Resources are Scarce II

by Don Boudreaux on June 21, 2011

in Myths and Fallacies, Other People's Money, Reality Is Not Optional, Seen and Unseen, War

Here’s another letter to the Los Angeles Times:

Jonah Goldberg says that the U.S. should continue its unwise military intervention in Libya because “if you invest America’s and NATO’s prestige in an obstreperous North African backwater, you’d better recoup a worthwhile return on that investment” (“Libya and America’s commitment problem,” June 21).

Mr. Goldberg mistakenly assumes that ousting Col. Qaddafi is necessarily “a worthwhile return.”  But would Qaddafi’s ouster be worthwhile if it consumes a full year’s worth of U.S. GDP?  Surely not.  How about a half-year’s worth?  No.  So if the value of ousting that madman is not unlimited, Mr. Goldberg cannot possibly know that continued expenditures on this front will eventually yield “a worthwhile return.”

No private firm continues pouring resources into efforts, say, to develop a new product once that firm realizes that the value of the new product – even if it’s eventually produced – will be lower than the value of the additional resources required to bring it to market.

Instead, when a private firm discovers that its efforts to develop a new product are failing, it shifts resources from the failing venture to more promising ventures.  Rivals of that firm don’t conclude that it is therefore a weakling ripe for otherwise daunting competitive challenges.  And investors don’t conclude that that firm is so lacking in determination that further investments in it are unwise.  Quite the opposite.  Firms that persist in losing efforts perish.  Successful firms, in contrast, are less interested in proving their mulishness than in marshaling their scarce resources wisely.

Sincerely,
Donald J. Boudreaux

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