(To read the entire "The (Opportunity) Costs of Security” series, check out the articles below...
It’s a sometime tactic among conservatives, when debating economics, to suggest to their liberal opponent to “take an econ class”. It happened two years ago on Facebook and Twitter when I published “The Chicago School of Counter-Insurgency”. When he was in college, our conservative uncles told Eric C, an avowed liberal, to “take an econ class” so many times that he borrowed an econ textbook from a friend and read the whole thing.
Well, after a year of business school, I can say that I did take an economics course. [Eric C editorial: And since Michael C won’t write it, I will: he also made Dean’s list each quarter. #twinbrag.]
The criticism that I should take an economics course seemed particularly off when it came to “Getting Rid of the Chicago School of Counter-Insurgency”, because I didn’t mean to attack an entire subject matter, merely one particular ideological branch of economics that wildly underestimates the role of behavior in economics.
These attacks stung because I love economics. I love using economics--among many topics in B-school--to help explain the way the world works. B-schools make future MBA students take economics precisely because it has so many useful concepts.
Take opportunity costs. Opportunity costs are the benefits a firm foregoes by selecting a strategic option. In layman's terms, by choosing to do one thing, it means you can’t do another. In literary terms, for Eric C, Frost couldn’t walk down two paths. In business, choosing to build a factory means choosing not to use those funds to increase employee salaries, for example.
All decisions have opportunity costs, the advantages and costs of all other alternatives. Smart firms treat opportunity costs holistically, factoring in non-monetary costs like human capital, time, logistics and intangible benefits. (Though they usually convert them to the same unit, most frequently dollars.)
After 9/11, America as a nation responded to the threat of terrorism by passing the Authorization for Utilization of Military Force, the Patriot Act, the Intelligence Reform Act and hundreds of other authorizations and budget decisions. Each of these decisions by Congress, President Bush, and President Obama had opportunity costs. In liberal terms, spending a dollar on terrorism means not spending that dollar on economic stimulus, food stamps, or veterans. In conservative terms, every dollar spent means another dollar taken from taxpayers. In neo-conservative terms, every dollar spent raises the deficit.
With this in mind, we have to ask, knowing the concept of opportunity costs, was all that terrorism spending a good use of money?
We've described before and linked to the few lone voices making the intellectual argument that terrorism is rare, how unlikely it is to ever affect you or your loved ones lives. (Several times actually.) We've tried to explain how safe as a society we really are. But I’ve never written about the wasted money in terms of what we stand to lose as a society.
Why? Because opportunity costs are often abstract and especially hard to value. Fortunately, I think I have found a few prime examples of opportunity costs that I can measure. Even better, I will get to apply a little bit of back-of-the-envelope, consulting-interview-style, economic analysis to measure their impact. Obviously, I will have to make some assumptions and I will struggle to find a lot of the data.
In total, though, this is an exercise America needs to perform. Unfortunately for America, the security state doesn’t have itinerant economists trawling it for insights unlike, say, sports. Still, America shouldn’t forget the opportunity costs of the war on terror.
I mean, conservatives wanted us to take an economics course, right?