This choice of robbing Peter to pay Paul constitutes opportunity cost.
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Every decision to deploy resources creates a cost in the other opportunities
that are foregone to make the choice. In measuring opportunity costs
economists are generally concerned with financial costs. Government policy
makers, however, are concerned with the full array of costs and benefits
whether financial or of some other kind.
Utilisation of Level 2
The study of policy making in this chapter utilises Level 2. This has the major
advantage of providing a relatively simple model that highlights the main
concepts involved in policy making. Ideally we should also study
Level 3
which incorporates Level 2 but has the wider concern of dealing with the entire
picture. Unfortunately this would require a detail of treatment that is beyond
the scope of this book.
Basis of Policy
The gains from investing in young children can be quantified and they are
large. Every dollar spent on disadvantaged children in the critical pre-
school years, through intensive enrichment programs, generates a 17%
annual return to the child and society. By the time the children are aged 40,
society
will be repaid many times over, through reduced crime and welfare
payments and higher tax revenue. Is it economically efficient to make the
same investment when the child is age 17 and can’t read or write? No.
You’ll pay through the nose.
270
Introduction
Two simple propositions underpin the use of policy for making and
interpreting law. Making and interpreting law constitute purposive action
because law seeks to change the world. Consequently, the best law or the best
interpretation of a law is the one that achieves the best outcome -
this is the
outcome that yields the highest net benefit. While the more usual use of net
benefit confines it to benefits and costs that can be expressed in money’s
worth, this analysis includes all types of benefits and costs.
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Opportunity cost is also encapsulated in another popular saying used in a
fairground: “What you lose on the swings you gain on the roundabouts”. It is also
underlies the proverb that you cannot have your cake and eat it too. Opportunity
cost impounds the notion that the true cost of something is what you give up to
get it.
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Professor James Heckman, Nobel prize winner for economics in 2000,
reported in Adele Horin “Spend on the youngest, count the gains,” The Sydney
Morning Herald 6 February 2006
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