Posts tagged ‘variable costs’

Policy has path dependence

Every good business person knows that you must carefully watch your fixed costs. (“Permanent” employees are a fixed cost.) That is why businesses attempt to minimize fixed costs. (And the reason that increasingly onerous and rigid labor laws make it more difficult for businesses to adjust to changing demand for its products and services.

Moral preening does not pay for fixed or variable costs.

Cost controls that are relatively easy to implement in advance — by, for example, not building shiny new hospitals filled with private rooms — become impossible once you’ve made certain investments. This problem also afflicts higher education. Say we decided, as a society, to go back to the college costs of the 1970s. We’ll fire all the extra administrators, and to hell with whatever it is they’re doing to promote diversity, improve admissions or direct student life. If their missions are critical, we’ll make faculty take them over and cut back on research. Cafeteria service will go back to the fare of my mother’s day (lamb patties and lima beans twice a week — she lost 20 pounds her freshman year, and she wasn’t heavy to start with). Want to get in shape? Go run around the track, because we’re closing the fancy gym.

We still wouldn’t reach the cost levels of the 1950s, because the buildings are still there. The grounds have to be maintained. Everything has more lights, and the buildings aren’t built to be warm in winter and cool in summer; they’re built on the assumption that they’ll be climate controlled. Frequently the windows can’t even be opened, so it’s going to get awfully stuffy in there unless you turn on the A/C. You can’t shut down the fabulous new fitness center and go back to using the old gym, because the old gym was probably torn down. Unless you want to invest billions of dollars in reconfiguring the nation’s campuses, they’re going to be inherently harder to operate than the campuses of yesteryear.
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Policy, in other words, has path dependence.

Why Infrastructure Investments Are a Money Pit

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