Opportunity costs redux

by John Quiggin on July 20, 2005

Harry’s post on consequentialism and opportunity costs, as applied to the Iraq war, raises a couple of important points about consequentialism, and also leads me to suggest a specific correction to my post on this topic.

The first is a general one, which is obviously inherent in the notion of opportunity costs, but also arises with consequentialism in general, namely that, when we are evaluating a course of action, the question is always “compared to what”. This is, I think, a strong point for consequentialism as a way of assessing public policy, since that always involves a choice between feasible alternatives. By contrast, in a theory of individual morality, it’s often sufficient to divide actions into “permissible” and “impermissible” and leave people to choose whatever permissible action seems best to them.

The second question, is “who is supposed to be applying the theory”. As Harry says, the question “Is X a good thing” depends on “What alternative Y could I promote”, and so depends on the position we are assuming.

Now let’s start thinking about the war. As Harry says, the obvious interpretation of my post is that I am advising the Bush Administration, but assuming that they have suddenly acquired an interest in the welfare of the American public. I think, though, that my analysis would be a reasonable one for a member of Congress proposing an amendment to measures authorising the war and the associated expenditure.

Supposing we are looking at things from the position of the British and Australian left, as Harry suggests. I think the opportunity cost analysis applies pretty well to the expenditure by the British and Australian governments. The Australian government estimated costs of $1 billion, and it’s always short of money for health. So we can estimate that it could have spent the money on health, with an implied saving of 100-200 lives. Alternatively, if you agree that Australian public expenditure priorities aren’t radically skewed, you can say that if the money wasn’t spent on health, it would probably have been spent on something equally valuable at the margin (say education, or firefighting). I assume much the same would be true to the UK.

But if we want an analysis that doesn’t rely on some particular position from which choices are being made, it would be good to have a neutral alternative assumption. This kind of problem comes up all the time in policy modelling: if your policy option increases government revenue, what should you assume about the way that revenue is allocated?

Given the performance of the Bush Administration so far, it is tempting to agree with Harry that any money saved from the Iraq war would have been wasted elsewhere. But I think this is incorrect, in part because there’s no sign that the Bushies recognise a budget constraint. For them, the war is free: it isn’t even included in the regular Budget which is, in any case, massively in deficit with extra items regularly added to the slate. The bills will have to be paid in the end, but there’s no easy way to predict who will pay or in what form.

This suggests to me that a reasonable neutral assumption (fairly common in economic modelling) is that US consumption will be reduced, proportionally across the board, to meet the financial cost of the war. That means about 75 per cent of the cost would be private consumption (foregone tax cuts, if you like), of which about half would be borne by the top quintile. About 15 per cent would come from health (public and private) and more from other desirable forms of spending.

A fair slab, as Harry says, would come out of luxury spending for the well-off. Pro-war British lefties are I think, entitled to disregard this component of the cost, consistently with their general views, while Bushies and libertarians are not.

So, a more careful analysis would certainly qualify the argument I put forward last time, but would not eliminate the general point that war is always costly in blood and treasure, and needs large and clear benefits if it is ever to be justified.



Kevin Donoghue 07.20.05 at 5:51 pm

As Harry says, the obvious interpretation of my post is that I am advising the Bush Administration, but assuming that they have suddenly acquired an interest in the welfare of the American public.

I read it as assuming (even less plausibly) that they had acquired an interest in the welfare of humanity in general or, equivalently, that the American public has such an interest. But really, one could quibble about details forever. The problem with this debate is that the pro-war left loves to talk about the moral bankruptcy of the stoppers, but we never get to see what’s written on the tablets of stone they received up there on the mountain.


neil 07.20.05 at 6:21 pm

So what about the opportunity costs of maintaining a military in general?

Also, if the money for the war did actually go into areas such as health then would this argument not just repeat itself? The opportunity costs of funding heart surgery (at the expense of community public health initiatives for example). And many would argue that it is environmental issues that should have first priority. The opportunity costs of public health initiatives (at the expense of saving the planet).


John Quiggin 07.20.05 at 6:27 pm

Neil, all decisions have opportunity costs. The idea is to allocate resources to a given end only if the benefits are at least as great as the opportunity cost.

In the idealised optimum of the econ textbooks, all avenues of expenditure have equal benefits at the margin. That never actually happens, but this doesn’t invalidate the concept of opportunity cost or lead us into some kind of infinite recursion, as you seem to imply.


neil 07.20.05 at 6:46 pm

But aren’t those benefits ultimately, to a degree at least, subjective? An advocate for public health initiatives may have a different point of view to a cardiac surgeon who may have a different point of view to an envirnmenalist.

