Friday, August 3, 2012

Opportunity Costs, you say

Seattle Times Business columnist Jon Talton purports to be using the basic concept of alternative uses for scarce resources here, but badly goes astray;

If Seattle chooses not to build the SoDo arena, one big opportunity cost will be the loss of Chris Hansen's offer of $290 million in private money to build the $490 million facility. I've lived in several cities that built and rebuilt stadiums and arenas, and this is the best deal I've seen. The $420 million American Airlines Center in Dallas, which hosts the NBA and NHL, was entirely paid for by taxpayers -- it opened in 2001 to replace an arena finished in 1980 (so much for wishing the mid-century cheap Key Arena should have the shelf-life of the Sistine Chapel).
Such a move risks sending a message that Seattle is hostile to major private investment and public-private partnerships. Then there are the opportunity costs that would accrue to SoDo and Pioneer Square restaurants, bars and hotels from lost business. Put an arena in Bellevue, and many thousands of patrons and their money will be lost to downtown, a huge cost for the entire city and its tax base.
Pace George Stigler, nothing polite can be said about such analysis.  For Seattle's citizens the proper opportunity cost would be, what else could they buy with the $200 million Hedge Funder Chris Hansen wants from them before committing his own money to the project.  They could improve the roads, bridges and other infrastructure to improve the flow of traffic to the benefit of both business and consumers, hire more police, fire and schoolteachers, or, leave the money to be spent privately on movies, restaurants, bicycling....

Interestingly, Mr. Talton who appears to be a partisan Democrat hasn't found the time to write about this clear piece from The Third Way think tank, which does understand the concept of opportunity costs, and sheds no little light on the lamentations about stagnant incomes of the poor lo these past forty years;

Since the 1960s, the priorities of President Johnson’s Great Society and President Kennedy’s New Frontier have been on a collision course that threatens to obliterate public investments. Ever since the dramatic expansion of entitlements that began under the Great Society, investments have occupied a decreasing share of our federal budget.
....The result of this dramatic expansion? Entitlements are squeezing out public investments. In 1962, spending on investments was two and a half times that of entitlements. But today, as a result of this Great Inversion, entitlement spending is three times that of investments. And this trend will only accelerate in time asthe Baby Boomers retire and their benefits grow faster than inflation and wages.
The only thing that the authors miss is that the entitlements are also crowding out private investment to the extent that tax revenues extracted from the investor class would otherwise have been used to expand production (to mostly the benefit of workers and consumers).

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