Opportunity cost is the value of what is given up when a choice is made. On The Bob Zadek Show the concept appears in several episodes as both a technical economic term and a lens for judging government policy. Guests apply it to federal borrowing, pandemic restrictions, industrial production, and ordinary household decisions, and the host repeatedly returns to the problem of costs that are real but unseen.
Crowding out and government borrowing
In a discussion of big-spending Republicans, Bob Zadek introduces crowding out as a specific term: when the government borrows money, funds that would otherwise be lent to or invested by businesses either become unavailable or more expensive because the government is such a massive borrower. He asks Ivan Eland how significant the effect is The Return of Big Spending Republicans? (2017).
Eland calls the effect significant. He notes that a $20 trillion figure represents public debt only and does not include private debt, and that the bigger the public debt, the smaller the private debt. Businessmen need to borrow to expand, and because there is only so much money, government borrowing crowds them out and raises interest rates above where they would otherwise be. Eland observes that interest rates had recently been low, but that as they rise, crowding out will increase, and interest on the debt may become one of the higher categories of the budget, if not the highest The Return of Big Spending Republicans? (2017).
Zadek extends the point: a dollar spent by government has a much less positive effect on the economy than the same dollar spent by private business, so massive government borrowing drains economic growth. Eland agrees and applies the idea to public works programs such as infrastructure—bridges and highways. He says the question of who does the work is another matter, and that when asked whether government or a private business would be more efficient, the average person says the private business. He then names the opportunity cost: when dollars are taken in taxes and spent by government, they are not spent as efficiently as they would be in the private sector. Public works projects divert dollars from the private sector, drive up interest rates in lending markets, and leave fewer funds available for business loans. Eland traces government inefficiency to one thing: government spends other people’s money while the private sector spends its own The Return of Big Spending Republicans? (2017).
Trade-offs and “the science”
In a later episode, Zadek asks Mike Munger how decisions might have differed during the dual health and economic crises if an economist had stood as close to the President as a healthcare scientist and been given equal time. Zadek notes that officials defended decisions with the phrase “follow the science,” a phrase he calls a platitude, and that he never saw an economist beside a stern-faced public official on national television Troubleshooting the Constitution (2022).
Munger first cautions that economists are not immune to scientism, citing Jerome Powell, the chair of the Federal Reserve Board, as someone who seems to want to follow the science on inflation and the rate of growth of the money supply. He then supposes an economist characterized by humility. Economists, he says, hold that every decision is about trade-offs, and that what concerns them is not just the cost but the opportunity cost—what you give up by doing something. He invokes David Hume, the famous skeptic, who was worried about science making assertions as if it were a religion, and who said that any sensible person proportions belief based on the evidence. Munger argues that restricting people’s ability to make their own choices—access to tests, going to work, sending children to school—buys a small reduction in the chance of infection while forgoing what they would have produced at work and what children would have learned in school Troubleshooting the Constitution (2022).
Munger emphasizes that it is hard to measure things that don’t happen. Scientists point to cases and numbers, he says, while an economist would say you need to look at the things that didn’t happen—the meals, cars and wealth that would have been produced, the learning and psychological well-being given up by people trapped at home. He offers the example of a man in California arrested for surfing by himself, with the Coast Guard sent after him after a lockdown order, and says science actually holds that outdoors there is no danger and no mask is needed; this, he says, was authoritarian control rather than science. What is lacking, in his account, is evidence about what is given up by following the science Troubleshooting the Constitution (2022).
Zadek connects this to Frédéric Bastiat, who almost 200 years ago called attention to “the unseen”—unseen and invisible but real and important consequences of any decision. Zadek observes that ignoring the unseen is advantageous to a decision-maker because it is hard to attack a decision by referring to things that didn’t happen, though the fact that they didn’t happen does not mean there were no consequences. Munger agrees and says the difficulty is that people constantly have to be reminded of this. He cites the Chicago Teachers Union vote for remote learning: the union had rationales based on the science and claims there would be fewer cases, which he grants is true, but he notes that wealthy families have good internet connections and time for homeschooling, while a poor family on the South Side of Chicago depends on schools for reliable, safe childcare and for education. Because government made schooling mandatory, families have no alternative, and it will take years to measure the unseen losses. Munger calls Bastiat’s phrase a pithy description of a general problem and says what is disappointing is that we have learned nothing since it was written in 1850 Troubleshooting the Constitution (2022).
