Economics Greatest Hits: Patterns of Thought 3

There are no solutions, only trade offs

There is never a “fix” without any sort of downside. Always consider the costs and the benefits, and be honest about how they actually stack up against each other.

The “There are no solutions, only trade offs” formulation comes from Thomas Sowell*, but the idea goes back a long way. Heinlein’s “TANSTAAFL” is a slightly less elegant example. In essence, the pattern is simply applying the idea of opportunity costs, that the real cost of anything is the value of the next best alternative, but it is probably the most difficult application to keep in mind. Watch a political show on TV for a few seconds and chances are really good you will someone ignoring this. Maybe more charitably, you will see someone misunderstanding reality and failing to apply this pattern of thought.

So, imagine you have a car like my first car, a 1995 GMC Jimmy circa 2003 or so, and the AC stops working. So, just get it fixed, right? PA gets bloody hot and humid in the summer (cue laughter from everyone South of the Mason Dixon, but I am a mountain boy, so shut it) so yes, getting it fixed would be really good. Well… maybe, but that was a few hundred dollars. What was I going to give up so that I could drive in cooler temperatures? At the time the answer was “An X-box”. The solution to “car is hot and needs AC” was “sacrifice the X-box.” In other words, I could trade off playing Red Dead Revolver and Soul Calibur for being more comfortable on the daily commute for an hour or so five or six months of the year.

I thus rediscovered the efficacy of opening car windows and taking a spare shirt to work.

Obviously, anyone spending their own money and some mundane amount of resources has lived with this every day. We budget and save while deciding what to buy and forgo. Things get awkward when we stop using our own money and spending it on ourselves, and get into the realm of public finance.

Every time we say something like “There ought to be a law” we should hearken back to the lessons of Pattern of Thought 2: “… and then what?” Every time we say “Government ought to spend X more on Y” we need to follow that with “and spend X less on A, B, C or D. Or tax more so people can less on whatever they wanted to spend on,” and so on. Not keeping that in mind and so allowing the US federal government’s spending to overflow its revenues is what got us in the current 2021 situation of facing inflation 2-4 times the recent norms with the option of raising interests rates off the table due to how brutally that would increase the US government debt service. That’s a discussion for a later date, however.

Considering “There are no solutions, only tradeoffs” from another perspective, the presentation of solutions without costs is one of the red flag behaviors of the charlatan. Any wise consumer knows to ask “But how much does it cost” right up front, and if the salesman doesn’t want to tell you to parse that as “Way too much.” Most salesmen will try to spend as much time telling you about the benefits of their product as possible before addressing cost, but only a foolish (or fantastically wealthy) potential customer doesn’t ask after the price. Yet so often when thinking of policy we ignore or downplay the costs of our preferred proposals, and think nothing of politicians cheerfully announcing they will do X, Y and Z with nary a mention of the costs.

We don’t want to get trapped into thinking tradeoffs only include monetary costs, either. Economists especially get stuck on this, as, well, money is sort of our thing, and easy to measure. Lots of things that are easy to measure don’t matter much, however, and often the things we can’t measure are what we really care about. There is no monetary cost to being polite and considerate, but damned if that doesn’t make a huge difference in life.

Consider food and nutrition science. Often we see articles claiming something along the lines of “Eating 25 lbs of lawn clippings a week lowers your risk of cancer death by 75%” gracing the headlines. What follows is a tale of SCIENCE where people who eat lawn clippings were followed for years, and those who ate 25 lbs or more don’t die from cancer, etc. Our first skeptical thought might be “do people who eat lawn clippings regularly even manage to live long enough to die of cancer?” Assuming that instead of lawn clippings the nibblets of choice were kale or eggs or other reasonable thing to eat, however, our question really should be “What weren’t they eating to make room for that much grass?” Humans can only consume so much food in a given period of time, so if they increasing one sort quite a lot they must be cutting others down in roughly the same amount. The difference between the lawn grazer and the normie is not just adding 25 lbs of grasses but also decreasing amounts of other sorts of food. Keeping that in mind helps you understand why so many “findings” in food and nutrition science fail to replicate or even get reversed so frequently: they are not studying what they claim to be.

I am going to cut this one off here. This is the fifth or sixth time I have rewritten this post from scratch, as each version keeps veering off into wildly divergent areas. This is only partly due to my train of thought being less on rails and more careening across a mountainous landscape; in larger part it is because the concept of trade offs instead of solutions is so central to economics that it almost isn’t its own topic. Rather it is the thread, the very fibrous webbing that holds the entirety of the discipline together. Talking about tradeoffs is to talk about any and all topics of economics, and so talking of all human behavior. Possibly all evolved behavior, period.

*To my knowledge.