One of the slipperiest concepts in the field of accounting is the idea of “costs.” It’s a term that is widely used and poorly understood. Put simply, a cost is just a sacrifice of resources. But distinguishing costs from expenses, or variable costs from direct costs, or sellers’ costs from buyers’ costs, can cause a lot of headaches for young MBA students.
In the real world of government, the idea of cost can be summarized in a single plain truth: Pay now or pay later.
That’s because, in the public sector, all the resources are already ours. Government is us. It has no resources other than those we provide. The classic example is road maintenance. We can either pay through taxes or tolls to keep roads in good shape, or we can pay through higher car repair bills and wasted gasoline caused by bad roads. Either way, the costs will be incurred.
That’s the concept lurking in the background of two of this issue’s stories, Liz Farmer’s on retirement security and Zach Patton’s on universal basic income. There undoubtedly will be costs if government cannot mitigate the growing retirement crisis. As more and more boomers hit retirement age with diminished pensions and inadequate 401(k)s, American retirees are getting poorer. And those larger numbers of impoverished elderly people will likely result in increased government spending for health care, senior housing and other related costs.
Of course, costs are also central to any discussion of whether government should provide a universal basic income. The idea -- handing out monthly paychecks to everyone, regardless of their employment -- seems far-fetched. But it’s worth considering as automation and other employment trends are redefining the future of work. If there aren’t enough jobs to go around, more people are going to slip into poverty. When that happens, it’s government that will be left holding the bag. Again, we can pay now or pay later.
The funny thing about costs in government is that, when we carefully think them through, the hard-headed economic choice and the morally responsible choice often turn out to be one and the same. Here’s one small example: Patton cites in his feature a 1970s Canadian pilot project on universal basic income in which low-income families were given a small living wage. Researchers found that “primary breadwinners scaled back their work a little or not at all,” but that women “scaled back more, especially new mothers.” With a little extra financial security, these mothers stayed at home longer with their babies. Child care is real work, and when children are not well cared for, we all eventually bear the costs.