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I'm not sure it follows that because currently successful enterprises utilize the bargain-basement prices of over-enthusiastic early ventures that we're better

by x1798DE 12y ago

I'm not sure it follows that because currently successful enterprises utilize the bargain-basement prices of over-enthusiastic early ventures that we're better off (as a whole) if there are a lot of over-enthusiastic early ventures. In fact, it's very likely that this is a second-best solution. For example, imagine there's an early frenzy in solar panels, companies way, way over-manufacture them. As they go out of business and are liquidated, the sell-off of the massive panel surplus below-cost causes significant adoption of this early solar panel technology. A huge fraction of people now have solar panels on their roof, but now there's no longer a business incentive for sustainable production of solar panels (i.e. advancements in some technology that would make them cost-effective), because the market is now saturated. Additionally, these solar panels may well be displacing other next-generation energy technologies because of the artificially low price, even if there is no advancement that would make solar power cost-effective on a reasonable time scale. On net, humanity had to pay the full price for all those solar panels, and once they exist we're better off using them than not, but it's not necessarily true that because we have them and they are in use, we're better off than we would be if they had never been created in the first place. EDIT: I should clarify that I'm not sure that under investment is any better - the right amount of investment is a knowledge problem that we generally solve iteratively with feedback from the profit-loss system. It's just that just because you can reduce the total deadweight loss from over-investment doesn't mean that over-investment is somehow a good thing.

S4M 12y ago
Your example of solar energy is true if solar energy is kept only to houses, but maybe in the process of massive production of solar panels, those panels will have been made more efficient, making it possible to use solar energy to (partially) power different things - for example trains, planes or cars (I have no clue if that would be possible) - creating a continuous demand for solar panels.
- x1798DE 12y ago
  Well the point is that it's a knowledge problem of how to best allocate resources. It's certainly possible that it wasn't an over-investment writ large just because a given company went out of business, but the point I was trying to make was that, because post facto you ignore sunk costs, from the perspective of someone coming around after a bust, there's all of a sudden a whole bunch of "free" infrastructure that they can build from, but this can lead you to the incorrect conclusion that it was a good idea to build all this infrastructure in the first place (and thus something you'd want to happen again). What you're actually doing is reducing the dead-weight loss from over-investment by utilizing the leftover assets, chances are it won't be a net positive, overall.

by x1798DE 12y ago

S4M 12y ago

Your example of solar energy is true if solar energy is kept only to houses, but maybe in the process of massive production of solar panels, those panels will have been made more efficient, making it possible to use solar energy to (partially) power different things - for example trains, planes or cars (I have no clue if that would be possible) - creating a continuous demand for solar panels.

x1798DE 12y ago
Well the point is that it's a knowledge problem of how to best allocate resources. It's certainly possible that it wasn't an over-investment writ large just because a given company went out of business, but the point I was trying to make was that, because post facto you ignore sunk costs, from the perspective of someone coming around after a bust, there's all of a sudden a whole bunch of "free" infrastructure that they can build from, but this can lead you to the incorrect conclusion that it was a good idea to build all this infrastructure in the first place (and thus something you'd want to happen again). What you're actually doing is reducing the dead-weight loss from over-investment by utilizing the leftover assets, chances are it won't be a net positive, overall.