February 26, 2008

“All costs are ultimately opportunity costs”

Filed under: Economics — duncan @ 9:24 pm

 Not the promised post on ‘Structure, Sign and Play…’, but a quick aside on opportunity cost. 

The heading’s quote comes from Krugman, Wells and Graddy, chapter 1, page 7.

“The concept of opportunity cost is crucial to understanding individual choice because, in the end, all costs are opportunity costs. Sometimes critics claim that economists are concerned only with costs and benefits that can be measured in terms of money. But that is not true…. [T]he cost of [something] is what you must give up to get it. All costs are ultimately opportunity costs.”

Which seems to make a lot of sense.  But notice just how much uncertainty the idea of opportunity cost brings into one of the most fundamental concepts of economics. Opportunity cost opens the concept of cost (which is, superficially, both concrete and already-quantified) to an infinity of doubt.

Here’s K, W & G again, p. 165:
“What do Bill Gates, David Beckham and Kylie Minogue have in common?  None of them has a university degree. All three are no doubt clever enough to have degrees. However, they made the rational decision that the implicit costs of getting that degree would have been too high – by their late teens, each of these three had a very promising career that they would have had to put on hold in order to get a university degree. Ms Minogue would have had to postpone her acting and singing career; Mr Beckham would have had to put off his incredibly successful football career; Mr Gates would have had to delay developing the most successful and most lucrative software ever sold, Microsoft’s computer operating system.
In fact, many extremely successful people – especially those in careers like acting or athletics, where starting early in life is especially crucial – do not attend university. It’ a simple matter of economics: the opportunity cost of their time at that stage in their life is just too high to postpone their careers for a university degree.”

Gates, Beckham and Kylie all chose to junk university, in favour of a career that promised extraordinary success. They all, apparently, made the right choice. But (my point is) extraordinary success is always a possibility. As is extraordinary failure.  Every hypothetical opens up an infinity of possibilities. By what mechanism are we to calculate which alternative world should be substituted, in our calculations, for the one we inhabit? By what mechanism are we to calculate opportunity cost?


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  1. Indeed. And what, in any case, has calculation got to do with action? And when?

    The theory of subjectivity embedded here is, as you might put it, ideological. Sometimes, quite desperately, I am indeed momentarily constituted as a modern, centered, discretionary subject. This is when I am forced to choose. Made to calculate that (say) if I choose the third item on the menu then it would be unbecoming to order the fourth and the fifth as well. Sometimes. But look at all the apparatus (menus, hovering waiters, mores about gluttony, propaganda about health choices, some capacity to hold the options together long enough in my head to compare them) that this takes. All of which is extremely hard work, to create, maintain, and spread around. This is what markets try to do. And their propagandists. They’ve been banging on about it for 200 years, I guess (you’re the expect!) But mostly life, or at least my life, isn’t like that. It isn’t that coherent, and it doesn’t hold together. Matters happen. Propensities enact themselves. There are movements and tensions. Iterations. Senses and sensibilities. There are messy practices. All in all (all in all?!) there is general (general?!) non-coherence.

    Wouldn’t it be nice to be calculatively constituted? Well, actually, most of the time not at all. Not for this particular non-modern subject.

    Comment by Heterogeneities — April 27, 2008 @ 9:20 pm

  2. “And what, in any case, has calculation got to do with action?” Yes. Economics often seems to imagine the subject as kind of like the Terminator – a list of options scrolls across the visual field, and the CPU selects “fuck you…” The uncertainty that undermines quantifiability also seems to undermine the concept of the calculating subject. But… well, I don’t know… but something. One of the reasons I want to look into probability is to try to get a better grip on this stuff – to see how economics connects uncertainty, the unknowable, to calculation… How does economic man try to create what Aristotle said was impossible – a science of the accidental…?

    “But look at all the apparatus (menus, hovering waiters, mores about gluttony, propaganda about health choices, some capacity to hold the options together long enough in my head to compare them) that this takes.” Yes – and also that here you are consumer – here, in the restaurant, despite whatever inconveniences dining out may involve, you are for once the wielder of the power of capitalism; here power, in the form of money, flows through you – and this makes possible a discretionary subject that is generally dissipated or destroyed by these same forces… the appartus of the restaurant would also include the pittance-pay of the staff, their dependence on tips for a decent wage, the status of the tip as part voluntary and part obligatory… the voluntary tip making staff obsequiousness or attentiveness also voluntary – part of a gift economy, not simply a market one – and that this ‘gift’ is still part of a larger system of lack of freedom, lack of gift… and of course the resources brought to bear on the creation of these choices – the creation and transportation of the food; the birthing, rearing and killing of the animals, in confusion and pain… but also the other side of it – the life you’ve lived in order to afford to dine out, the submission of the ‘calculative’ subject, in body and mind, to the demands of work – not that there’s an opposition between freedom and submission here – this isn’t about privileging freedom – but given the particular submissions that the work that pays for the meal demands… the necessary choice to forgo choice that makes possible the income and the social standing that here, in the restaurant, enables you to constitute yourself or be constituted as a calculative subject… all this also needs to be considered. So liberal economics takes a particular moment of the subject’s experience – the moment of sovereignty that’s always underwritten and made possible by quite other social relations – whether commendable or deplorable, that’s not the issue – and imagines this as present at all times, at all moments of interaction and exchange, under capitalism. The consumer and the employer, who are imagined as freely wielding power – this is where liberal economics begins – with this sovereignty of the calculative choice. And then everything else is reimagined in these (already falsified) terms: those who work in the restaurant for a pittance wage are really consumers too, are engaging in a voluntary exchange just like the diners when they choose their sweet and sour pork, and pay for it on credit card…

    Comment by praxisblog — April 30, 2008 @ 10:35 pm

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    Comment by moand cxwo — July 16, 2008 @ 10:52 pm

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