An old Gary Lising joke asks, “What’s the difference between counting and accounting?” Well, the answer is, “In counting, one says: one, two, three…; while in accounting, one says: a-one, a-two, a-three…”
It is an old joke of the caliber of one of the planets being named after a part of Lising’s body. “Uranus! Haven’t you heard of your anus?”
These remind me of a classic one when Fr. Michael McPhelin, S.J., our eminent economics professor stared down with his glassy blue eyes with sarcasm at Lising after a particularly boner of an answer, asking, “My good man Lising, where were you when God gave out brains?” And Gary answered quite meekly, “I was with you, Father!”
It is to his credit and sense of humor that the old Irish and Harvard educated Jesuit roared out in hearty laughter.
Having been our professor in Introductory Economics, this reminds me of a particular economics concept which we learned from him.
This is the concept of “opportunity costs.” We were already familiar with the usual cost concepts in finance.
These were total costs, fixed costs, variable costs, sunken costs and marginal costs. In fact, their analysis in relation to the different categories of revenue and profit determination were standard. But opportunity costs presented a different concept for us.
In a world of scarce resources and a variety of options and choices, in making a decision or choice, one has to give up or forgo the other available alternatives.
The usual cost here is the peso expense or outlay involved in the choice made. The foregone alternatives have, in effect, cost us to do or have or enjoy something else.
The value of the good or service foregone is the opportunity cost. This should alert us to be aware that the actual peso outlays are not always fully indicative of true and full costs.
For example, if in the milling of sugar cane to produce sugar, the sugar central, through its disposal of its wastes effectively kills the river , the fish, the clean water for swimming , the freeflow for travel by banca and the clean and fresh environmental effect on the riverside areas, these are benefits and positive economies which have been foregone. These are opportunity costs, which society must bear.
In the production costs of sugar, are all these opportunity costs factored in? Off course not, according to traditional accounting. But we enjoy the produced sugar at the expense of and by forgoing these other benefits.
Those who consume sugar pay for the specific costs of production and probable diabetes. Everybody else, or society in general, pays for the costs and diseconomies of a murdered river.
This example can be found in many other situations, projects, investment decisions and activities for either personal, corporate or govermental consumption and production endeavors and behavior.
The perspective and terms of reference must always be in terms of economic costs and the consequence on society as a whole. How, it must also be pointed out that there are economic benefits on society as a whole.
The analysis should therefore correlate these toward a net economic profit or positive advantage.
Another example is the construction of a hospital in a town which previously had no such medical facility.
Great, but it so happens that the construction has not adhered to adequate drainage, sewage and sanitary facilities and systems.
These have resulted in severe flooding of the surrounding barangays, dangers from the disposal of medical wastes and pollution of the underground waters. How do we resolve and balance this situation?
There are many other such issues. The point is to do the complete analysis of all economic and social revenues and costs involved.
Then, the results must be presented, explained and deliberated with all stakeholders involved. Then a decision in an imperfect world with scarce resources can be made.
As Fr. McPhelin would probably point out, “a state of suboptimal equilibrium.” Or Gary may probably conclude, “ What me worry?”
