Liberal leadership candidate Martha Hall Findlay recently announced that she would create a national child care and early learning program that would “end the daycare dilemma.” While we could argue about the benefits of such a program, that is not my interest. In fact, the benefits are well articulated and understood.
But what about the costs of the proposal? To an economist, costs include everything you have to give up to do the activity; both direct costs and opportunity costs. While direct costs are often (though not always) mentioned, what is missing from this policy proposal – and what is, in fact, missing from all policy proposals from all politicians of every stripe – is the opportunity cost of their proposal.
What is opportunity cost? Opportunity cost is not about the costs and benefits of a particular proposal. Opportunity cost is directly connected to scarcity, which means having more of one thing means having less than of something else. Opportunity cost is simply the value of the next-best alternative not chosen.
Opportunity cost is about trade-offs. Recognizing trade-offs is the first step toward making wise choices. How do you decide whether you want something if you do not know what you are giving up?
The key to using the concept of opportunity cost correctly lies in recognizing precisely what taking a given action prevents us from doing. Do most of us want a national child care and early learning strategy? Sure, seems like a great idea. Are you willing to give up all of our boutique tax credits (e.g. Child Fitness Tax credit) to get it? Most of us would probably say yes to this trade-off. Are you willing to give up national health care to get it? Most of us would probably say no to this trade-off.
Only by understanding opportunity cost do we fully understand the choice being made. It is essential information to being able to decide if the benefits of a proposal truly outweigh all the costs of a proposal.
When politicians do not provide us with information about the opportunity cost of a program, policy, proposal, regulation, etc., how can we make a wise choice? Unfortunately, our politicians never provide information on opportunity costs for their proposals.
To quote Mike Moffat, “There are all kinds of opportunity costs when it comes to public policy. I just wish politicians of all parties had a better understanding of the concept. It would lead to improved public policy and a more informed electorate.” Do our politicians understand the concept of opportunity costs? They seem to, but only when they critique an opponent’s proposal. Too bad they fail to follow the advice they so freely dole out to others.
In the spirit of advancing public policy design and implementation in Canada, I challenge Martha Hall Findlay and all politicians to think carefully about opportunity cost and communicate this to the electorate. I also challenge the electorate to push politicians to reveal this information. After all, great policy is all about conscious choice.
Lindsay Tedds is an Assistant Professor of economics in the School of Public Administration at the University of Victoria. You can follow her on Twitter.Report Typo/Error