Opportunity cost

With the death of Osama bin Laden, we now begin the great opportunity cost debate. At the center of the discussion is the question: what has the war on terror cost us in terms of resources -- human and financial -- shifted from basics needs such as education and health care, to security and military expenditures over the past ten years.

Opportunity cost is an economics concept intended to give proper recognition to largely incalculable and intangible costs of a "road not taken", in the words of poet Robert Frost. It is a useful tool in all those circumstances where we have to make choices, usually big choices -- an acquisition or divestiture; targeting a market; making or buying a product or service; or expansion into less familiar territory. The common element in all of these situations is constraint; we don't have the people, time or resources to exploit every opportunity that comes along. We have to make choices.

While estimating opportunity costs has considerable value at the time a choice is made, it has zero value ten years later.  And who's to say that our education and medical care systems would be better today if we had invested more heavily in them for the past decade. In the case of medical care, for instance, the problem seems to be that we spend quite a lot -- more than any nation on earth -- but don't get full value for the investment.

Over the course of ten years, the choices change, whether it's in business or politics. Likewise, the opportunity costs have to be recalculated.

Philosopher John Stuart Mill, who first developed the concept of opportunity cost in the 19th Century, said this: "War is an ugly thing, but not the ugliest of things. The decayed and degraded state of moral and patriotic feeling which thinks that nothing is worth war is much worse."