Our weekly explainer on economics using lessons from popular culture. In Installment 7, Kishore Kumar sings about Opportunity Cost.
‘Aane wala pal/ Jaane waala hai/ Ho sake tho isme/ Zindagi bita lo/ Pal jo yeh jaana waala hai/ Ho ho.’ — Gol Maal.
‘The moment that is to come/ Will soon be gone./ If you can/ Live your life/ In this passing moment/ Ho ho.’ These words were written by master economist Gulzar, sung by policy wonk Kishore Kumar and acted out, with his customary charm, by polemicist Amol Palekar. Bindiya Goswami goes visibly weak in the knees when the song begins, though we can’t see her knees, and even Utpal Dutt seems to have a bit of a man crush. The song was not a wasted effort — and in that sense, followed its own instruction.
Aane Wala Pal is a favourite of economists because it is such an eloquent poetic expression of one of the most important concepts in economics: Opportunity Cost. The one basic truth about this world, poets and economists have long bemoaned, is scarcity. Everybody can’t have everything, and choices have to be made. Opportunity Cost, in the words of economist James Buchanan, “expresses the basic relationship between scarcity and choice.”
In Buchanan’s words: “Choice implies rejected as well as selected alternatives. Opportunity Cost is the evaluation placed on the most highly valued of the rejected alternatives or opportunities.”
For example, you are hanging out with friends in a market, and have only Rs 100 on you. You can either buy a cup of coffee with it or a packet of cigarettes. You see a macho guy light up nearby, pretty girls are all around, so you buy the cigarettes. The Opportunity Cost of that pack of cigarettes is the cup of coffee. Indeed, it could be said to be higher, as cigarette smoking is injurious to health, so add those minutes that those cigarettes subtract from your life.
All government spending carries opportunity costs. When a government spends 100 crores on advertisements for a Beti Bachao campaign, the Opportunity Cost of that is whatever else the government could have done with it. Maybe it could have spent the money in improving the rule of law, and actually making women safer. Maybe it could have put it into building roads or flyovers. Maybe it could have left the money with the taxpayers, who could have spent it to improve their lives in their individual ways. Each of those could be counted as Opportunity Cost.
Opportunity Cost does not apply only to money. It applies to everything — most of all, to Time. If I choose to spend my evening reading a book instead of watching a movie, the Opportunity Cost of reading the book is watching the movie. Indeed, at every moment we face choices that carry costs — and some choices are more consequential than others. Imagine a 20-year-old woman trying to decide whether a) she should go abroad for a PhD or b) do an MBA and embrace corporate life or c) give it all up and move to Mumbai to be an actor. These three paths go in completely different directions. Whichever one the lady chooses, each road not taken is Opportunity Cost.
We don’t give Opportunity Cost the importance it deserves. Part of this is because of an essential human attribute that I call The Immortality Fallacy: we are in denial about our mortality, and behave as if we will live forever. If we came to terms with reality, we would be more aware of the scarcity of time, and the costs our actions carry. Maybe we’d stop working late at office and spend more time with family. Maybe we’d read more books and watch less news television. Maybe we’d uninstall Whatsapp from our phones.
The next time you hear a notification from your phone, remember those golden words from Gol Maal. The moment that is to come will soon be gone. Don’t waste this passing moment.
Also read: My piece from last year about Opportunity Cost in cricket, ‘What Cricket Can Learn From Economics’.