What is the true cost of your leisure activities? It might be thought that the cost of something is the amount you spend on it. While that is sort of correct, the answer can also be much more complex.
Whenever you spend money on one thing, you are not spending it on something else. And that other thing might have been much better for you over the longer term – maybe something that saves you a lot of money, or gives you more enjoyment. That is what economists call the ‘opportunity cost’ of making one choice over another.
But there is also another way that economists look at consumers’ choices – which is called ‘true cost economics’. This considers the wider impact of your choice, which usually includes the affect on the environment and the wellbeing of society, for example. Other non-financial costs to take into account could include your time and other people’s time.
So, working out the ‘true cost’ of any choice is not as simple as it seems at first glance. When we spend money one way, we often overlook the non-monetary costs – ethical and environmental – as well as the costs we impose on others.
Going for a Sunday afternoon drive in the car is one clear example. A petrol engine car produces carbon emissions, which most scientists believe are a major factor in the climate change that is creating more hurricanes and flash flooding. If yours is a diesel car, then it also emits particulates that contribute to lung disease. And if you have an electric car, the damage depends on the source of the electricity – burning gas and coal emits carbon, while many critics hate the visual impact of wind turbines. And that is without factoring in the risk of a road accident and the damage to the environment from road building.
The same issues of damage to society apply to drinking alcohol, in particular where it is drunk to excess, or forms an addiction.
According to a UK government study, the consumption of alcohol costs £21bn a year in England and Wales. That number pulls together not just the cost of purchases, but also the financial cost of the wider impacts, which include at least £3.5bn in NHS treatment, £11bn of alcohol related crime and economic effects (such as work absenteeism and lost productivity) of £7.3bn. All those costings are now several years old, so the cost today would be several per cent higher.
But another study – conducted by the National Social Marketing Centre – takes into account a wider range of impacts and estimates that the total social cost of alcohol to England ten years ago was £55bn in just one year.
Food is another important example. The cost of food is not just what we pay for it. In the case of grocery purchases, a supermarket chain may subsidise the price as a loss leader. And sometimes farmers are forced to sell their goods at below cost price, because of market conditions. (Farmers may indirectly be paying us to consume the crops they grow!)
Moreover, in many countries the cost price itself is subsidised, such as by the European Union’s Common Agriculture Policy (CAP). What we pay is frequently less than the cost of production – with us paying farmers extra through the CAP, paid for out of taxation. As the UK’s best known food academic Professor Tim Lang explains: “HM Treasury and Defra [Department for the Environment, Food and Rural Affairs] have long been ideologically opposed to subsidies for farmers, yet CAP/EU subsidies provide about half of UK farm incomes.”
Nor is that the only governmental subsidy. It was estimated by a study – the European Nitrogen Assessment – that the damage caused by farmers’ use of nitrogen fertilisers costs governments in the EU some €200bn a year to put right, including by removing the nitrogen from sources of drinking water. That is about €500 per person, per year.
According to Peter Lehner, the former chief environmental lawyer for New York City, most of the real cost of food is hidden from us as consumers. After looking at the numbers involved in hidden subsidies “it seemed to me that the true cost of food could be double, if not triple, what we pay out of pocket”, said Lehner.
One of those often-forgotten costs is the impact of agricultural greenhouse gas emission – animals are one of the main emitters of carbons into the air, and so are a significant cause of climate change. Then there is the negative health impact of junk food, which creates costs of medical treatment, lost productivity and reduced personal incomes. The estimated cost of obesity is around $2trn a year globally.Medical treatment can also be needed because of allergic reactions to ingredients, both natural and artificial.
Clothes shopping, however, might seem like a perfectly harmless activity. Right? Wrong. Many of the cheap shirts, trousers and dresses we in the west buy are manufactured in Bangladesh. It seems great to buy a shirt for £3 or $3, but at what cost for the workers?
More than a thousand textile workers died in Dhaka in 2013 when their factory collapsed. Hundreds more died that year in factory fires in Bangladesh and Pakistan. There is no cost that can adequately reflect the loss of their lives. Financially, those thousand people left behind families that were even less able to cope than they were before. Most of the factory workers earn just £25 a month – according to the War on Want charity – in order to produce our cheap clothes.
Nor is that the only hidden cost in clothing production. Davos is a Swiss mountain town which is also home to the World Economic Forum – hardly a redoubt of radicalism. But the Forum has taken a lead in warning about buying cheap clothes. One of its concerns is that by importing clothes, we are exporting the pollution involved in the manufacture and the related carbon emissions. In 1965 some 95% of US consumed clothes were manufactured within the US, today the figure is around 2%. That production process in countries such as Bangladesh is highly energy intensive, reliant on dirty fuels. As a result, the textile industry is responsible for 10% of global carbon emissions – five times more than aviation.
The true economic cost of playing at a casino may, perhaps surprisingly, be less damaging. Clearly if someone has a gambling addiction, the costs to that person and their family can be high – it can lead to inadequate spending on food, for example, with negative health impacts, as well as the risk of criminal activity to feed the addiction. But academic studies suggest that these are outweighed by the positive effects, which include job creation in both the construction and service delivery phases of a casino operation.
Doug Walker, Professor of Economics at the College of Charleston, argues that areas with casinos have higher average incomes, higher employment and higher economic growth. In addition, casinos generate significant tax revenues.
However, there are clear ‘opportunity costs’ associated with using casinos – how productively and beneficially would the gambler otherwise use the money?
What, then, about staying at home and watching TV? Well there is a clear financial cost of doing that. In winter, you probably have the heating on and in summer it might be the air conditioning, all of which will not only cost you money, but may also contribute to climate change.
But the opportunity cost of watching TV is huge – if the consumer simply sits down and watches anything in front of them. You might otherwise be going for a walk, or having a workout in the gym – thereby improving your health, increasing your life expectancy and generating some ‘feel good’ hormones. Or you might read a book, which can also have a positive health impact by exercising your brain and so warding-off dementia. Or it might be much more fun to go out and meet some friends.
Even TV watching, then, has a true economic cost – which may be much higher than you thought.
Roscoe, P 2014 I Spend Therefor I Am: The True Cost of Economics, Viking
Gallagher, V The True Cost of Low Prices: The Violence of Globalization, Orbis Books
Joy, A, Sherry J.Jr, Venkatesh, A, Wang, J & Chan, R 2012 Fast Fashion, Sustainability and the Ethical Appeal of Luxury Brands, University of Notre Dame Press