Opportunity Costs
moultano
Creator of ns_shiva. Join Date: 2002-12-14 Member: 10806Members, NS1 Playtester, Contributor, Constellation, NS2 Playtester, Squad Five Blue, Reinforced - Shadow, WC 2013 - Gold, NS2 Community Developer, Pistachionauts
Creator of ns_shiva. Join Date: 2002-12-14 Member: 10806Members, NS1 Playtester, Contributor, Constellation, NS2 Playtester, Squad Five Blue, Reinforced - Shadow, WC 2013 - Gold, NS2 Community Developer, Pistachionauts
1.2 trillion is a lot of money.
<a href="http://www.nytimes.com/2007/01/17/business/17leonhardt.html?ex=1326690000&en=7f221bfce7a6408c&ei=5090&partner=rssuserland&emc=rss" target="_blank">http://www.nytimes.com/2007/01/17/business...and&emc=rss</a>
<!--quoteo--><div class='quotetop'>QUOTE</div><div class='quotemain'><!--quotec-->In economics, opportunity cost, or economic cost, is the cost of something in terms of an opportunity forgone (and the benefits that could be received from that opportunity), or the most valuable forgone alternative (or highest-valued option forgone), i.e. the second best alternative. For example, if a city decides to build a hospital on vacant land that it owns, the opportunity cost is some other thing that might have been done with the land and construction funds instead. In building the hospital, the city has forgone the opportunity to build a sporting center on that land, or a parking lot, or the ability to sell the land to reduce the city's debt, and so on.
...
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.<!--QuoteEnd--></div><!--QuoteEEnd-->
<a href="http://en.wikipedia.org/wiki/Opportunity_cost" target="_blank">http://en.wikipedia.org/wiki/Opportunity_cost</a>
<a href="http://www.nytimes.com/2007/01/17/business/17leonhardt.html?ex=1326690000&en=7f221bfce7a6408c&ei=5090&partner=rssuserland&emc=rss" target="_blank">http://www.nytimes.com/2007/01/17/business...and&emc=rss</a>
<!--quoteo--><div class='quotetop'>QUOTE</div><div class='quotemain'><!--quotec-->In economics, opportunity cost, or economic cost, is the cost of something in terms of an opportunity forgone (and the benefits that could be received from that opportunity), or the most valuable forgone alternative (or highest-valued option forgone), i.e. the second best alternative. For example, if a city decides to build a hospital on vacant land that it owns, the opportunity cost is some other thing that might have been done with the land and construction funds instead. In building the hospital, the city has forgone the opportunity to build a sporting center on that land, or a parking lot, or the ability to sell the land to reduce the city's debt, and so on.
...
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.<!--QuoteEnd--></div><!--QuoteEEnd-->
<a href="http://en.wikipedia.org/wiki/Opportunity_cost" target="_blank">http://en.wikipedia.org/wiki/Opportunity_cost</a>
Comments
But is it really proper to give a blank cheque to 'freedom' per se. Surely freedom is a completely relative and qualifiable concept. Freedom given to ex-slaves is for example an extremely powerful form of freedom. Is this on par with the 'freedom' given to a journalist to take photos of a celebrity while they are lying in hospital after an accident? I personally think no matter how good the proposed ends might be (in this case as I say, debatable), people should always question the means (in this context, the $1.3 trillion). Was that cost really proportionate/necessary? In light of the incompetencies of the administration in planning post-war Iraq, I highly doubt it. <img src="style_emoticons/<#EMO_DIR#>/sad-fix.gif" style="vertical-align:middle" emoid=":(" border="0" alt="sad-fix.gif" />
From that explanation of opportunity costs, it may actually work out the same, if not higher if no action was taken. Obviously, this is my opinion of the matter, with no actual economic working involved, so it may be wrong (or may be right...)
Not sure if this is an accurate method of determining costs for a decision. Especially the example that wikipedia gives. Building a hospital would be the best course of action, due to the jobs it creates, lives that it saves, reduction of stress at the other nearby hospitals etc. Building a parking lot on the land, and charging a few bucks an hour to park there may seem like a moneymaker, but it's hardly the most sensible option in the world, is it?
