Scarcity and choice

According to Wikipedia:

“Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative forgone … It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. The opportunity cost is also the ‘cost’ (as a lost benefit) of the forgone products after making a choice. Opportunity cost is a key concept in economics, and has been described as expressing ‘the basic relationship between scarcity and choice.’ ”

As my friend Steve Bell, of the Bipartisan Policy Center, reminded me yesterday, the opportunity costs of not doing a “big” deal that includes fundamental entitlement and tax reform in the context of the fiscal cliff are enormous.

If we lose this opportunity to get our shit together, the costs to our long-term fiscal health are substantial, and far outweigh the short-term discomfort that comes from forging a nothing-burger deal in a lame-duck Congress.

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More and more fiscal hawks (and Steve Bell, a former chief of staff to Sen. Pete Domenici, R-N.M., the original fiscal hawk, is a leader in the movement) are saying that we should go over the cliff if it gets us to a better long-term deal.

I am going to quote directly from Steve’s email to me:

“A. Media and policymaker focus on the fiscal cliff is short-sighted.

“B. Why? Because if we merely sidestep the fiscal cliff with what looks like a very mediocre agreement, we take pressure off for a true tax reform and entitlement reform effort next year.

“C. The notion that a crappy deal now is OK, because we can hold up the president later on the debt ceiling, ignores the fact that Congress will pass a debt-ceiling increase, come hell or high water.
“D. The problem isn’t the fiscal cliff …

“E. It is the fiscal disaster facing us less than a decade from now.

“F. In finance, ‘lost opportunity cost’ is a real fact.

“G. In policy, that same lost opportunity cost exists.

“H. Here is what we mean:

“I. Partisans can argue about when Medicare will become insolvent, five years from now or 10, but the latest report from the Medicare Board of Trustees is clear — Medicare cannot survive under its present structure.

“J. As Charles Blahous, a Social Security Board of Trustees member, argues, Social Security is far from solvent in the long run.

“K. Medicaid will cost the federal and state governments a larger proportion of revenues moving forward.

“L. No fiscal cliff deal in the lame duck will make substantial progress on any of these issues.

“M. Every year entitlement reform is delayed will make the day of reckoning more expensive for beneficiaries and taxpayers …

“So … a deal may emerge that satisfies the short-term mentality of Wall Street and avoids real entitlement reform that politicians shy away from … but the fiscal irresponsibility of the federal government will continue.”

Steve is a very smart guy. Policymakers and pundits should listen to what he has to say. The opportunity lost to reform our spending habits will be a true opportunity cost to the American people.

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