Breaking Windows

Michel_Delacroix_Through_a_WindowWriting about “the opportunity cost of war” at Crooked Timber, John Quiggin recalls the following words of D. Eisenhower:

Every gun that is made, every warship launched, every rocket fired, signifies in the final sense a theft from those who hunger and are not fed, those who are cold and are not clothed

Opportunity cost is one ot those rare seminal ideas that help frame a discipline (economics) but go far beyond it. Quiggin highlights that “The logic of opportunity cost has rarely been put more simply or sharply, particularly as it applies to military expenditure.”

As he also mentions at the end of his post, it was the french economist Frederic Bastiat, who in an essay written in 1850 “Ce qu’on voit et ce qu’on ne voit pas” (“That Which Is Seen and That Which Is Not Seen”), introduced the broken window fallacy, to illustrate why destruction, and the money spent to recover from destruction, is not actually a net benefit to society. A must read.

War, terrorism, and other criminal activities have a more than dubious contribution to wellbeing. Trying to quantify them is a horse of a different colour. In fact, I think it is a hopeless task, plagued with all sorts of conceptual and ideology hurdles.

On the other hand, reasoning about the opportunity cost of specific human activities is quite appealing. In fact, in we were so far as to include all human activities, we could arguably ask: What’s the opportunity cost of the human race? Paraphrasing Eisenhower, every product that is made, every initiative launched, every leisure moment, signifies in the final sense a use of space-time which theft from those who have a better idea.

The question may sound completely absurd, to being with because opportunity cost is surely a meaningless concept beyond the context of human existence. But let me go forward and, as a purely thought experiment, imagine that you have a pretty decent amount of money in your pockets, and you get to know that the Earth is empty of people, and, so to speak, green and ready to accept your check.

As it happens, someone has already taken the time to make some back of the envelope calculations that can help us here. Writing about catastrophic risk and the potential of human extinction, judge Richard Posner estimates the cost of the human race in $600 trillion. Given that you could put your “money” on many other investment ideas, especially if you consider you are part of a multiverse, what would you do?

Do you think that $600T is a fair amount for creating a fully developed human colony on Earth? With all the wars and terrorism, epidemics, but also Stonehenge, the Pyramids, the Great Wall, and people like Platon, Leonardo da Vinci, Einstein, or Marie Curie?

Would this be your best possible investment choice? Would the risk/benefit trade-off suit your investment profile? Or perhaps, would you put your $600T in a much more quiet basket of empty planets well after the heat death of the universe?

Oh wait, don’t tell me now that the problem is that nobody accept your currency out there!

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Featured Image: Michel Delacroix, “Through a Window”

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