Opportunity cost is the cost incurred (sacrifice) by choosing one option over the next best alternative (which may be equally desired). Thus, opportunity cost is the cost of pursuing one choice instead of another. Every action has an opportunity cost.
Perhaps Wikipedia isn’t clear enough here, but opportunity cost is a key concept in economics, because it involves a different sort of cost in the choice between desirable, yet mutually-exclusive results:
The consideration of opportunity costs is one of the key differences between the concepts of economic cost and accounting cost. Assessing opportunity costs is fundamental to assessing the true cost of any course of action. In the case where there is no explicit accounting or monetary cost (price) attached to a course of action, ignoring opportunity costs may produce the illusion that its benefits cost nothing at all. The unseen opportunity costs then become the implicit hidden costs of that course of action.
Well, economics is not called the dismal science for nothing. But think about it – all of life is like that. You jump at an opportunity that seems to have no real cost – you choose the one thing over the just-about-as-good other option – because you see no downside risk. But you haven’t thought things through. Some things are implicit – you just don’t consider them. And then, as events unfold, what was implicit becomes quite costly. Eight years ago it was Bush or Gore – and it was a time of relative peace and prosperity. You had the one guy who knew lots, with an impressive record of accomplishment, but a bit of a dull policy wonk. The other had never done much at all, knew very little about anything, but to many he seemed to be charming in a sort of goofball way – and over and over you heard you’d rather have a beer with him, not with the overeducated, stiff and far too serious nerd. At that time it seemed either would do – all we needed was a caretaker president, after all. The economy was self-regulating and tensions in the world petty much self-balancing, or could be balanced against each other without too much trouble. Why not jump at the opportunity to give the pleasant slacker a go at it? There was no serious cost to that. He would have seasoned advisors – adult supervision, and many joked. What could go wrong? Those who warned much could go wroing were dismissed as pompous, negative worrywarts – no fun at all.
Of course the rest is history. That opportunity had real costs.
And now we have opportunities again. We could have the first woman president. We could have the first black president. We could have a president who actually was a real war hero, not one who just pretends – he’s been there and back, wherever there is. These are all exciting opportunities, and each of these the candidates has his or her appeal – that’s why these three are the only ones left standing. Many feel any one of the three would do, and those who bring up what are, in fact, opportunity costs, are just bitter partisans – the pompous, negative worrywarts of this particular election cycle. But sometimes you have to think like an economist, no matter how dismal that makes you appear to others.
We should know better. Consider this preview of the March 31 New York Times Magazine:
The cover story traces the erosion of the Republican Party following the disastrous 2006 midterm elections. GOP elders “worry that the social conservatism that helped seal Rove’s majorities might create for them a deficit that lasts a generation, that the party’s position on social issues like gay marriage may permanently alienate younger, more moderate voters.” The National Republican Congressional Committee reports that “on at least one occasion,” a disgruntled conservative activist returned a fundraising request in an “envelope stuffed with feces.”
Now that’s opportunity cost made real – the cost of establishing the permanent Republican majority in a damp, dripping envelope. Seizing the opportunity didn’t exactly work out.
Consider also the March 29 issue of the Economist – an issue devoted to American foreign policy. The lead editorial argues that it will be difficult for a new presidential administration – McCain, Clinton, or Obama, take your pick – to repair the United States’ now thoroughly trashed global reputation. It goes like this – “The mere fact of not being Bush will bring a dividend of goodwill,” but Europeans want “America to stop playing world sheriff and submit to the same rules as everyone else under the United Nations.” Not McCain, not Clinton, nor Obama will be able to sell that idea to the American public. We’ve been conditioned to think we’re special. That started after World War II. Obama might make a stab at it. It won’t be easy.
There’s a second piece in the Economist surveying Bush’s foreign policy legacy. It is what you would expect – his approach to world affairs has made him “one of the most polarizing presidents in American history.” No kidding. The only bright thing in the Economist is a third article saying that the source of many Europeans’ anti-Americanism is just Bush. It’s just him – they are “furious with the Bush administration precisely because of its refusal to live up to the American ideals that had served the country so well during the Second World War.” You see, with “a little wooing, they might be willing to fall back in love with America.” One suspects that is just a guess.
