People who distinguish “human costs” from “economic costs” are either making an ideological statement or don’t understand what economic theory usefully calls a cost. Just to quote one example: a Financial Times columnist mentions, as if it goes without saying, the “economic, military and human costs” of further confrontation with the Iranian rulers (“Israel Has No Good Choices on Iran,” April 16, 2024).
In economic theory, a cost is the sacrifice of something scarce (if only one’s time) to pursue a desired outcome or avoid an undesired one. (Note that in both cases, the cost is an opportunity cost: avoiding an undesired outcome implies a more desired alternative; and what is sacrificed for a desired outcome is scarce because it, or the resources to produce it, could be used for some other purpose.) Desired and undesired outcomes only concern human individuals and are evaluated in individual minds. Economic theory is the result of a few centuries of scientific efforts, by some of the most brilliant minds among mankind, to understand cost, benefit, and value in a logically consistent way, and understand what is going on in society.
The ideological reason for distinguishing “human costs” from “economic costs” may be virtue signaling. It amounts to saying, “Look, I am concerned with human costs, while my opponents are only concerned with costs on Sirius, nine light-years from humans”; or “Here is my badge of honor for membership in the bien-pensant society.”
A Martian landing on Earth might think that singling out “human costs” (as if there were anything else than costs to humans) is necessary to distinguish them from animal costs. To lighten the atmosphere, we might think of the cost a bear has to incur for his beer consumption. (See the featured image of this post.)
Back to humans, there is no epistemological objection to labeling a cat a dog, and a dog a cat, provided everybody understands which animal is referred to. At least at first sight, there is no epistemological objection to calling “human costs” only those costs that do not fall on shunned or hated individuals—social pariahs, bad capitalists, or individuals whose pension funds are invested in capitalist enterprises. But such a distinction is a moral one at best, a morally arbitrary one at worst, and does not help understand how society (interindividual relations) works. The distinction between human and economic costs echoes subliminal advertising for very questionable ideologies.
One objection to my claim is that “economic and human costs” is just a standard way of speaking that everybody understands. But my point is precisely that “everybody” wrongly understands it as implying that economic costs are not all human costs. And there are ways in which an economically literate newspaper could tweak the standard expression without loss of rhetorical benefit. For, example, one could say “economic costs, including costs of life and limb” or “economic costs, including of course all sorts of human costs.” In the Financial Times‘s phrase quoted at the beginning of this post, the “military” is redundant except in such modified phrases as “economic costs, including of course military costs and costs of life and limb.” My fear is that most writers at the Financial Times, like in other media, feel that there are two sorts of costs: costs to “bad” or unpopular individuals, called economic costs, and human costs.
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The featured image of this post, a collaboration between your humble blogger and DALL-E, shows a bear paying for its beer, suggesting that other costs than human costs exist. That’s news for the checkout girl.
READER COMMENTS
Craig
Apr 21 2024 at 10:59am
“But my point is precisely that “everybody” wrongly understands it as implying that economic costs are not all human costs.”
Hmm, interesting, I always tend to think of ‘economic’ costs as being those costs that we tend to put dollar signs in front of.
Pierre Lemieux
Apr 21 2024 at 11:39am
Craig: Consider a house. You can put a dollar sign in front of it. You can as well put a euro sign or a gold sign, that is, express its cost in terms of euros or gold. And you can as well evaluate it in terms of bushels of wheat (as Jean-Baptiste Say explained). All prices are relative prices.
Alan Charles Kors
Apr 21 2024 at 4:44pm
Indeed, a value sign in front of time is not a bad idea….
Pierre Lemieux
Apr 21 2024 at 7:49pm
Welcome to EconLog, Alan.
Jon Murphy
Apr 21 2024 at 12:12pm
Many economic textbooks will spill a lot of ink cautioning students against making that very mistake. Some costs, often called explicit costs, are those with a dollar sign in front of them. Others, often called implicit costs, include those without dollar signs in front of them.
Jose Pablo
Apr 21 2024 at 1:44pm
The ideological reason for distinguishing “human costs” from “economic costs” may be virtue signaling
Maybe. But I am going to apply one of the (very sensible) Caplan’s rules for debate: “Use the best possible interpretation of your opponent’s position”
There are “costs” for which markets exist and a “price” can be derived from them and there are “costs” for which we don’t have markets. These are “costs” nonetheless from the economic perspective you are mentioning but …
You can translate “economic cost” as “cost for which a price tag can be attached using the price signal coming from well-functioning markets” and you can understand “human cost” for instance as “cost derived from the loss of limp and live” for which no well-functioning markets exist.
Both are “costs”, no doubt, but the distinction can be, nonetheless, useful for the debate. In fact, because of this distinction, you can actually argue that both costs can not be properly added to come up with a fully meaningful encompassing-all-“cost” “dollar cost”.