Like I said, this may be good for determining alternative costs/losses, but it doesn't point out the best course of action, only the "cheapest" in relative terms
Assuming that the Iraq War was actually connected to freedom (controversial) and who's freedom you actually mean (American's freedom? Iraqi's freedom? Global freedom?), I agree that freedom has a price.[...]
<!--QuoteEnd--></div><!--QuoteEEnd-->
Iraq was a threat to the entire world, and had to be taken down. So yes, the freedom of the entire world was at stake. Really, 1.2 trillion is a laughable sum when you take that into consideration.
Iraq was a threat to the entire world, and had to be taken down. So yes, the freedom of the entire world was at stake. Really, 1.2 trillion is a laughable sum when you take that into consideration.
<!--QuoteEnd--></div><!--QuoteEEnd-->
Comeon man, stop trolling.
The budget for health in the United States, when totalled in both public and private sectors, amounts to roughly more than the entire GDP of France. Maybe if we overhauled the system and cut a few corporate tax breaks (that led to employer provided health care in the first place), we could get a lot more out of what we already spend, but throwing money at the problem isn't going to help.
Again, I have to repeat this, because it seems lost on too many people nowadays: In today's situation, America's problems do not stem from the lack of money, because there is PLENTY of it. These problems come from a vast bureaucracy, a few very powerful special interests (AARP), and the inability for Americans to act without hesitation from other Americans.
In regards to the Iraq war, the main problem is that it was not presented the way it should have been to the United States.
Nobody objects to these objectives:
1. Overthrow an oppressive dictator and liberate the people oppressed under him.
2. Protect and extend the current oil supply (on which the world's economy turns on) in the Middle East.
3. Use money and political clout to create a pro-West, pro-business state within a volatile region that has shown recent, unprecedented hostility towards the US.
Most people seem to be fixated on the fact that our leaders either outright lied to us or at the very best, misled us into believing that we needed to invade Iraq due to terrorism and weapons of a biological or nuclear nature. If Bush had used those first three statements to persuade the American people to go to war, people would probably be less ###### off right now. But that still doesn't take in the fact that most of the war's unpopularity with the American people is brought on by:
1. Constant, but strategically insignificant American casualties (however callous that may sound)
2. An ongoing, considerable pumping of American tax dollars into Iraq
The second fact has already been dealt with. While in terms of Federal discretionary spending, it's quite a bit, in the big picture, it really isn't that much. And considering the costs of CONTAINING Saddam Hussein amounted to around 20-35 billion dollars a year, we didn't spend that much more overthrowing him and the money that is poured into Iraq can be considered as a strategic, long term investment - so long as we stay in the country.
The casualties of American soldiers is the main bit. Over three thousand of our men and women in the armed forces of the United States have died in Iraq. Three thousand. The US military is 1.4 million strong in ACTIVE DUTY, with about 800,000 more in reserve strength. Out of the 1.4 million in active duty, only 300,000 are serving overseas. About 1 million is stationed within the US, a massive waste, in my opinion. Looking from a purely statistical point of view, no matter how many times the politicians, and even the generals say it, the United States military is not overstretched in terms of manpower. The bureaucracy and political will needed to shift soldiers serving stateside to deploy overseas is the real reason why they say we are overstretched.
If, on average, 2 American soldiers die per day in Iraq, there's still a force of 140,000 (soon to be 160,000 considering the "troop surge" Bush is proposing) around. 3000 soldiers might have died in Iraq, but over 15 times as much died in Vietnam before we finally pulled out. American casualties they say are unacceptable, but is it unacceptable to the public or to the military? It certainly isn't the latter. I can't speak for our boys in uniform, but when they enlisted, they made a commitment to their nation, even if only to get the money to go to college. But when politicians talk of bringing the troops home, they are insulting the people who already died in Iraq, because they are implying that the effort wasn't worth it, and hence, their lives were wasted in vain.
Stay the course and start killing more people in Iraq. That's pretty much the best way to win. Just look at what happened in the Phillipines.
Also, let me point out that your article reports a direct cost of only about $700 Billion for the war, and estimates the other $500 Billion in such effects as money multipliers and increased cost of oil. Using money multipliers is a bit disingenuous considering the majority of that $700 Billion was spent IN THE US and is subject to the same multipliers as a war cost that it would have been as any other expenditure.
