When Costs are Visible and Benefits are not

Where public policy is concerned, society should consider the relative “costs” and weigh them against the “benefits”. If the benefits outweigh the costs, the policy should be enacted. In this regard, I’ve noticed that we are often made aware of the costs associated with certain activities, but the benefits are often ignored. Let me give you three examples.

Smoke-Free Legislation for Bars and Restaurants:
Whenever a state decides to go smoke free in bars and restaurants, the owners of these establishments suspect that they will lose a significant part of their customer base. The bar owner looks around and sees twenty of his regular customers who are smokers. He assumes that they will quit coming to his establishment if they can’t smoke. The potential loss of revenue from his “smoking” customers represents an obvious “cost” to the business owner. He sees no benefits and therefore assumes that the legislation will be a disaster for his business.

The “costs” of legislated smoking bans are obvious to the bar owner but the “benefits” are not. For years the bar keeper has chatted with his smoking customers, believing them to be his revenue base while hundreds of non-smokers have walked by his establishment refusing to go in because it was too smoky. Only 25 percent of the US population smokes, meaning that the bar owner has ignored 75 percent of his potential market. Once the smoke free legislation passes the bar owner will see non-smokers wandering into his establishment. Many of them will say, “Gosh, I always wanted to come into this little place, but it was so smoky I couldn’t stand it.” Furthermore, the bar owner will find that a good percentage of his former “smoking” customers will return. Prior to the passage of legislation they are bold about telling TV reporters that they will never come back to the bar, but when faced with the new reality, they will adjust.

International Trade:
Let’s say a factory in the United States shuts down because foreign producers in China are supplying their product to American consumers at a lower cost. The loss of jobs is devastating to the former job holders and to the community in which they live. Under these conditions it is easy to generate support for trade barriers, supposedly to protect those “exported” American jobs. Again, the “costs” of free trade are readily visible and easily explained; thousands of lost jobs. The “benefits” of free trade are less visible and more difficult to explain.

The first benefit of free trade is lower consumer prices. The guy who loses his job to foreign exports thinks that trade restrictions will help him. He wants his job back but he also wants to buy inexpensive goods at Wal-Mart. He can’t have it both ways. If we stop foreign imports the prices of the things he buys will skyrocket and the real standard of living of most lower-income working Americans will fall.

The second benefit of free trade is the large number of jobs created in the United States by US firms who sell abroad. While the US loses slightly more jobs than it gains through free trade, the higher skill, higher value jobs are more likely to be present in US export industries. Furthermore the skill sets of workers employed in exporting firms are developing at a higher rate than the skill sets of US workers employed in firms that don’t export. To summarize, you always hear about the “costs” of free trade when a plant shuts down, but the “benefits” of billions of dollars of foreign orders for Boeing 787 aircrafts or the “benefits” of US job-creation generated by the millions of dollars spent by foreign tourists at Disney theme parks are seldom considered.

Illegal Immigrants:
The immigration issue is a political hot potato right now and this topic is going to be debated for a long time. Right-wing conservatives are upset that people are in the country illegally. They are, after all, lawbreakers. People often complain that illegal aliens eat up a lot of tax dollars through their use of schools and other public services. Others complain that these same illegals are working too cheap, costing legal citizen’s employment opportunities. Once again, the “costs” of illegal immigration are visible while the benefits are often ignored.

What are the benefits of having illegal aliens in the United States? How about the benefit of a hard-working labor force that works cheaply? When your spoiled kid won’t come outside because he’s inside playing video games, who do you hire to do your lawn work? How about the revenue (and jobs) created in the United States by the daily spending of these aliens? Did you ever go to a Target store in a major city like Chicago or New York? They’re jammed with brown-skinned people from all over Latin America and they’re doing some serious spending! Many of them are “illegals”. When the child of an illegal Mexican immigrant receives an education in a US public school this is often deemed to be an unnecessary burden for taxpayers. Perhaps we’re wrong about this. Perhaps it is an investment. When that kid (who is a US citizen because he was born in this country) goes on to college or trade school and becomes a valuable, productive, tax-paying citizen, who’s around to publicize that fact? Do you see all of those little kids hanging around their parents at Target? You know who they are? They are the folks that will pay for your Social Security!

The cost vs. benefits dilemma is not limited to public policy. Let’s say your child wants to study abroad for a year while in high school. The costs are easily measurable, but the benefits may change the kid’s life! What if you and your wife want to take a vacation to Ireland. You are hesitant to take the money out of savings, so you put off the trip. Ten years later neither one of you are healthy enough to make the journey. What if the child of a friend needs money to go to technical college. Maybe you cold help him out. The costs are visible and measurable. The benefits could be immeasurable for that young person.

In life’s activities “costs” are usually visible and well-publicized while “benefits” are often invisible and ignored. Think about that the next time you evaluate public policy or make decisions in your personal life.

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