Is It Wise to Cut Costs?

Thinking about: Economics

Do you want to cut your electric bill to $0? It’s remarkably easy to do. And no, you won’t have to switch to solar panels or tap into your neighbor’s power line. You need only ask the power company to shut off your power—problem solved!

A Thinker will quickly dismiss this “solution.” Yes, you would eliminate your electric bill, but you would also forgo the benefit of having electricity. Only a foolish or desperate person would do such a thing.

So why am I talking about this? Because earlier this year, the US government engaged in a campaign—remember DOGE?—to cut government expenses. We can argue about how much money was saved as a result of the cuts they made, but I am instead going to focus my attention on the logic of cost-cutting, not just by the government, but by companies and individuals as well.

When deciding whether to take an action, a Thinker will typically engage in cost-benefit analysis. The process will often be informal, but for an important decision, it might require lots of research, together with the construction of one or more spreadsheets. The key questions: What are the costs associated with doing something, what are the likely benefits, and how do the benefits compare to the costs?

This sounds straightforward, but there can be complications. For one thing, should we focus on short-term or long-term costs? Likewise, should we focus on the financial cost of taking an action or the cost in terms of the time and effort involved in taking it? Similar questions arise with respect to the benefits of taking an action.

Here are some of the situations one might encounter when conducting a cost-benefit analysis:

• The action has costs but no benefits. The classic example: burning money. A more realistic example would be continuing to pay for a streaming service that you don’t use and probably never will. These actions are dumb, but it is possible for actions to be dumber still.

• An action has costs and what might be called “negative benefits.” These last are consequences that harm rather than help a person. Suppose, for example, that someone pays extravagant sums for a “miracle cure” that in fact will ruin their health. And it isn’t just misguided people who do this. Governments are entirely capable of responding to problems by coming up with programs that only make those problems worse. In my forthcoming book, How to Think More and Better, I argue that this is the case with the US government’s long-standing war on drugs. We have been waging this war for more than half a century and at considerable expense, but “the drug problem” has gotten far worse. Maybe it is time to admit defeat in this war and try new approaches?

• An action has benefits, but they are not sufficient to outweigh the associated costs. It could be that in deciding to take the action, we miscalculated its costs and benefits. It could also be the case that although the benefits initially outweighed the costs, the world has subsequently changed, meaning that they no longer do. Time to pull the plug?

• An action has benefits that outweigh its costs, but other actions might deliver equal or greater benefits at a lower cost. In this case, our solution to a problem, although justifiable in terms of costs and benefits, will be suboptimal, and a Thinker is therefore unlikely to be satisfied with it.

Circling back to DOGE’s cost-cutting efforts: I am confident that there is waste in government. Some programs are a complete waste of money, and others are counterproductive, in the sense that their existence only makes things worse. These programs should be terminated. There are also programs that do good, but with bloated budgets, and others that, if structured differently, could deliver greater benefits at a lower cost. I am therefore in favor of wide-reaching reforms that would terminate many programs and reform others.

To do this effectively, though, we cannot fixate on cost cutting, as DOGE did. Costs are only half of the cost-benefit equation! Our goal should instead be to produce the greatest benefit at the lowest cost, and doing this will require careful research and thought. The people behind DOGE were unwilling to do this, and as a result, in the process of cutting costs they also cut benefits, sometimes with tragic results. People have suffered and died, and in the future will suffer and die, as a result of their misguided efforts.

As a Thinker, I was deeply disturbed by the extent to which the world bought into the cost-cutting theme of DOGE. Yes, they were cutting costs, but at what cost?

If anyone reading this knows Elon Musk, please pass along a message. I have a plan for cutting the costs of his various business enterprises to $0! This includes the cost of electricity, of labor, of engineering, of rocket fuel—you name it, I’ll cut it. And I’ll do it for free!