You can attach a price tag to the “loss of limp and life” and we certainly do so in many instances (insurance industry for instance) but the fact that markets for “human lives” don’t exist anymore (these markets used to be “just” in the US), makes it difficult to compare these “cost” to those of “steel” or “gun powder”, for which a clear, well-formed market price does exist.
I don’t guarantee that you are not right in assigning the distinction made to virtue signaling. But it is not the most benevolent interpretation of the “other side” argument, and I know for a fact that you are cavalier when it comes to debate.
Note: I have no clue what “military cost” means. Even using the most benevolent interpretation I can come up with.
Jose Pablo
Apr 21 2024 at 1:47pm
I am afraid I was using “cavalier” in the French/Canadian meaning of “gentleman”. Hope it was clear in the context.
Pierre Lemieux
Apr 21 2024 at 7:18pm
Jose: Since you are yourself a European gentleman, I would not have assumed anything else.
Pierre Lemieux
Apr 21 2024 at 7:17pm
Jose: I agree with Caplan’s rule and it’s a good idea to remind us of it. But I don’t think it should lead me to change my argument here–except perhaps for insisting more on the other reasons I proposed for rejecting an unqualified distinction between human costs and other costs.
Costs (and benefits) are subjective in terms of utility (that is, improving one’s situation), which is the only thing that matters for an individual, especially if his utility function includes moral values or some subjective concern for some other persons. Prices are not meant for, and not capable of, adding these utilities across individuals. Prices are only a coordinating mechanism that pushes everybody to take into account of the valuations of others, the whole system allowing each individual to get as much as possible given what the others get.
For an individual who makes a choice, different costs are evidently comparable: for example, he will weigh the probability of losing his life and his foregone income against the expected cost of punishment if he resists conscription. He will of course balance these costs against corresponding benefits, and he is the only one able to make this comparison. The fact (and the ethical principle) that an individual’s life belongs to himself means that he supports the whole cost of his death or injuries. (His friends, lovers, and family will bear some related costs, but that is unavoidable in social life. One can always “altruistically” avoid them by becoming a monk or a recluse.) “Society” loses nothing when an individual dies, except if he is Albert Einstein, Bill Gates, William Butler Yeats, Charles Baudelaire, or James Buchanan–that is, except if he has a significant effect on other people’s exchange possibilities. Even this exception is limited by the fact that individuals who die in their old age create little “consumer surplus” (or the equivalent along the general-equilibrium contract curve) anymore.
So I maintain my point that all costs are human costs and that an unqualified distinction between them comes from ignorance of the nature of economic costs, peculiar moral or ideological judgments, or virtue signaling. When “we” attach a cost to an individual choice, it is an arbitrary cost, whether there is a market or not. He attaches the costs to his own choice.
David Seltzer
Apr 21 2024 at 5:33pm
Pierre: Love the bear bearing costs example. (Low hanging pun fruit.) I think the beer imbibing Ursidae incurred the opportunity cost of forgone leisure as well to earn those dollars. I’m assuming he worked for the money.
Atanu Dey
Apr 21 2024 at 7:19pm
I too loved the bear bearing the cost of imbibing beer image. The sales girl appears to be concerned or puzzled. Are you having a party or are you going to drink all this yourself?
Seriously though, instead of “economic, military and human costs” FT could have written “financial, material and human life costs”. Or the more evocative “costs in blood and treasure.”
Pierre Lemieux
Apr 21 2024 at 7:37pm
Atanu: Great comments! About the sales girl, I had (as usual) some problems with DALL-E. I had the machine try its hand on a few pics, but each of them had at least one annoying problem. On those where the checkout girl was OK (either a the-consumer-is-always-right type or with only a slightly puzzled look), I found the other problems overwhelming. So I finally chose this one, despite the strange reaction of the employee. (Of course, it’s not every day you sell beer to a bear without a credit card.) Your interpretation of her reaction makes me like my pic more.
Pierre Lemieux
Apr 21 2024 at 7:23pm
David: I agree it was a low-hanging pun. And I cannot bear the idea that the animal would have got its money from human taxpayers (in which case the human cost would have fallen on the latter).
Monte
Apr 21 2024 at 11:23pm
It appears the bear is buying a quart and an 8-pack. The only beer I’m aware of that comes in bottled 8-packs is Rolling Rock Extra Pale, which I’ve heard has a grisly aftertaste. 🙂
Pierre Lemieux
Apr 22 2024 at 12:15am
Monte: Who knows, that might be where DALL-E got its inspiration. My instructions were that the bear brought a case of beer at the checkout to pay it with a pile of dollars in its big paw. I insisted that the case must be visible. I didn’t mention which brand or anything to that effect.
