Trillion Dollar Economists

Chapter 4Minimizing Costs

If you’re running a business or just running your life, you don’t have to be an economist or take a course in economics to understand how to cut costs. It’s a matter of choice and arithmetic. What things and services do you believe are essential to carry out the business, or to live the life the way you want? What are you willing to pay for them? If you’re on a budget—most people are and so are all businesses in one fashion or another—then controlling costs is one of the most important things you regularly do or should do.

Of course, not everyone is successful in this endeavor, which is why some people and businesses go bankrupt—they live beyond their means. As a nation, the United States has lived beyond its means for years, borrowing from foreign governments and individuals to maintain a level of spending that cannot be financed solely by domestic incomes.

There is nothing inherently wrong with this imbalance if the borrowed funds are used productively, that is, put to work earning more income in the future, whether by expanding the ability to produce more goods and services or, in the case of individuals, through the acquisition of skills that will command a premium in the labor market. Borrowing for professional school, putting aside whether the school has done a good job of minimizing its costs, generally (though not always, just ask a lot of recently minted lawyers) is a good investment for those who earn their degrees. Borrowing to finance more ...