This seems to me to be one of the reasons why we government in the first place – to mediate between people with different priorities.


Tom Hurka 07.20.05 at 6:56 pm

If it’s really a consequentialist analysis that’s being proposed, I don’t see what the difficulty is. Consequentialism says the right act is the one with the overall best outcome, and any act with less than the best outcome is wrong. This means that Harry’s question about “opportunity costs” doesn’t really arise. Let’s say act A will have the best outcome, B will have the second best outcome, and C will have the worst outcome. (In this case A might be spending N billion dollars on development aid to Africa, B might be giving N billion dollars of tax relief to U.S. taxpayers, and C might be spending N billion dollars fighting the Iraq War.) Then if C has the worst outcome, it’s wrong regardless of whether, if you hadn’t done C, you would have done A or would have done B. And it’s just as wrong whichever of those is the case.

Likewise, if B has less than the best outcome, it’s wrong even if, had you not done B, you would have done the worse C and not the better A. The relevant comparison is with the best POSSIBLE outcome you can produce, not with the outcome you ACTUALLY WILL produce if you don’t choose this act. At least that’s the standard contemporary understanding of consequentialism. It doesn’t assess consequences in a way that requires determining exactly what is and isn’t a consequence (that even sounds deontological). Instead it looks at the overall states of the world that will result if various acts are performed and judges them by those overall states.

The phrase “opportunity costs” therefore seems misleading, since it makes it look as if the issue is which consequences that I could otherwise bring about a given act will positively prevent, which depends on what other consequences I would in fact bring about. Of course this type of issue is central when my act will prevent harms by OTHER PEOPLE — then it matters vitally what they will in fact do if I don’t stop them. But this issue can’t matter when the harms will result from alternative acts by me. As I said, when it’s considering alternative acts by me, consequentialism asks only which act has the best possible overall outcome; any act that doesn’t is wrong.

(The alternative has the absurd result that the morally worse a government is, the morally more justified its resort to war can be. If one government would, instead of fighting the Iraq War, spend the money on development aid to Africa, then its fighting that war is wrong. But if another government would, instead of fighting the Iraq War, start an even more destructive war against North Korea, its fighting the Iraq War is right. That can’t be right, can it?)


Tweety Fish 07.20.05 at 7:00 pm

It seems to me that the supplementary nature of the war appropriations somewhat complicates John’s point. Assuming that the war had not happened, it seems like a pretty big jump to say that there would have been the political will to apply an additional 300 billion to any part of the budget. War funding bills are seen as unaviodable in a way that other spending manifestly is not. Given that, the money spent to wage the war would most likely be available in the form of unaccumulated debt. The opportunity cost would then be whatever future benefit accrues from reducing deficit spending now, be it improved economic health, funds available for discretionary spending, or whatever else (some other war?) somewhere down the road. Regardless, the benefits wouldn’t be “accessible” for years, and would be administered by a different set of decision makers than those currently in power. Which makes the domestic spending priorities of the Bush administration sort of irrelevant.


Martin Bento 07.20.05 at 7:07 pm

I think Harry’s minor premise is wrong. After all, are we really so Manichean as to think that expenditures can only be classified as good/bad? Are there not gradations here? If Bush had alternatively handed the money to the rich in tax cuts, I would consider that bad, but certainly less bad than the war, which has cost buckets of blood and lessened our security greatly. In fact, I do think that a significant portion would go to deficit reduction, because Greenspan sees the problem. And I would characterize that as good, not merely as less evil.


Ted H. 07.20.05 at 11:50 pm

Tom Hurka makes a good point. I think it reveals that what we assessing — or should be assessing — when we speak of the war’s justification in consequentialist terms is some particular person’s justification for *supporting* the war. Typically, the person is oneself or one’s interlocutor, but it can also be something for whom we deliberate in imagination. This then is how these ‘opportunity costs’ can figure: lost opportunities are things that one could have tried to prevent.

Thus: no one could reasonably think that the Iraq War, in anything like the way it played out in 2002-2003, was optimific: there were certainly options then open to the Bush administration that would have produced better overall consequences. So that can’t be what we have in mind when we wonder whether there is a consequentialist justification for the war. No, what we’re wondering is whether *supporting* the war was, for a given individual, the act among those open to him or her in 2002-2003 (and perhaps beyond) that would have produced the best overall consequences. And so we naturally wonder about the alternatives, and ask ourselves what is or was even remotely within the individual’s power.