Zadek then introduces concentrated benefits and diffuse detriments, the idea that a small group reaps a dramatic, concentrated benefit while the cost is spread thinly across many people who have little incentive to resist. He applies it to the Chicago teachers, whose perceived benefit is protection from illness and pay for not working, while the detriment is spread across parents and students. He notes the same dynamic in lobbying, where the benefit to a recipient of a tax benefit or grant is substantial and the detriment to the average citizen is about a penny. Munger explains that Public Choice, founded in the late ’50s and early ’60s, applied the tools of economics to the study of government institutions, rejecting the assumption that government workers pursue the public good while market participants pursue self-interest. Politics runs through coalitions with specific interests, so small concentrated groups defeat large diffuse groups. Munger offers the “Munger Test”: when someone says the state should be in charge of something, he substitutes the name of a politician, because there is no state—only individual politicians whose incentives reward organized interest groups Troubleshooting the Constitution (2022).
Waste and minimum cost
Art Carden defines waste in terms of using more of a resource than is needed. Using more aluminum than necessary for a can, or more lacquer, or more labor, means giving up all the things that could have been gotten with that aluminum, lacquer and labor. He stresses that minimizing cost does not mean producing cheap, crappy stuff; it means producing a good of a given quality at the minimum possible cost. Because health, family and the arts are highly correlated with per capita income, wasting resources producing sparkling water at too high a cost means fewer tickets to the opera Art Carden on Price Theory & Its Discontents (2022).
Opportunity cost and marginalism in everyday life
Steven E. Rhoads treats opportunity cost as something that seems natural. At the grocery store, a shopper who planned to buy a steak for a celebration finds steak high and hamburger normal, and decides the steak is not worth it and buys hamburger instead. Rhoads contrasts this with public programs, where a taxpayer is one person out of hundreds of millions and taxes do not mean much. Asked whether to spend more on the environment or recreation, the public wants to spend more everywhere, but when asked about the deficit, attention shifts. He cites polling in which about 95% say insurance companies should cover everyone with a disability or medical problem, but when asked whether they would accept higher taxes, support falls to about 55%. Someone has to pay, and it is easy for the public to forget opportunity cost in a public context The Economist’s View of the World (2022).
Rhoads pairs opportunity cost with marginalism through the example of rumble strips on roads. The strips, which make a noise when tires drift off the side, seem a wonderful idea and probably save lives. But if a transportation department proposes spending five times as much, an economist would look at the margin: the strips were placed first where traffic was heaviest, and putting them on every country road would cost an enormous amount while there are better ways to save lives. Additional expenditures will not get as much benefit. Rhoads also describes the economist at the dedication of a new recreation center—the only moody attendee—who notes that the money could have gone to education for the poor and raised scores by half a grade, or to basketball courts, or been left for the public to decide how to spend. The economist is always the sourpuss, saying the project is good but not good because there are other things that may be better and are not being done The Economist’s View of the World (2022).
Across episodes
The topic recurs across four episodes, and the treatment shifts with the subject matter rather than developing a single argument. Ivan Eland applies opportunity cost to federal borrowing and public works in the 2017 episode; Mike Munger applies it to pandemic restrictions and connects it to Bastiat’s “unseen” and to Public Choice in 2022; Art Carden frames it as waste in production; and Steven E. Rhoads explains it alongside marginalism using grocery shopping, rumble strips and a recreation center. Zadek is the constant, pressing each guest on what is given up, while the guests supply the applications.
What the sources do not cover
The excerpts do not offer a formal definition of opportunity cost beyond the applications given, nor do they discuss its history as a term of art or its treatment in textbooks. They do not quantify the size of any crowding-out effect, the cost of remote learning, or the savings from rumble strips. No excerpt states the outcome of any election, the fate of any bill, or the holding of any case. The final excerpt breaks off before Rhoads develops his discussion of economic incentives.