So far, if our efforts have prevented a single 9/11 type attack in the future, we've pretty much broken even.
Although the word freedom is a very interesting concept in this thread, as if you call freedom being monitored constantly by militants? I call that regulated behaviour.
1.2 trillion dollars spread out over the course of 5 years is 240 billion dollars. A paltry sum considering the size and wealth of the United States.
<!--QuoteEnd--></div><!--QuoteEEnd-->
1.2 trillion dollars is 1/10th of our yearly GDP. By what rationale is that a paltry sum?
Over the course of five years? It's not like we're spending half our budget on Iraq.
<!--QuoteEnd--></div><!--QuoteEEnd-->
You are correct, we are not spending half of our budget on Iraq. We are, in fact, spending 1/10th of our yearly GDP on Iraq.
Suppose today that Congress enacted a 2% national sales tax. (The equivalent of the cost of Iraq) Explain to me now how that is a paltry sum.
The money isn't the issue. It's insignificant compared to the pre-existing obligations that the Federal government must meet before it can start using tax dollars as discretionary income.
If you're talking about what is really taxing our economy, it's the stifling regulation and bureaucracy that the Federal government has imposed on the United States. Of the amount of regulation and red tape costs us, by moderate estimates, one TRILLION dollars per YEAR.
The real problems of America are American in origin. There is no foreign threat that could possibly harm us. Social Security, our failing secondary education system, Medicare, and Medicaid and all those programs in their current form threaten to destabilize our country, not Iraq.
I don't have time right now to reply to the rest of it, but this last sentence really just misses the mark by so much I want to say something really quickly. Either the war in Iraq was worth the price or not, and if it turns out that it was not worth it, then making more soldiers go fight and die, and spending more money on it doesn't do a damn bit of good for the people who already died. It's just repeating the same mistake.
If you take the premise that the war in Iraq isn't worth the cost, then in no way is it insulting to those dead to pull out. Either the war in Iraq is worth it or not, and the way you state it, it HAS to be worth it because people have already died. Whether or not some politician pays lip service to the idea that we must stay because someone has died or not has no effect at all on people who have already died. In fact I think what you're saying would imply that we should hold those responsible who lead us into a war that got people killed for a reason that wasn't worth it. That's what makes sense to me anyway.
<!--quoteo(post=1599712:date=Jan 17 2007, 08:52 PM:name=Rapier7)--><div class='quotetop'>QUOTE(Rapier7 @ Jan 17 2007, 08:52 PM) [snapback]1599712[/snapback]</div><div class='quotemain'><!--quotec-->
Over the course of five years? It's not like we're spending half our budget on Iraq.
<!--QuoteEnd--></div><!--QuoteEEnd-->
Right because if we aren't spending half our budget on it, it's a paltry sum.
Do you know how many people's lives (in third world countries) you could save with $1.2 trillion (or even $700 billion)?
<!--quoteo(post=1599604:date=Jan 17 2007, 01:36 PM:name=Cxwf)--><div class='quotetop'>QUOTE(Cxwf @ Jan 17 2007, 01:36 PM) [snapback]1599604[/snapback]</div><div class='quotemain'><!--quotec-->So far, if our efforts have prevented a single 9/11 type attack in the future, we've pretty much broken even.<!--QuoteEnd--></div><!--QuoteEEnd-->
But have we? I think if anything we have created more terrorists...
I don't have time right now to reply to the rest of it, but this last sentence really just misses the mark by so much I want to say something really quickly. Either the war in Iraq was worth the price or not, and if it turns out that it was not worth it, then making more soldiers go fight and die, and spending more money on it doesn't do a damn bit of good for the people who already died. It's just repeating the same mistake.
If you take the premise that the war in Iraq isn't worth the cost, then in no way is it insulting to those dead to pull out. Either the war in Iraq is worth it or not, and the way you state it, it HAS to be worth it because people have already died. Whether or not some politician pays lip service to the idea that we must stay because someone has died or not has no effect at all on people who have already died. In fact I think what you're saying would imply that we should hold those responsible who lead us into a war that got people killed for a reason that wasn't worth it. That's what makes sense to me anyway.
