Opportunity cost

In my not so humble opinion, it is the single most important economic idea.

Nothing in life is free. Everything has a cost. You can’t get something for nothing. If you want something, you’re going to have to give something else up. There’s no such thing as a free lunch.

(Actually, one might argue for close to three hundred years of free (or at least really close to free) lunches, but that’s another lesson for another day.)

It’s just about the first term talked about in any economics textbook. And, frankly, I can’t imagine an economics course taught anywhere where it hasn’t come up, multiple times. Personally, I have trouble going an entire class meeting without using and/or mentioning it.

Opportunity cost.

The true cost of any action is the value of the next best opportunity foregone as a result of taking that action.

So why is it that economics teachers have been singularly inept at getting the concept across? Why is it that, despite the phrase have been used in introeconomics economics classes over the last several generations, at least as often as “supply and demand,” and more often than “inflation” or “recession”, and far more often than “stock market” or “public policy” or “profit,” that so few people understand it?

I mean, after all, millions of people have done the Economics 1 class in the century or three since the concept was first understood and the phrase coined. But communicating the concept in a way that understanding trickled down to wide-spread understanding and use in public economic discourse? It has to count as one of economic teaching professions most spectacular failures.

I bring all this up because in my interaction with colleagues and leaders in “higher education” over recent weeks I have been regularly reminded, again, of just how few in the educated and chattering classes get the idea.

Like most institutions below the highest tier, i.e. those of us whose endowments are a couple hundred million or less (and often a lot less), ours had seen its share of solemn faces over the last few years. First we moaned about the recession (forgetting that, just as in most recessions of the past, education spending moves counter-cyclically as people strive to escape unemployment risks by acquiring new varieties of human capital). And now we’re concerned about something called a “permanent recessionary economy” (whatever the eff *that* is; it can’t be a term coined by any serious economist, surely, not even a Bernanke wannabe). All of

So, in honor of our school’s sesquicentennial, we’ve got a new task force studying the college’s direction for the future. (Our current President loves looking at things through lenses of “strategic planning.” His first major act upon being hired about a decade ago was to form multiple — as in like 12 or 17 — “task forces,” each populated by representatives from a whole bunch of “constituencies,” to come up with an integrated strategic plan.}

But my criticism here is not of the President, or even of the idea and processes of strategic planning. Though I have disagreed with both at times in the past (and probably will again), the President has the track record to support his leadership judgment. Strategic planning has a long pedigree in management circles. And, lets face it, the academic world has demonstrated a long-standing commitment to the values of governance by committee and consensus-building. It’s the way we do things. And it’s going to continue to be the way we do things for the foreseeable future.

No, my concern is the quality of the discussion within those consensus-building committees and task forces — and in conversations between those committees and the rest of us. My concern is that part of the consensus shared across all those task forces and constituencies — the consensus that will ultimately shape the findings and the decision-making — is fundamentally flawed.

In recent on-campus presentations, the President pointed out — and correctly so — that “we’re going to have to change what we do and expect.” It may be a bit of clichéd management speak, but it’s still correct in its basic sentiment. Schools like ours are going to have to make some tough choices about what they can do (and what they can’t do) over the next couple decades.

So today our department chair shared with us a “planning and positioning” document (I presume it comes from the task force). This lists ten “defining characteristics that must be sustained.

And lest you think that this is just a step in the prioritization of mission objectives, a list of items to be weighed against each other as we narrow them down to three or five manageable strategic objectives, the same document also lists 10 “transformational opportunities to be strengthened, 12 “goals for student learning,” and 33 “strategic actions to enhance operational stewardship. So someone somewhere has to find a way to take these 65 valued bits of the college and decide which ones really matter and which ones will be merely boilerplate for college catalogs, recruiting/marketing materials, and the like.

Good luck. No, I’m not going to criticize the President here. I wouldn’t want his job for anything, thank you very much.

Will we “interested parties” help? Not likely. No more than it’s likely that the NFL and the organization formerly known as its players union will wake up tomorrow morning and immediately replace their chest thumping about the significance of this or that without recognizing that some valuable this or that has to be given up.

Next week’s department meeting — and, I presume all the other department and program and leadership and committee meetings that happen like clockwork around here — will devote some serious time to discussion of the task force and its objectives. Blah, blah, blah, and more blah blah blah. Everyone will get a chance to speak.

And everyone who speaks will talk about how essential and beneficial pursuit of their particular favorite goals are, about how much we’ll have to give up if we don’t pursue that particular essential and beneficial thing.

Virtually no one will engage the President’s real point. The opportunity cost point. The point that we’re going to have to give up things that are valuable. Things that are really valuable.

We’re going to have to choose. Yet no one’s going to confront the question of how we decide which “good thing” is worth more and which “good thing” is worth less.

Not even, I expect, me.

Because, if you’re wondering what I’m going to say in such discussions, the answer is, probably not very much.

Oh, I expect I’ll be unable to wholly resist the desire to speak my own piece. After all, I have my own personal list of “essential and important bits” (can you say, “economics for citizenship,” “quantitative literacy,” and “higher order listening skills”?). And I’m no less blinded by the truth of my beliefs than my colleagues are of theirs.

But my speaking is more a reflection of my inability to keep my mouth shut, than it is out of any hope that I’ll convince anyone. Frankly, I’m nearly 100% convinced at this point that the consensus here about anything Wade says about the needs of higher education is near absolute. And near absolute on the position that Wade is a flake whose ideas are far too unrealistic to pay any serious attention to.

No, I don’t expect to convince anyone here (save the three people who still listen to me) of anything that matters.

But that’s not the sad thing. The sad thing is that everyone thinks this “critical” collective approach to the “issues” of ours, this having each of us share the advantages of our favorite bits of the mission, is somehow going to deal successfully with the opportunity cost problem.

No, having a long list of objectives now isn’t the problem. The problem is that without careful and honest and correct attention to the tradeoffs of opportunity cost, we’re going to end up with a vague set of objectives, many incompatible in their pursuit. And as the President and leadership make one after another of those tough choices — since you don’t eliminate the need to make tradeoffs just by keeping everything on the published list of essentials, and so someone has to make the choice — you merely postpone the inevitable and perhaps change who decides which tradeoffs are made.

And when the tradeoffs are made, expect them to be accompanied by more-than-necessary bad feelings.

The college can afford an occasional frustrated Wade — he’s a flake, after all. But you aren’t going to deal with the needed change by just ignoring a couple flakes, any more than you’ll solve serious revenue shortfalls by reducing photocopy budgets. You’re going to have to get rid of some valuable people and some valuable programs and some objectives really worth pursuing.

Because opportunity cost is not a flaky idea.

Just ask Greece.

Or Portugal.

For that matter, look at the consequences here in America we’re just starting to see with regard to the profligate spending in pursuit of “good ideas” by America’s own state and federal governments. The consequences of decades worth of trying to cheat the tradeoffs of opportunity cost.

You want to know why the quality of discourse in the Wisconsin mess is so low? It’s low because virtually no one seems to want to admit the constraints of opportunity cost.

Because opportunity cost is not an idea we can dismiss as easily as we can sneer at the flakier of those who might be pointing it out.

No, opportunity cost is something else. Something that applies whether we get it or not.

It is, to steal a phrase from Agent Smith, “the sound of inevitability.”

Me, I blame economics teachers.


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