On the other hand, one of Andrew Sullivan’s readers offers some anecdotal evidence:
A cold night in Venice. We found ourselves in an empty campo, and a warm restaurant. The staff welcomed us with humor and grace – both important as we arrived with a sleeping four year old in a stroller. Our waiter, Salvatore, asked us where we were from, and the moment he learned we were from America, he asked, “So. Are you voting for Obama?” We told him we were, and he replied, “Good. I like a woman president, but not this one. Bush, Clinton, the president should not be a family business. It’s time for something new.”
We talked about this in the campo after, and how it confirmed our own hopes. That Obama’s election will confer blessings on our country beyond the obvious.
It’s a small thing, I know. But it was nice to be far from all the scorched earth and kitchen sinks and find ourselves able, if only for a moment, to consider the opportunity his candidacy affords us.
There’s that word again – opportunity. There are the hidden costs of an Obama presidency, the opportunity costs – perhaps a backlash from the blue-collar whites, being hammered by a disintegrating economy, seeing this black guy leapfrogging over the white woman who they think fights for them, and the war hero they admire. It could get ugly.
But everyone pays a price. Consider this item in the April 7 issue of Time – Fox News is in trouble. Fox News “will need to remodel itself again” after Bush’s presidency comes to an end. They had their opportunity. The contention is that the network has been unfocused lately, but will probably hold its viewers, and its ratings lead. Fox News viewers won’t go away. The network “just has to figure out what’s going to make them mad starting in 2009.” Obama will do nicely, or Hillary Clinton.
So why not stay with the tried and true? See the economics writer Daniel Gross– he’s the author of Pop! Why Bubbles Are Great for the Economy. In Slate Gross says McCain is your man if you worry about opportunity cost in Staying on Bush’s Course. McCain is all anti-opportunity with a fiscal program that is “either a joke or a fantasy.”
Gross notes that all three just made big-picture economic speeches – Obama delivered his speech, with Michael Bloomberg at his side, at Cooper Union no less. On February 27, 1860, Abraham Lincoln spoke there opposing Stephen Douglas on the question of federal power to regulate and limit the spread of slavery to the federal territories and new States, his Cooper Union Address. That was the the speech that may have made him president. Hillary Clinton delivered her speech on the stump in Pennsylvania. Both speeches were detailed, with ideas, solutions – new approaches. McCain spoke out here, down in Santa Ana, to a group of Hispanic small business leaders, in what looked like a warehouse.
Here’s the Daniel Gross summary:
By virtue of his history as a deficit hawk, a foe of earmarks, and an opponent of the Bush tax cuts – not to mention the presence of reality-based advisers like Douglas Holtz-Eakin, former director of the Congressional Budget Office – McCain deserves some benefit of the doubt. Unfortunately, the brains behind the economic operation seems to be former Sen. Phil Gramm, the Texas A&M economist-turned-senator who confidently forecast in 1993 that the Clinton program of spending cuts and tax increases on the wealthy would be “a one-way ticket to recession.” And the sections on McCain’s Web site about domestic policy reveal, as Matt Yglesias noted, “a nearly astounding level of vacuity.”
Reading McCain’s economic agenda and listening to his speech, it appears that the problem with the last eight years is that we haven’t seen enough tax breaks for the wealthy, that economic royalism hasn’t been pursued with sufficient vigor, and that the middle and working classes haven’t been stiffed sufficiently.
You can read it here, or trust Gross:
McCain wants to extend the Bush tax cuts, which he once opposed as a needless sop to the rich in a time of war. (I await David Brooks’ inevitable explanation of how opposing taxes in a time of war in 2001 and 2003, when deficits were low, but supporting them in 2011, in a time of war and high deficits, is deeply moral and admirable.) But McCain wants to see Bush’s tax relief and raise it some. McCain would slash the corporate-income-tax rate from 35 percent to 25 percent (because corporate profits as a percentage of GDP didn’t spike enough this decade?), and he’d abolish the Alternative Minimum Tax, which would be a welcome move for many upper-middle-class taxpayers.
