The DPRK is a Great Example

So, I really enjoyed this piece by the Council on Foreign Relations. At the heart of the article is a great example that ties together the marginal choices that North Korea is making between aid (rice, etc) and nuclear materials ;and the desperation and despair that people often forget that is intimately tied to the principle of choice in microeconomics called “opportunity costs.” Everyone should have an intuitive idea of what that means, even if the jargon is unfamiliar. And yet, people often think it’s just a “choice” that people make.

I don’t intend to make this into a lesson, but I distinctly remember taking a political economy course about Stiglitz as an undergrad where the professor would occasionally ask for examples from students about the day-to-day trade-offs that they see people make. Most students would offer some very comfortably middle-class scenarios: options between seeing the movies, or going out for dinner; between buying a relatively less luxurious car now, or waiting and buying a more luxurious car the following year; spending money for pizza or for beer. Although technically, these are trade-offs being made, I didn’t quite get the moral and ethical implications behind the decisions, of say, pizza or beer. Implicit in the economic principle of choice is that it’s meaningful and scarce.

So, as a belated token of having never really given a great example of opportunity cost when in class, I think this line speaks to the moral seriousness that the professor was looking for when comparing status-quo baseline scenarios vs conservative to optimistic scenarios as it relate to North Korea’s pursuit of nuclear weapons or food. The missed opportunities are staggering:

The difference in the scenarios’ projected growth rates suggests that North Korea’s refusal to denuclearize will cost inter-Korean trade almost $10 billion per year by 2020 and $50 billion in cumulative trade through 2020…If one combines the projected costs to Sino-DPRK and inter-Korean trade, North Korea’s nuclear development will cost the regime over $100 billion in trade by 2020. This is all the more remarkable when one considers that North Korea’s overall trade in 2012 did not reach $10 billion.

There’s nothing that distills the essence of this economic principle as succinctly as looking at it through the DPRK’s own decision to choose nuclear materials over aid, and to see what they have forfeited in the process.That’s exactly what “opportunity costs” means.