<!--QuoteEnd--></div><!--QuoteEEnd-->
Just to add to this, in economics this is known as a <a href="http://en.wikipedia.org/wiki/Sunk_cost" target="_blank">Sunk Cost</a>
<!--quoteo--><div class='quotetop'>QUOTE</div><div class='quotemain'><!--quotec--> It's not even 1.2 trillion. The actual amount that the article quoted was 700 billion, and even that's a blatant skewing. The total amount of expenditures that Congress has set aside for Iraq over these five years hasn't even reached 400 billion yet. And that's over five years.<!--QuoteEnd--></div><!--QuoteEEnd-->
Please make the case for how all of their analysis is wrong. I'd like to hear it. So far you haven't. At the very least, add in costs for depreciation of capital (everything damaged during these operations will need to be repaired or replaced), and all manner of other continuing costs that aren't contained within congressional funding for the war.
<!--quoteo--><div class='quotetop'>QUOTE</div><div class='quotemain'><!--quotec--> Another way to get at the $1 trillion cost of the Iraq War is to note that the Treasury could have used the money to mail a check for more than $3,000 to every man, woman and child in the United States. The latter alternative would have an added benefit: Uniformly distributed and spent in this country, the money would have provided an economic stimulus that the war expenditures have not.
Alternatively, if the money was spent in an even more ecumenical way and a global mailing list was available, the Treasury could have sent a check for more than $150 to every human being on earth. The lives of millions of children, who die from nothing more serious than measles, tetanus, respiratory infections and diarrhea, could be saved, since these illnesses can be prevented by $2 vaccines, $1 worth of antibiotics, or a 10-cent dose of oral rehydration salts as well as the main but still very far from prohibitive cost of people to administer the programs.<!--QuoteEnd--></div><!--QuoteEEnd-->
Why shovel out useless statistics like that?
Should American public funds go out to every person in the world? Should we singlehandedly bankroll all world health initiatives (we already support 25% of the UN budget, appropriate considering we're around 25% of the world economy)?
Sunk costs + economic multipliers are a dangerous way to come up with "1 TRILLION DOLLARS LOST IN IRAQ WAR" simply because no economist can forsee all the multipliers, opportunity costs, etc. The average dollar travels through dozens of hands daily, everybody's earning and spending and earning and spending.
The war costs, on average, 100 billion dollars outright for Congress per annum. It cost 50 billion dollars per year just to CONTAIN Saddam (which was shooting million dollar missiles into a tent and hitting only a camel and an AK47). In the long run, you could say that invading and occupying Iraq will turn out to be a better investment.
_
Here's another oppourtunity cost to look at.
What if a Nuclear powerplant has no noticable decrease in lifecycle-CO2-emmisions as compared to a Natural Gas power plant?
<a href="http://www.peakoil.org.au/nuclear.co2.htm" target="_blank">http://www.peakoil.org.au/nuclear.co2.htm</a>
Then how much money are we wasting on nuclear tech?
Oil, stability costs, increased economic investment due to a semblance of public safety.
You could have said the same for Germany or South Korea when we had occupied and rebuilt those countries.
Money doesn't like to go into unsafe markets unless the return is great. But a safe market with great return will see heavy investment. This in turn benefits both the investor and the market being invested in.
Money doesn't like to go into unsafe markets unless the return is great. But a safe market with great return will see heavy investment. This in turn benefits both the investor and the market being invested in.
<!--QuoteEnd--></div><!--QuoteEEnd-->
When I'm talking "money" what I meant to say was "subsidy".
Something which supposidly doesn't exist in classical market systems.
Without that Nuclear is a horribly unsafe market investment.
With a horrible rate of return on investment.
Should American public funds go out to every person in the world? Should we singlehandedly bankroll all world health initiatives (we already support 25% of the UN budget, appropriate considering we're around 25% of the world economy)?
<!--QuoteEnd--></div><!--QuoteEEnd-->
It might not be our responsibility, but it certainly would have been a better way to spend the money. Suppose it were 2003 again and we hadn't started the war yet. Suppose someone told you that you had a choice between saving the lives of millions of children internationally, or invading iraq. Can you honestly say that invading Iraq would be the better choice?
