The Missing Cost

Friday, August 28, 2009

Whipping through my feed reader this morning, I noticed that there is a recent post at Marginal Revolution titled, "A cost-benefit analysis of high-speed rail." The post raises several economic objections to a cost-benefit analysis held to show that a high-speed rail link between Dallas and Houston would not be a bad idea.

I have often complained here that such analyses -- while they may be interesting and illustrative -- are in fact a poor way to fight against the inappropriate use of government. This is because they fail to challenge the underlying premise that the government ought to be doing anything except protecting individual rights. At best, you'll indicate that some idea or other is a waste of money and undercut some popular support from it. At worst, you'll find that something is apparently cost-neutral or even beneficial in the sense that the economy as a whole might grow more as a result of the particular "investment" you are considering.

No matter what you conclude from such an analysis, however, you are dropping context. Regular readers will know this, but I do not recall, until this morning, coming up with a nice, short way, of introducing the issue. That is what this post, through its title, is all about.

In our mixed economy, some sectors are more government-controlled than others. Transportation is an excellent example. Roads must, in fact, be built and, while I am sure we'd be far better off on many levels if the government got out of the road-building business entirely, the fact is that many cost-benefit analyses will show that the government "should" build certain proposed roads.

What all such analyses fail to account for is the unseen cost of lost freedom, which is far and away higher even than the more commonly-known economic costs Frederic Bastiat has brought to our attention by identifying the Fallacy of the Broken Window. Some of that cost sometimes manifests as further government controls, economic or not, that arise once the damage of a given intervention becomes apparent enough.

But that remains only a part of the cost. The real cost is that any time the government does anything but protect individual rights, someone's freedom has been infringed upon. Indeed, such analyses fail to object to the fact that the government has no right to force citizens take the risks of such involuntary "investments" and furthermore, even when a cost-benefit analysis does show that some proposed course of action is "profitable" (and it turns out to be correct), those who might have invested of their own accord are deprived of the opportunity to profit. But the real failure of such analyses is that a longstanding, and very bad precedent is being allowed to become more firmly entrenched in our cultural milieu when we desperately need to destroy it root and branch.

Anyone who advocates capitalism should approach cost-benefit analyses with great caution, and should always qualify them by bringing up the hidden cost: Freedom. That is, government resources which should be devoted to protecting individual rights are instead being used to violate them. In the process, the body politic grows accustomed to its chains, and less likely to notice new ones.

-- CAV

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