a blog. Could you perhaps be more specific in defining how and or why Liberals do not understand opportunity cost?

If liberals understood opportunity cost then they'd understand the value of allowing taxpayers to choose which government organizations they gave their taxes to.

Ha! No. As a liberal who took AP Macroeconomics for my required course and understands opportunity cost quite well, I can say quite confidently that allowing people to decide where their taxes go would be a shitty idea. The mere thought of anyone, liberal or conservative, supporting that ludicrous idea appalls me.

But, then again, perhaps if you'd considered the opportunity cost of writing that post, you'd have realized that making a jelly sandwich would have been a better investment.

[Neo Art]

A blog post that contains a whine how he got banned from another site for making blog posts?

That's some seriously meta shit right there

[Ostroeuropa]

I'm fairly sure we understand.
(Whether or not people would shove me in the liberal box is another matter.)
We understand because that's the basic point of market systems. The contention is, you don't have shit-all choice if you are dirt poor and can't afford either a sandwich OR a book.

[Xerographica]

If liberals understood opportunity cost then they'd understand the value of allowing taxpayers to choose which government organizations they gave their taxes to.

I think Liberals understand the negative effects of having that happen, so I do think, at least, an indirect knowledge of opportunity cost was applied to these Liberals when pondering on that subject.

Errr...liberals understand the opportunity cost concept because they understand the negative effects of giving taxpayers the freedom to consider the opportunity costs of their tax allocation decisions? Basically you're saying that liberals understand that allowing people to consider the opportunity costs of their spending decisions has negative effects. Which is exactly why I'm arguing that liberals do not understand the opportunity cost concept.

[PapaJacky]

I think Liberals understand the negative effects of having that happen, so I do think, at least, an indirect knowledge of opportunity cost was applied to these Liberals when pondering on that subject.

Errr...liberals understand the opportunity cost concept because they understand the negative effects of giving taxpayers the freedom to consider the opportunity costs of their tax allocation decisions? Basically you're saying that liberals understand that allowing people to consider the opportunity costs of their spending decisions has negative effects. Which is exactly why I'm arguing that liberals do not understand the opportunity cost concept.

Considering the plurality of Federal Revenue comes from a minority of citizens, the opportunity cost is first between allowing the rich to decide what they want to be done with their money v.s. what an elected congress want to do with their money. Frankly, reinforcing a plutocracy might seem unappealing to Liberals.

[Tubbsalot]

We're all aware that people spend their money according to what they want, but thanks for the input. Now if you can explain why the economy of scale the government and other large organisations have access to is somehow useless and doesn't benefit anyone, that would be peachy.

An economy of scale that does not accurately reflect our priorities is simply an economy of massive waste.

That's nice. How is that relevant to a government?

[Neu Leonstein]

I think the idea that any normal person doesn't understand opportunity cost is pretty silly. If I buy a ticket for a movie, I can't buy food with the same money. Don't think we need the OP to explain this to anyone (with bible passages, no less).

This thread fits into this insane tendency for people to use economics as some sort of political tool. That extends to (presumed) teenagers in front of their computers, presidential candidates and even said candidates' economic policy advisors, who really should know better.

Reinhardt and Rogoff recently had to publish something telling GOP folks to back off from quoting their stuff to say things about Obama, when in fact their work pretty much suggests the opposite. This, as well as the OP, reminds of something I read the other day and which is worth sharing:
http://whynationsfail.com/blog/2012/10/ ... phere.html

[...] Another aspect is the divide between what the academic research in economics does — or is supposed to do — and the general commentary on economics in newspapers or in the blogosphere. When one writes a blog, a newspaper column or a general commentary on economic and policy matters, this often distills well-understood and broadly-accepted notions in economics and draws its implications for a particular topic. In original academic research (especially theoretical research), the point is not so much to apply already accepted notions in a slightly different context or draw their implications for recent policy debates, but to draw new parallels between apparently disparate topics or propositions, and potentially ask new questions in a way that changes some part of an academic debate. For this reason, simplified models that lead to “counterintuitive” (read unexpected) conclusions are particularly valuable; they sometimes make both the writer and the reader think about the problem in a total of different manner (of course the qualifier “sometimes” is important here; sometimes they just fall flat on their face). And because in this type of research the objective is not to construct a model that is faithful to reality but to develop ideas in the most transparent and simplest fashion; realism is not what we often strive for (this contrasts with other types of exercises, where one builds a model for quantitative exercise in which case capturing certain salient aspects of the problem at hand becomes particularly important). Though this is the bread and butter of academic economics, it is often missed by non-economists.

[...]

I suppose what I'm asking is that people refrain from using preschool economics to make political arguments.

[Xerographica]

Ha! No. As a liberal who took AP Macroeconomics for my required course and understands opportunity cost quite well, I can say quite confidently that allowing people to decide where their taxes go would be a shitty idea. The mere thought of anyone, liberal or conservative, supporting that ludicrous idea appalls me.

But, then again, perhaps if you'd considered the opportunity cost of writing that post, you'd have realized that making a jelly sandwich would have been a better investment.

No no no...you failing to provide an actual counter-argument was more filling than any jelly sandwich could have been.

[Silent Majority]

I think this is actually from a lack of funding to public education. In my highschool, a mandatory semester long course of (market) economics was taught, and there we learned about concepts including opportunity cost. As far as I know, the only insinuation you've made towards "Liberals not understanding opportunity cost" is the lack of the usage of that term in 80 comments on a blog. Could you perhaps be more specific in defining how and or why Liberals do not understand opportunity cost?

If liberals understood opportunity cost then they'd understand the value of allowing taxpayers to choose which government organizations they gave their taxes to.

We already do that. It's called "elections".

[Xerographica]

Considering the plurality of Federal Revenue comes from a minority of citizens, the opportunity cost is first between allowing the rich to decide what they want to be done with their money v.s. what an elected congress want to do with their money. Frankly, reinforcing a plutocracy might seem unappealing to Liberals.

Words (votes) determined who our political leaders are while actions (dollars) determined who our taxpayers are. Show me your receipts and I'll show you who your true representatives are. That's the opportunity cost concept.

[Xerographica]

I suppose what I'm asking is that people refrain from using preschool economics to make political arguments.

Let's see if you grasp preschool economics. Can you explain to me why taxpayers should not be allowed to choose which government organizations they give their taxes to?

[Neu California]

Explain to me why having people decide how their tax money is spent would not lead to a situation where those who pay the vast majority of taxes get all sorts of government benefits, while those at the bottom, who don't make enough to pay taxes, would be shafted

[Ostroeuropa]

I'm fairly sure we understand.
(Whether or not people would shove me in the liberal box is another matter.)
We understand because that's the basic point of market systems. The contention is, you don't have shit-all choice if you are dirt poor and can't afford either a sandwich OR a book.

No reply to this then, Any reason?

[Ifreann]

A blog post that contains a whine how he got banned from another site for making blog posts?

That's some seriously meta shit right there

I wonder where he'll go after here. Facebook, maybe, to complain about NSG mods locking his thread.

[Xerographica]

We already do that. It's called "elections".

Did you really miss the part that says actions speak louder than words? Voting is merely words...that you speak very infrequently. Yet every day you spend your money. Those are your actions that speak a lot lot lot louder than your words do. Who do you give your money to? Those are your true representatives. So if you understand the opportunity cost concept then you'd understand the value of allowing taxpayers to choose which government organizations they give their taxes to.