Sunday, July 15, 2007

ADA: Stuff Costs More Than It Costs

Alternate Dimension Andy(ADA):

I was thinking of Wal-Mart underwear the other day. (If you're not creeped out, please read on.) There's plenty of places to get cheap underwear, but at Wal-Mart, you can get a six-pack of tighty-whiteys for, like seven cents. On the upside, you don't have to spend much on underwear. On the downside, well...

On the downside, those pairs aren't going to last longer than a couple of wash-wear cycles. On the downside, you have to shop at Wal-Mart. On the downside, they're not very comfortable undies. On the downside, they were made by children who worked their fingers to the bone for enough money to buy broth.

But hey, cheap underwear!

My point is, there's a hell of a lot more to how much those underwear cost than the price on the package. How much does it "cost" you to have to deal with shopping at Wal-Mart (perhaps in your dimension, you're not a self-important douchebag who thinks Wal-Mart is trashy; if that's the case, I salute you)? How much does it "cost" to not have to itch your junk all day 'cause the undies are balling up under your scrot? How much does it "cost" emotionally to sleep at night knowing you've contributed to Wal-Mart's international labor practices?

It's not just about underwear either.

I know. Sit back and hold on. This is gonna get wild.

I assert (as do many thousands of economists, so don't even try to prove me wrong) that every single choice you make has a cost. Which car to buy, which house to buy, where to work, which job to take, which brand of goatee wax to recommend to a friend... they all have a cost.

Consider the example of buying a car. I assume that in your dimension you're a liberal, know-it-all hippie who wants to buy a Prius. How much does a brand new (for the sake of argument) Prius cost? Look it up; I'll wait.

Obviously, it's a trick question. You'd probably end up buying a brand new one for about $23,000, but that's not what I'm asking. Consider all of these factors:
  • A hybrid has many more moving parts than most cars. This means that there are more things that can go wrong with the car. In turn, this can mean that you spend a lot more on repairs over the lifetime of the vehicle.
  • A hybrid uses a lot less gas than other cars of the same size; while you're paying more for the car itself, that's partially offset by the money you'll save on gas.
  • Because it's burning less gasoline, the hybrid is polluting less. As a green liberal nutjob, I'm sure this is your currency; it doesn't matter if the car costs $1000 more, since you'll be decreasing your impact on the environment by so much.
  • A Prius will make you popular with the ladies.
  • Maybe someday, you'll be driving down the highway, and a Prius-specific missile will blow up your car, killing you. It's a cost you wouldn't have incurred had you been driving, say, a Jetta.
Natch, some of these costs are ridiculous. But you gotta admit, even a "maybe" is a cost.

Now, not all of these costs are currency costs. Some of them are just opportunity costs and added risk. "Cost" isn't always about money.

How much does it cost Google to give all their employees such totally awesome benefits?
  • They're paying a ton of money for 401(k)s, health insurance, ping-pong tables, catered lunches, on-site laundry, a beautiful facility, etc. All told, I guess (based on the 0.00 units of information I have) that Google spends about three times an employee's salary on that employee.
  • Because they're in the San Francisco Bay Area, an expensive place to live, they spent more on their facility than they would have in another locale.
  • Because they're in the San Francisco Bay Area, a place where people want to live, they are able to pick and choose their employees from the best of the best.
  • Because they pay well and offer amazing benefits, they are able to retain employees who are the best of the best.
  • Because they have the best employees, they are able to make amazing software that makes them a market leader in search and online advertising.
I guess the real question is, how much does it cost Google not to retain their amazing employees?

How much does it cost you to sit at home doing nothing all day?
  • You're not spending any money on food.
  • Let's pretend you're not spending any money on gas, garbage, water or electricity.
  • You could be working out, reducing future medical bills.
  • You could be watching a movie, entertaining yourself and adding time to the internal "countdown to psychological meltdown" clock.
  • You could be talking to your mom, reminding you that you love her, so that in forty years when she kicks it, you won't feel as bad about the frequency with which you called her.
  • You could have a job, you lazy ass.
In future posts, I'm gonna talk a lot more about how much stuff costs, but I hope you understand my point: monetary cost isn't the only cost; sometimes stuff costs more than it costs.

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