We frequently deliberate in this way from the imagined perspective of our representatives in government, when we trust them, or from that of a renegade presidential advisor. Harry’s point, translated into the present framework, is that it’s the height of idle fantasy for us to deliberate imaginatively from the perspective of the president himself. If we’re not inclined to trust this president (as I assume we are not in this forum), we must manifest our agency from sub-presidential perspectives. And from *these* perspectives, opportunity costs figure insofar as we believe they correspond to courses of action (then) open to the sub-presidential agent.


Ragout 07.21.05 at 12:13 am

The cost in dollars of the war just seems trivial to me. The US, and Britain, and Australia are very rich countries. Sure you can think of the $300 billion cost of the war as 60,000 lives. But you can also think of each year of the war as costing two years of US expenditures on cable TV.

It seems to me that in any cost-benefit analysis that treats gains and losses to US and Iraqi citizens as equal, the cost to the US either in lives or in dollars just isn’t going to matter. A marginal dollar just doesn’t mean much in the US, but it means a lot in Iraq. To say this another way, it may cost $5 million to save an extra life in the US, but there are many countries where a life could be saved for a few dollars.


Brackdurf 07.21.05 at 1:21 am

Tom Hurka’s excellent final point about this type of consequentialism can be extended to our own personal roles: if the likely alternative to the Iraq war would be something worse, then if I have no chance of influencing the march to war, I can advocate for peace all I like, but if I do have the power to affect things, then it would be better for my to sit silently by.

Where Tom Hurka goes wrong, though, is in reducing it to right and wrong: it may indeed be better for America to be slaughtering in Iraq than provoking a regional conflagration in North Korea. If I really thought that was the alternative, I might pipe down in my efforts to scold the US out of Iraq (though again, since I have no power, my actions are largely consequence-free).

The key problem, it seems to me, is that consequences are unstable: if I (as citizen or presidential advisor) succeed in dissuading the White House from Iraq, I may well be more likely to succeed in dissuading the next war in North Korea. It’s rank idealism, I know, but the Arlo Guthrie movement rule allows even a hard-nosed consequentialist to imagine that either a) what I do does no good, and therefore can’t make things worse, or b) the closer my views get to having power as the anti-war movement builds, the less likely the worse alternative become. A left that has stopped a war is much more likely to be able to stop another.

Basically, like all thought experiments in alternate history, these consequentialist scenarios can easily go awry for lack of realism: how would Bush (if “I were him,” whatever that could mean) ever suddenly decide not to go to war? The idea that he’s somehow removed and I’m somehow president is of course silly. A more realistic view is, what actions should a consequentialist perspective lead Colin Powell to take? And again, were he to somehow succeed in dissuading his colleagues from the Iraq war, that very success would make another war in North Korea less likely, because he and his views would be more powerful (rather than, as actually happened, less).

A more plausible alternate history, were the Iraq war to have never happened (say, due to the bold but targeted actions of a few Colin Powells), would be on the domestic front an equally large deficit, with the ~$300 billion instead going to tax cuts for the rich, along with a much more successful drive to dismantle social security. And here, were I a secret left-wing consequentialist Colin Powell, I might pause a moment, worrying about whether the domestic damage done in dismantling social security would be worse than the damage done to the Iraqis and our soldiers. But a) that’s why broad-based liberal movements are better, so that the power gaining in blocking war would carry over to increasing power to shape domestic policy, and b) the whole consequentialist view breaks down here since no one would ever suggest sending the White House on an Iraq barrel-shoot to distract them from destroying the Great Society, even if by some weird utilitarian calculus you thought the latter ten times worse than the former.


Kevin Donoghue 07.21.05 at 4:42 am

A marginal dollar just doesn’t mean much in the US, but it means a lot in Iraq. To say this another way, it may cost $5 million to save an extra life in the US, but there are many countries where a life could be saved for a few dollars.

Ragout, I’m finding it hard to understand your point. Sure, a little money would go a long way in a poor but peaceful country. But Iraq is a war-zone and reconstruction costs are inflated by importing US technology and security contractors. So if you are thinking of the life-saving benefits of improved sanitation, for example, the cost per life saved may acually be far greater in Iraq than in the US.


soru 07.21.05 at 5:19 am

That can’t be right, can it?)

Consequentialism becomes pretty absurd any time you apply it to anything other than unconstrained choices made by a single overwhelmingly powerful actor.

I think it would be difficult to conclusively prove, using consequentialism alone, that Ghandi was preferable to Pol Pot – both mens actions led to a lot of deaths, and eventualy, a developing democratic society.


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