Thursday, March 12, 2009

The Curve Ball and Opportunity Cost

The Curve Ball and Opportunity Cost

The curve ball is actually a drop pitch (which makes sense when you consider that the bat is about 10 times longer than it is wide – whole different subject. Sorry). It falls faster than the batter expects it to. Because there is only a tiny incremental change from the expected to the actual at any given point, it takes awhile for this difference to accumulate. Even 10 feet away from the batter, the difference isn’t that great. The difference in both drop and angle of drop finally becomes large in the last few feet, giving the impression that the ball “drops off the table” when it is thrown particularly well.

We are warned that something similar will happen with temperature - or population, disease, and a dozen other things. Those may not happen, as other factors come into play, but the principle holds: some effects are cumulative, and not noticeable until it’s too late.

Opportunity cost can follow this pattern if the cost persists. If you lose $10, what you would have bought instead might not be easily identifiable. If you lose $10/day, you can usually trace what else in your life has to go to make up for the loss. Let’s say you figure out that the tenner per diem would have gone into savings that would have collected interest, or training that would get you a much better-paying job. You discover that this opportunity cost thing may be costing you even more.

In one sense, you are not losing anything, because you just stay the same as you did last year, which is by definition endurable. Some people never notice what they have lost, just wandering along. Some quite happy. You can see why it would be an okay life – better, in fact, than many others live. Yet it is also easy to see how expensive this opportunity cost could become over time, for your life and your descendants.

Research is cumulative. Technology is cumulative. If we give up improving medical or energy knowledge this year, it costs us forever. We are always at least one year behind, and if we get into that bad habit, we fall further behind.

People die from this. We just can’t tell who.

On medical advances, for example, it just torques people off no end that pharmaceutical companies make money for anything other than noble-sounding endeavors. That they make their money on ED drugs, pain meds, and treatments for the cholesterol levels of people who eat at McDonalds doesn’t feel as noble as developing cancer pills for a buck apiece. If they had a side business producing cocaine to support their research on other stuff, it would still be a net gain to society.

I suspect that people clamoring for universal health coverage don’t really believe in the opportunity cost of no one being able to afford investment in research. The stimulus and budget include research funds, and that’s a good thing. You could perhaps even make an argument that we should strain every nerve and squeeze every nickel, impoverishing ourselves now for the sake of prosperity later. I wouldn’t, but one could. Market factors – allowing people to make money by developing those things – are going to be more powerful.

It is not a morally indefensible position to say “Heck, Europe funds universal health coverage, so we must be able to afford it. And they make medical advances too – oh, they don’t so much anymore? Oh, well - If we don’t make medical advances, we won’t really know who we’re refusing to save, so we’ll be happy enough.”

It just seems odd to call that idea progressive. It seems that progress toward a political ideal is worth more than, y’know, actual progress.

Repeat argument for food and starving populations.
Repeat argument for energy production and impoverished nations.
Repeat argument for educational technology.

Sure. Progressive.


Anonymous said...

Yep. I am so sad about this, but what can I do?

Assistant Village Idiot said...

Yeah, especially those of you who have loved ones who could benefit from medical advances. We don't know what they've missed, but we worry that it's...everything.

bellisaurius said...

As an engineer, I've seen an old murphy's lawism come to play every so often in R&D, and I think it applies to medicine as well.

In R&D there are three variables: Time, cost, and desired outcome. One can specify any two, but the third is an unknown until it happens. For example, We wanted to go to the moon in a short period of time, that meant the costs were going to be equally astronomical. On the other hand, if I leave soem money to guy doing the random reasearch he desires over a period of time, I'll never be entirely sure if he'll come up with the theory of the photoelectric effect, or just run through my money.

The government tries to hit targets it considers social good (ie looking for a desired goal, and time), while the free market tries to figure out the low hanging fruit, or big payoff items (ie specifying time and cost). It's just a matter of which model is desired. Both do have advantages.

Now, the research aspect, I consider separate from medicine in general. There, an ethical issue presents itself to some, although I often see it through a partcular free market problem: People are supposed to act rationally; however, when health comes into play, the idea of cost becomes difficult- especially with family members. Because of that, cost needs to be controlled, and therefore rationing of some sort needs to be done (although the social model rations it by waiting, as opposed to cost. But hey, there's no free lunch). I think the gov't can do rationing better than a corporation, if for no other reason, their monopoly on violence. It's not nice, but life never is really.