There are few more useful ways of looking at expenditures made and expenditures contemplated than as retrospective (sunk) or prospective (future) costs.
Consider the example of a man building a boat to catch one-hundred pounds of fish per day. The fisherman spends seventy-five thousand building his own boat, and is partly done. If he spends another twenty-five thousand, he’ll have completed his project, and be able to catch his desired quantity of fish.
He then learns that there’s a boat he could buy for fifteen thousand that would enable him to catch as many fish, and as well.
His goal is to catch a hundred pounds a day, and now he has a choice: finish his own maritime creation at a remaining cost of $25,000, or buy a completed boat that will perform the same task for $15,000.
What’s the better option?
He’s already spent a lot (his sunk cost), but he can achieve his goal (fish-catching) and save money ($10,000) if he simply buys a completed boat.
Placing sunk costs in perspective, rather than being bound by them for subsequent expenditures, allows someone to spend money and allocate resources wisely. (There are limits on any perspective, but this one is often useful.)
Looking back at a recently-held Common Council meeting, it’s clear that one can be elected, mature in age, and professionally-credentialed, and still misunderstand or ignore this useful perspective.
That’s Councilmember Ken Kidd’s mistake, in part, when discussing whether to accept the work of the Donohue Engineering firm for wastewater upgrades and a waste importation scheme:
So then are we going to have a third independent if there’s a [laughter]…are we going to break the tie if there’s not agreement?….We worked really hard to choose somebody we trusted, and then we’re going to say Cameron go find some guy that’ll come in and are we going to trust that person? I mean, it would be nice if somebody with credentials comes in and says, ‘this is the best plan I’ve ever seen’ and that’ll be easy. But if he doesn’t, then I think we have to at least think about what’s our next step. Then are we going to engage an alternative engineering firm?
Dr. Kidd doesn’t want to look elsewhere (that is, to commit to a prospective cost), because he feels that “we worked really hard to find somebody we trusted” (that is, he thinks he’s put in enough work already).
But that work’s done, and the only forward-looking question should be what to do next (as Dr. Kidd himself comes close to seeing).
It’s just that he doesn’t want to face that question, having (at least by his own account) done a lot of work already.
It’s prudent to consider a future cost; it’s a mistake to lead with an emphasis on sunk costs.
(This leaves aside the question of whether Donohue’s work is, as Dr. Kidd implies, an independent study; it’s nothing like a genuine, independent study. It’s a third-party sales presentation tailored to city officials’ narrowly-defined, revenue-generating goals. See, on this point, Studies and The Scope of Donohue’s Work (Part 2).)
One can conclude two things about this. First, credentials are not enough (medical doctor, university administrator, dog groomer, whatever). Careful reading and testing of ideas in politics and economics are what a small town’s government needs. A mere title assures none of that.
Second, this careful reading and testing of ideas in politics and economics is an ongoing pursuit. Neither political office-holding nor political commentary is a reward for past accomplishments, as though they were gold watches.
What one did is yesterday’s work; it’s done, and one should look to what is – and should – yet to be done.
