28 September 2009 - opportunity cost

The G-20 has its solution for systemic financial stability: Pay bankers less for speculating. Of course, that’s no real solution, because it doesn’t change the underlying incentives. The right way is to increase transparency. Alongside their cost accounts, public businesses should be required to also keep accounts where they evaluate their opportunity costs. Of course the numbers can only be estimated, but for a big business that’s true for cash too. Opportunity cost auditors will keep the lies to a reasonable level, and all at once we’ll see how smart these businesses really are. It’s just like my uncle the loan shark said, all financial problems can be solved by a second set of books.