Ahmed Fares
Apr 22 2024 at 2:32am
Lars Syll writes:
Incompetent economists
Jon Murphy
Apr 22 2024 at 6:53am
Lars’s example is strange. First, the correct answer is not on the list. Second, he has no link to the poll. There’s no way to verify or get more info about this.
Ahmed Fares
Apr 22 2024 at 1:35pm
The Opportunity Cost of Economics Education
Jose Pablo
Apr 23 2024 at 5:29pm
On any given day, you would be willing to pay up to $50 to see Dylan.
In “real life” this $50 just doesn’t “exist”. “Opportunity cost” is a concept you can not put in US$ (inconveniently enough)
For instance, if you ask people how much they would be willing to pay to see Dylan without mentioning the real “price” ($40) the answer will be very different than if you first say that the real price and then ask for the willingness to pay off your audience.
Even more, if you say a couple of times (in a casual conversation before asking the question) what your age is, you will find that the price the audience is willing to pay will be “anchored” by your age.
Or if you inform your audience that Taylor Swift has just attended a Dylan concert the day before. Or if you ask after the subject has had a couple of drinks and feels on top of the world.
Price discovery is, indeed, a tortuous path.
Not to talk about the differences between “ex-ante” opportunity cost and “ex-post” opportunity cost. What if somebody spills his drink over you during the concert, or breaks your pinky toe dancing? That one is your “real” opportunity cost but unknown to you at the time of making the decision.
For a concept so central in economics, the “opportunity cost” is worryingly ethereal and unstable, isn’t it?
Robert EV
May 5 2024 at 8:05pm
Isn’t the correct answer $10.01? Otherwise it’s a wash, isn’t it. and neither choice is “better”.
Pierre Lemieux
Apr 22 2024 at 4:23pm
Ahmed: Your comment raises many interesting questions. One is the following. Assuming that the 200 persons surveyed were a random sample of American Economic Association members, the results would not contradict the hypothesis that the AEA represents economists who are the most likely to espouse faddish ideas and the less likely to reflect on what economics is. This hypothesis is suggested both by the current wokeness of the AEA and its history.
Many of the founders of the AEA were economists who had studied in Germany and had embraced the German Historical school’s teachings, which had little to do with economics as developed from Adam Smith to Alfred Marshall. Not surprisingly, one of the AEA main founders, Richard Ely, was a progressive and a eugenicist, two fads of the day. Quoting from my Regulation review of Larry White’s The Clash of Economic Ideas–the internal quotes are from Ely):
Pierre Lemieux
Apr 23 2024 at 10:14am
Ahmed: Frank’s piece is very good. Thanks for linking to it.
steve
Apr 22 2024 at 12:54pm
I think it’s still a useful shorthand term. The fact is that economists sometimes ignore costs that dont have dollar values. Even when they do they often get it wrong or based upon their biases greatly under or over value stuff. Usually not out of malice but just because it is hard to do and then they rarely allow for changes in value over time or the situation. God knows how many papers i have read on determine the value of a QALY but we still dont have actual markets for this so its all best guessing and when you try to apply it in unusual circumstances it doesnt work so well.
So I am left thinking its not a bad way to express the idea that there are costs that are hard to determine for a number of reasons including no real markets, and costs that are ignored or not even recognized. Still, I can see how an economist might be unhappy about the term.
Steve
Jon Murphy
Apr 22 2024 at 6:23pm
True, but the distinction between economic and human costs only perpetuates that confusion, not solves it.
Robert EV
Apr 28 2024 at 10:14am
From Merriam-Webster (the Cambridge equivalent for the US):
This definition of “Economic” is obviously limited compared to the entire commonweal, or even individual wealth. As an example, quality of sleep is typically neither a good nor a service. If it was not intended to be so limited the definition would be much broader.
In this context, pace Jose Pablo above, it makes sense that “human costs” are either inclusive of economic costs, but also include additional non-economic costs (such as the wellbeing that having use of one’s life or limbs provides), or to be most favorable to you, to distinguish ‘merely’ economic costs from other human costs.
So yes, virtue signaling is a possibility, but other possibilities are to prioritize certain rights outside of production, distribution, and consumption of goods and services and instead highlight them as basic and preferably inalienable.
Robert EV
Apr 28 2024 at 4:44pm
Everyone likes grand unified theories of everything, but when it comes to extending your own personal discipline into other realms you should be considerate of the fact that you may be epistemologically overstepping and that your discipline’s means of analysis may not be appropriate.
Literally tens to hundreds of millions of years of thought have gone into other disciplines concerned with human existence. Please take a brief moment to step back and recognize the boundaries between disciplines before saying that an overly broad definition *within* your discipline does indeed extend out of your discipline.
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