Tyler Cowen's Idea #4: Opportunity Cost

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- [Tyler] Back to ideas
of two words --

opportunity cost,
another central economic idea.

Even when something good happens,
there's a tradeoff, right?

Sometimes I think
this is more important

than "incentives matter."

I'm torn, incentives matter,
opportunity cost, tradeoffs --

I don't know --

but it's in the top three
or four ideas of economics.

It doesn't mean you shouldn't
make an investment,

but it does suggest
always look at what is the cost.

Do the best you can.

What is the tradeoff involved?

This actually relates back
to my point

about not always knowing.

Because if you're considering
a choice -- what school to go to,

whether you should marry,

whether you should buy
ping pong balls,

where to take your next vacation --

you're giving up something else.

You generally don't see
in any direct way

what it is you're giving up.

So there's an element
of built-in agnosticism here.

Of course, you have
to make a choice.

You should use the evidence
and reasoning as best you can.

But we don't always know.

An implication
of tradeoffs everywhere

is you're comparing a seen
to an unseen,

and you should not always be
totally completely confident

in your ability to know
what the unseen is like.

So any policy you favor --
republican, democrat,

progressive, libertarian, left,
right, whatever, conservative --

I think the main point is not
to be for or against it,

but to be able to spell out
like under what conditions

would my idea be a bad idea?

And that's a bit of a stretch,

but if you can teach
your students that.

I'm not saying they can
always do it off the bat,

but simply that they should aspire
to be able to do this:

"I have some idea
under what conditions

is my idea a bad idea."

And if they are asking that question
in an earnest, honest way,

I think in policy, in politics,
in their lives, whatever,

in education, they will make
better decisions.

Not, "Here's the big pile
of reasons why I know I'm right" --

We're actually, mostly pretty good
at doing that.

We're like biologically
trained to do it --

but the... "here are the conditions
where I would be wrong."

The Great Wall of China --
was it a good idea?

Well, it protected China
against invasion from the North,

except, of course,
as you probably know,

invasion from the North came anyway.

The Great Wall of China,
I am told it is 4,160 miles.

At its peak,
800,000 people worked on it.

It's the longest
and biggest wall ever built.

By one estimate
it contains 4 billion bricks.

It took two millennia --
not 2 years, not 200 years --

two millennia to build.

It has the weight equal
to 8 million elephants.

And according
to one internet estimate,

which I do not believe at all --

I've no idea how they converted
money across time --

but it cost, over two millennia,
$360 billion.

I've no idea what that means.

But if you think
about the Great Wall,

it had some benefits;
it had an opportunity cost.

Always think about
what are the tradeoffs.

If you put on a tariff, you may
create some jobs in one place,

but you're going
to lose jobs somewhere else.

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