<!--quoteo--><div class='quotetop'>QUOTE</div><div class='quotemain'><!--quotec-->Sunk costs + economic multipliers are a dangerous way to come up with "1 TRILLION DOLLARS LOST IN IRAQ WAR" simply because no economist can forsee all the multipliers, opportunity costs, etc. The average dollar travels through dozens of hands daily, everybody's earning and spending and earning and spending.
<!--QuoteEnd--></div><!--QuoteEEnd-->
Feel free to pick apart their reasoning, but saying "it's so complicated that <i>no one</i> can figure it out!" is a completely specious argument. Economists do exactly this sort of analysis for a living.
<!--quoteo--><div class='quotetop'>QUOTE</div><div class='quotemain'><!--quotec-->The war costs, on average, 100 billion dollars outright for Congress per annum. It cost 50 billion dollars per year just to CONTAIN Saddam (which was shooting million dollar missiles into a tent and hitting only a camel and an AK47). In the long run, you could say that invading and occupying Iraq will turn out to be a better investment.
<!--QuoteEnd--></div><!--QuoteEEnd-->
You really ought to include the depreciation of capital to have something approaching a reasonable estimate of the cost. Do you have a source for the cost of containment handy? It's also worth considering that the iraq war has made it impossible for us to contain Iran.
Containment was proving almost as costly as the war itself, and probably more so if it had been extended indefinitely.
I'm saying that because this is so complicated, you can't look at multipliers and claim we've lost a trillion dollars. It's from a news article anyways, even if it's quoting an economist, all it's doing is trying to grab ratings and controversy.
Also, the way the government handles accounting is much different from a corporation or a private firm. If the government builds a battleship or a bridge, the entire cost is subtracted during that fiscal year, even if its expected usefulness outlives that one year (which would certainly be the cause). Businesses account differently. If a business buys a million dollar computer and expects it to have use 10 years into the future, it will only deduct 100,000 dollars in the first year, assuming it's a linear scale. That means that the equipment currently being used in Iraq had already had all its costs deducted. Depreciation isn't a point of concern here.
The use and connotation of containment evokes images of the Cold War. After Vietnam, US policymakers realized that even if they lost face, Vietnam didn't matter. Neither did Cambodia after it. Or the countless Marxist groups in Africa. "Containment" was, and is a stupid doctrine. There should be outright annihilation while you still have the advantage, or come to the bargaining table and influence their political process via economic and diplomatic means.
The total amount of money that Congress has appropriated for the Iraq war numbers between 400-500 billion over the course of almost five years. In one year, Congress will spend 550 billion on Social Security alone, and another 500 billion on Medicare and Medicaid. All three systems are broken and will eventually "bankrupt" (In paranthesis because technically the Federal government can't go bankrupt) the Federal government. Why don't you complain about the trillion dollars per year that the Federal government wastes on outdated and outmoded programs?
100 billion dollars per year COULD have been better spent, but almost everything the Federal government does "wastes" money. The Iraq war simply costs less than other outlays in the budget. It's not a concern in a relative fiscal sense.
Why shovel out useless statistics like that?
Should American public funds go out to every person in the world? Should we singlehandedly bankroll all world health initiatives (we already support 25% of the UN budget, appropriate considering we're around 25% of the world economy)?
<!--QuoteEnd--></div><!--QuoteEEnd-->
To quote yourself, where the you get useless statistics like that? Link please? With comparison to others who contribute to the budget?
<a href="http://www.nber.org/papers/w12092" target="_blank">http://www.nber.org/papers/w12092</a>
Containment was proving almost as costly as the war itself, and probably more so if it had been extended indefinitely.<!--QuoteEnd--></div><!--QuoteEEnd--> Is there a source somewhere that I don't have to purchase to read?
<!--quoteo--><div class='quotetop'>QUOTE</div><div class='quotemain'><!--quotec-->I'm saying that because this is so complicated, you can't look at multipliers and claim we've lost a trillion dollars. It's from a news article anyways, even if it's quoting an economist, all it's doing is trying to grab ratings and controversy.<!--QuoteEnd--></div><!--QuoteEEnd--> This is more hand-waving. Of course it's trying to create controversy. That doesn't mean it's wrong. (And there should be controversy about this.)
