Proper and Improper Uses of Opportunity Cost

Don Boudreaux has an excellent post at Cafe Hayek. And the comments are even worth reading. In it, he discusses a comment by California Senator Barbara Boxer in which she blames the war in Iraq for hindering the ability to fight the wildfires in southern California. Regardless of how one feels about the war, her comment represents a very likely misapplication of the concept of opportunity cost.

Like Boudreaux and some of his commenters, I'm glad the esteemed Senatar understands that resources used for one decision are not available for another. But the definition of opportunity cost is your next best alternative when making a choice. That means when you choose one thing, your next choice. That is the opportunity cost. Opportunity cost is not all the other things you could have done - just your next best choice. And that's where the likely error lies. Unless the actual decision in committee at the Federal level actually came down to "if we put x dollars in Iraq, that means we will have that much less for fighting fires" then the opportunity cost of Iraq was not fighting fires - not any more than putting money into education, health programs, border fences, or bridges to somewhere.

The budgetary process is complex. It can be complex on the household level as well as at the government level. But I sincerely doubt that the final choice on funding was whittled down to Iraq or firefighting. To use the choice to score points is disingenuous, at best. And to borrow from one of Boudreaux's commenters, one can only hope that Senator Boxer (and ALL legislators) would put that much concern into all the programs funded at the Federal level.

Your comments are welcome.