Have you ever felt overwhelmed by life? Perhaps you were juggling a billion different commitments, and you had to find some way to follow through on all of them without losing your mind. Or perhaps some segment of life was sucking up all of your time: homework, maybe, or parties, or a game or possibly even Facebook.
We all face competing demands on our time; do I spend the next five minutes working on this column or surfing the Internet? Studying for my quiz or updating my Facebook status?
Interestingly, basic economic thinking has a description for this: opportunity cost. When you spend time doing one thing, you give up doing something else. For example, you probably could have spent four years of college in a factory making money; that's part of the opportunity cost of attending a university.
So, when faced with competing consequences, you must choose the optimal path between them. In some cases, one consequence is well worth the other, such as when you take a factory job versus a college education. In most cases, however, the optimal path lies between the extremes: eating a balanced diet, spending time with friends and time studying or checking up on Facebook for a few minutes between homework assignments, to name a few examples.
These decisions aren't just individual ones; larger organizations make them all the time. Ball State University needs to decide whether to spend money on North Hall or scholarships. Large companies are very familiar with opportunity cost; it is, after all, a very fundamental concept of economics.
In fact, societies face choices between extremes. For example, the eternal economic question: Should society be communist with its economy entirely centrally planned and controlled, or should it be capitalist with the economy entirely unregulated?
Getting close to extremes is possible. The U.S. economy was centrally planned to great effect during World War II, and during the Gilded Age of the late 19th and early 20th centuries, it was relatively liberalized.
To get some basic grasp of this issue, we've got to figure out the consequences of the two extremes. Central planning's detriments are rather well-known; the system is inefficient and provides few incentives to work and accumulates power in the hands of the central planners. Its benefits include the ability to avoid tragedies of the commons and the ability to redistribute wealth to eliminate an ultra-poor lower class.
The benefits of unregulated markets, as most people know, include higher quality goods, incentives to work and produce and maximal efficiency. Its detriments include the long-term formation of a plutocracy and concentration of power in the hands of a few, a huge gap between rich and poor, monopolization of markets and inability to avoid tragedies of the commons.
Socially and individually, we must all be aware of the consequences of extreme options, whether they be workaholism versus partying or communism versus capitalism. Black-and-white thinking, on the one hand, would encourage regarding extremes as the only options, and we must declare one good and the other bad.
Rationalism sees all options and charts the best course between them.
Write to Neal at necoleman@bsu.edu
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