“In all, his tax-cutting proposals could cost about $400 billion a year, according to estimates of the impact of different tax cuts by CBO and the McCain campaign,” the Wall Street Journal reported. And how to make up for the lost revenues? Hmmm. McCain promises to cut earmarks; to eliminate waste, fraud, and abuse; and to reduce the projected growth of Medicare; but he won’t provide many numbers. As the WSJ deadpanned: “The cost will make it difficult for him to achieve his goal of balancing the budget by the end of his first term.” That’s perhaps the understatement of the year.
Gross goes into detail, but that’s dry stuff. His views on McCain’s solution to the sub-prime mortgage/housing crisis are less dry:
… his solution to an era in which financial deregulation set the stage for federal bailouts, rampant speculation, and reckless lending is … less regulation. “Our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting, and tax impediments to raising capital.” Bizarrely, he has also joined the chorus arguing that mark-to-market accounting—the rules that require companies to, you know, tell investors the actual market value of assets they hold—should be revisited.
The Federal Reserve and the Bush administration have justified the extraordinary help offered to investment banks and investors by saying that it matters less how we got here and more how we deal with the situation as it is. For McCain, however, it’s all about the journey. Poor decisions should not be rewarded – unless those poor decisions are made by really rich people who run investment banks and hedge funds. While “those who act irresponsibly” shouldn’t be bailed out as a matter of principle, it’s OK to take extraordinary measures to help banks prevent “systemic risk that would endanger the entire financial system and the economy.” Obama and Clinton – and the Bush administration, through its various efforts to ease the mortgage crisis – have argued that it might be possible to spare further systemic risk if something were done to buck up the fortunes of homeowners. Bollocks, says McCain. People should just put up more money for down payments and work harder to keep current with their mortgage payments.
So if you’re scared by the opportunity cost of something new – wondering just what else will come back to bite you in the ass – he offers you more of the same, just piled higher and deeper. It’s an interesting strategy – very conservative actually, as in try-nothing-new. If something isn’t working, do it more intensely. Gross wryly notes that McCain “already got the let-them-eat-cake vote sewed up.” It’s more than that. McCain is courting the timid, and those who dream that what didn’t work might still work. Yeah, and if we all clap our hands Tinkerbell won’t die. The past is good, the past is good, the past is good, and so on….
That fits with this in USA Today – McCain to Embark on “Biography Tour” – he will visit all the old places that mean so much to him.
And on Friday, March 28, he released his new television ad – The American President Americans Have Been Waiting For! Actually it’s called “624787” – his Navy serial number, and you see him as young man, saying it to his North Vietnamese jailors, but saying no more. The narrator is Powers Boothe, the actor who played Cy Tolliver in the HBO series Deadwood, the murderer and pimp, and on the West Wing played the vice president who steals the presidency from the young black president. Well, Powers Boothe has a great voice – good pipes, as they say in the trade – and his first two names are no John Wilkes, after all.
David Corn at Mother Jones News is not impressed:
That’s the tag line on John McCain’s new ad, which features a film clip of McCain as a captured POW and a baritone-voice narrator asking, “What must a president believe about us, about America?” He kindly provides the answer: “That she is worth protecting.” Could the implication be that Barack Obama is not quite American and that he is not interested in protecting our country, which the ad describes with the feminine pronoun. In other words, the half-black dude with a funny name – who might be a secret Muslim – can’t protect her. Has Lee Atwater been resurrected? This smacks of the George H .W. Bush smear-tossing campaign against Michael Dukakis in 1988 – but also of Hillary Clinton’s claims that Obama is not yet ready to be commander in chief.
By the way, when has America not had an “American president”?
If the Republican campaign is this vulgar and creepy seven months ahead of the election, expect much worse in the fall.
It is creepy, but as before, McCain is courting the timid, and those who dream that what didn’t work might still work. Nostalgia is often creepy.
See this comment at The Moderate Voice:
No doubt we will all know his Navy serial number (624787) by heart before this is all done… and why not? He was a hero indeed; I, for one, admire his service and courage enormously. And he’s gonna need all those laurels to support his position on the Iraq war. (Good luck with that.)