<!--quoteo--><div class='quotetop'>QUOTE</div><div class='quotemain'><!--quotec-->Also, the way the government handles accounting is much different from a corporation or a private firm. If the government builds a battleship or a bridge, the entire cost is subtracted during that fiscal year, even if its expected usefulness outlives that one year (which would certainly be the cause). Businesses account differently. If a business buys a million dollar computer and expects it to have use 10 years into the future, it will only deduct 100,000 dollars in the first year, assuming it's a linear scale. That means that the equipment currently being used in Iraq had already had all its costs deducted. Depreciation isn't a point of concern here.<!--QuoteEnd--></div><!--QuoteEEnd--> I'd be willing to bet that very little of the equipment used in iraq was purchased specifically for it. The military has a huge amount of fixed assets, and they are depreciating faster than they normally would. Consider the all the missiles we launched during the initial invasion. Very few of those are likely included in the direct monetary expenditures for the war because they were assets already owned by the military, but those missiles now no longer have any value. Replacing them would cost money, and so that has to be factored in to the costs. The same applies with ammunition, vehicles, bodyarmor, or really anything non-perishable that the military uses. It is all getting "used up" and costs money to replace that isn't a direct expenditure yet.
<!--quoteo--><div class='quotetop'>QUOTE</div><div class='quotemain'><!--quotec-->The use and connotation of containment evokes images of the Cold War. After Vietnam, US policymakers realized that even if they lost face, Vietnam didn't matter. Neither did Cambodia after it. Or the countless Marxist groups in Africa. "Containment" was, and is a stupid doctrine. There should be outright annihilation while you still have the advantage, or come to the bargaining table and influence their political process via economic and diplomatic means.<!--QuoteEnd--></div><!--QuoteEEnd-->
Who are you proposing that we outright annihilate?
<!--quoteo--><div class='quotetop'>QUOTE</div><div class='quotemain'><!--quotec-->
The total amount of money that Congress has appropriated for the Iraq war numbers between 400-500 billion over the course of almost five years. In one year, Congress will spend 550 billion on Social Security alone, and another 500 billion on Medicare and Medicaid. All three systems are broken and will eventually "bankrupt" (In paranthesis because technically the Federal government can't go bankrupt) the Federal government. Why don't you complain about the trillion dollars per year that the Federal government wastes on outdated and outmoded programs?
100 billion dollars per year COULD have been better spent, but almost everything the Federal government does "wastes" money. The Iraq war simply costs less than other outlays in the budget. It's not a concern in a relative fiscal sense.
<!--QuoteEnd--></div><!--QuoteEEnd-->
If you'd like to start a thread on how to reform our social safety nets, feel free. For all their warts, they do provide a valuable social service.
If you'd like to start a thread on how to reform our social safety nets, feel free. For all their warts, they do provide a valuable social service.
<!--QuoteEnd--></div><!--QuoteEEnd-->
By implication, are you suggesting that our Military does <i>not</i> provide a valuable service?
By implication, are you suggesting that our Military does <i>not</i> provide a valuable service?
<!--QuoteEnd--></div><!--QuoteEEnd-->
Obviously they do.
Question being, like any tool you may find inside a toolbox.
A sledgehammer isn't always the right tool to use in all situations.
By implication, are you suggesting that our Military does <i>not</i> provide a valuable service?
<!--QuoteEnd--></div><!--QuoteEEnd-->
They certainly do. The iraq war, however, does not.
They certainly do. The iraq war, however, does not.
<!--QuoteEnd--></div><!--QuoteEEnd-->
There are (broadly) two possible outcomes of the war in Iraq:
1) Our strategic goals are eventually acheived, at whatever cost
2) Our strategic goals are never acheived
As of yet, neither possibility has been realized yet. It is disingenuous to compare the cost of war versus the benefits of the current incomplete state. It really ought to be compared to the benefits of the completed war. Granted, there is a chance that those benefits may not materialize, but that makes the war a Gamble, not a Waste.