The High Cost of Low Cost

A successful freelancer once explained to me that he regularly tells companies who balk at paying his price, "If you think I'm expensive, wait until you work with amateurs." Lower-quality work will invariably cause big problems and much more money spent correcting them.

But this isn't just a reality for all business. It's the way of all life.

This is far more basic than Economics 101. It's nothing more than a wise saying everyone learned in grade school.

You Get What You Pay For.

Usually, that's said with a shrug and a wistful smile. But then, we generally don't expect the payment to be made with people's lives.

Save money by not doing required repairs on a bridge. It collapses, causing devastation and death. The original price to fix the bridge was $3 million. The financial cost only of replacement and economic upheaval is an estimated $500 million.

Save money by cutting $65 million from required maintenance on levees. They're breached, wiping out a major American city and killing 1,577 people.. The cost of rebuilding the levees is $10 billion. Rebuilding the city is an additional $53 billion.

Save money by having your toys made cheaply overseas. Toxic paint is found in 21 million products for children, in three separate recalls.

Save money by importing on pet food more cheaply from overseas. Contaminated food kills over 17,000 pets.

Save money on toothpaste by importing it more cheaply from overseas. Products with a poisonous chemical is distributed to hotels.

Save money on automobile tires by importing them more cheaply from overseas. Over 450,000 faulty tires that can fall apart were recalled.

These aren't isolated incidents. This is a pattern.

You do get what you pay for. Wal-Mart might love to advertise with that little smiley-face knocking the prices down, but when they had to remove those toys with toxic paint from their shelves, remember: a frown is just a smile upside-down.

The manufacturing problem for all those recalls was caused elsewhere, in China. But someone had to hire them. And someone had to cut government costs for inspecting them.

There are many dirty fingers. When Wal-Mart strong-arms its suppliers to under-price everyone else, those suppliers are forced or choose to go overseas where there is cheap labor and cheaper consumer protection. And other retailers are pressured to follow, or do so happily.

Companies can insist they're just giving the public what it wants, low prices. And that's a wonderful argument until reality kicks in and you stock your stores with toxic toys, toxic pet food, toxic toothpaste and exploding tires. Surveys show that customers tend to not want those things.

Everyone likes low prices. Spending less. Saving money.

But you get what you pay for.

It's not Economics 101. It's Life 101. Here's another basic, wise saying: pennywise and pound foolish. But this is pennywise and pound insane.

And it holds true in everything. Including the crass political tactic that anyone who wants to raise taxes is just a "Tax and Spend Liberal" and irresponsible and evil and smells bad. Well, Minnesota Governor Tim Pawlenty (R) played that card and vetoed a transportation bill because it would have raised taxes. His way collapsed a bridge.

There are apparently 79,427 bridges considered inadequate in the U.S., and the cost to repair them all is estimated at $9.4 billion every year, for 20 years. That's $188 billion. Think that's a lot? Nah, it's peanuts. Chump change. If the cost to the economy of this one Minnesota bridge is $500 million, then the potential damages for all those inadequate bridges is $40,000,000,000,000,000. (That's "$40 quadrillion" but it's a word so large to be meaningless. It's so large it sounds like you're an eight-year-old making up words.)

Fun with Math: to pay that scary $188 billion national bridge repair, you'd only have to shut down the Iraq War 2-1/2 years early. Or just have taken 2-1/2 years looking carefully for those pesky WMDs before shock-and-awing. The bridges would be paid for by now. Not suggesting a plan, of course, but merely putting things in perspective.

If something is important to you, you find the money.

That is, unless you're too cheap and don't mind the risk of flooding a city, killing pets or poisoning the nation's children. Is that a cheap shot to take? Perhaps. But it's less cheap than not minding the risk of flooding a city, killing pets or poisoning the nation's children.

But then, you get what you pay for.

Comments

[InofTouch]

it typical of all of us and this should just limited to the one on top...were just as cheap as the next comment poster here...heck there reason why there always been a rise in generic brands. So I hope in the future we can budget ourself better before it gose broke.

[DemandTruth]

Don't forget the mine! As they were entrenched in the rescue effort at Crandall Canyon, that was my exact thought. Bob Murray ignored safety concerns at the mine to save money. How much did that rescue effort cost? How much time spent not mining because of the unsafe conditions? How much cost to those who were trapped down there & their families, as well as those to valiantly tried to rescue them?

As always, the cost of not doing the right thing turns out to be way too high. And the only ones paying are time and time again those who can afford it least.

[ihavenobias]

Good point.

We also shouldn't forget the ultimate (potentially) example, which is inaction on global warming for fear it will hurt business interests (i.e. "we can't *afford to put caps on CO2 emissions", etc).

[baylaw73]

Ooh, great piece. I can't wait for the righties to respond.
It's my money. It's Clinton's faulty. Liberals just want to take your money to advance their selfish agenda. Buyer beware. Free trade is better than socialism. Homages to capitalism and the wonders of the free market. What have I left out? I'm still learning my big money talking points.

[ihavenobias]

You covered most of the common points.

People love to rip on so called "tax and spend" liberals while ignoring the "borrow and spend" conservatives.

As I've said many times, the tax-averse culture was created by the Reagan administration that drastically slashed taxes and really hammered in the talking points about the evils of taxes and government in general.

Of course taxes where not so drastically cut for the middle class who received only marginal cuts comparatively (surprise, surprise), not to mention he doubled the social security tax (rather than increasing the tax cap from the first $90,000 of income).

And he went on to spend hundreds of billions from the social security trust fund (to make up for all that lost tax revenue) to help pave the way for Bush Jr to make the case for privitization (because, of course, when you spend hundreds of billions of social security money on anything but social security, well, you blame the program itself).

[ImmanuelGoldstein]

How is it, after 25 years of evidence showing that conservatives NEVER decrease the size of government, and that their tax policies ALWAYS lead to massive deficits (which are just delayed tax increases) do they get away with waving the bloody flag of small government and fiscal responsibility? Just goes to show you public relations trumps reality!

[ReasonIsMyReligion]

As a civil engineer who works with funding prioritization, I say, "Right on, Robert!"

I would only add that politicians and other decision-makers don't see it as either-or, they see it in terms of immediacy and probability... and taxes.

Example:

"I would have to pay for the repair NOW, and that might mean raising taxes... but I PROBABLY won't have to pay for replacement, and even if so, that's LATER."

(Or even more cynically: "I would have to pay for preventative repair, but the feds will bail me out in a past-failure emergency.")

[hopeless277]

Poisoning people, collapsing bridges on them, giving them cancer, it's just a part of doing business. This is America after all. The 'every man for himself' country. If you are poisoned by bad meat then it's your fault for eating the meat. If you are raped in the street it's your fault for being in the street in the first place. This country DOES NOT CARE who gets hurt as long as a PROFIT is made. Just look at the war contractors. They actually send their employees to die in order to pay their CEO millions. That's employee dedication for you. As Americans and conservatives we JUST DON'T CARE as long as we get what we want. Buyers beware, there will always be conservatives in government. Conservatives who don't give a flying fuck about you or your family. Live with it.

[WorkingClass]

hopeless:
Stop complaining. Eat your tainted meat. If you are faithful you may be touched by the invisible hand of Adam Smith.

[WinterSoldier]

Brilliant. Thank you.