And while he could have run this ad without subtly targeting anyone, he most definitely has singled out Barack Obama as his expected opponent. Evidently he, too, sees the writing on the wall for the Clinton campaign.
So – Obama now knows (rather than simply suspects) the tone and direction of the general election’s early stages. Basically McCain’s line is, “I’m the best candidate because I’m more patriotic than my opponent (… who can only talk the talk”).
I think it is wasted ammunition against Obama (who, despite some rather flagrant misinformation and spin to the contrary, is plenty patriotic) – but it’s the logical starting point for John McCain, and the strongest ground he can stake by far.
The logic is that opportunity is frightening. Maybe it is.
See also these two reader comments at Talking Points Memo:
Is the Onion running McCain’s slogan department? There’s not enough “America” in his ad? I’m not sure – is he running for prime minister of Canada?
So to be crystal clear, he needs to up the ante in the slogan: John McCain, American: The American President of America that Americans have been waiting for. America!
That’s followed by this:
So we’re “waiting for” an American president? Someone ought to ask McCain why he thinks George W. Bush isn’t American enough. Setting aside the gratuitous verbal wrapping in the flag, this seems to be a calculated attempt to contrast McCain from that weirdly named, foreign sounding “other” candidate named Barack Obama. Patriotism and fear will be the first, last and omnipresent refuge for the GOP this cycle. It’s all they have – they have nothing positive to run on.
So what else is new? And over at Stop The ACLU you see how the Democrats asked for it:
Perhaps [he was] given the idea from Hillary Clinton’s own words when she said, “I think that I have a lifetime of experience that I will bring to the White House. I know Senator McCain has a lifetime of experience that he will bring to the White House and Senator Obama has a speech he gave in 2002.”
She was highly criticized for that when she said it, and John McCain is smart to use that same theme because during the general election, if Obama does win the Democratic nod, then McCain will not be the only one pointing out Obama’s lack of experience because there are soundbites, news reports and video of Hillary Clinton making the very same argument.
Clinton will not be able to take those words back and it will be very powerful in the general election to see McCain and Hillary arguing that Barack Obama hasn’t walked the walk and doesn’t have the lifetime experience that John McCain does.
Also see this at Swamp Politics:
For many voters, Obama is still an unknown quantity because of his relative newness to the national political scene. Despite all his speeches, many voters are still unsure what to make of him.
Add to this the backdrop of the whole Rev. Jeremiah Wright flap, and the questions “What does Obama think?” and “Where has he been?” probably raise more anxiety with more voters than would’ve been true a few weeks ago.
We know there’ve been questions, no matter how unfair, about Obama’s patriotism, questions revived not just by Wright and his by now infamous imprecations against America but by Michelle Obama’s foot-in-mouth statement about the success of her husband’s campaign making her proud of her country as an adult for the first time.
Thus the portrayal of McCain as, first and foremost, a candidate whose life story demonstrates patriotism, goes right at what appears to be an Obama weakness because of the way many voters perceive both men.
So much for opportunity – avoid it.
And see Daniel Larison in the American Conservative – he hits on the even larger issue:
As I have said before, arguments over Vietnam, like arguments over Iraq, are not simply arguments over a military campaign overseas. If they were, cost-benefit analysis and simple pragmatism would offer the obvious course of action: get out and get out now. National polling shows that two-thirds of the country want us out within two years, but this obscures the fact that disapproving of the war does not mean that all the current opponents of the war embrace a thoroughgoing antiwar narrative; many of them certainly would not share my characterizations of the war as immoral and illegal. So, instead of being arguments about policy, they are arguments about “values” and American identity. Simply put, the party that has tended to be antiwar during the last 36 years has also been the party on the losing side of these other arguments, even when they have been right on the policy question, and so they have lost time after time in presidential elections where these arguments are most powerful. An Obama-McCain contest will be an almost perfect test of this proposition.
So cost-benefit analysis and simple pragmatism is one thing. Opportunity is another, with its hidden costs. Do we take another chance, or do we stick with what doesn’t work. You can lose big-time either way. This should be interesting.