Quotation of the Day…

(Don Boudreaux)

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… is from page 300 of the late, great UCLA economists Armen A. Alchian’s and William R. Allen’s Universal Economics (2018; Jerry L. Jordan, ed.); this volume is an updated version of Alchian’s and Allen’s magnificent and pioneering earlier textbook, University Economics:

Waste or inefficiency is only what can be avoided at a cost less than the waste. If the cost of avoiding some seeming waste is greater than the waste, it’s not really a waste.

DBx: One of the many advantages of what my Mercatus Center colleague Adam Thierer calls “permissionless innovation” – that is, of refusing to use government restrictions to protect industry incumbents or politically favored cronies from competition – is that it incessantly transforms efficient uses of resources into wasteful uses.

This wording sounds odd, but it’s accurate. Innovation renders uses of resources that yesterday were the ‘best’ possible – uses of resources that yesterday were efficient – into uses that today are inefficient in light of newly discovered knowledge. For example, in the 19th century efficiency was served by using labor and transportation vessels to harvest ice from ponds and lakes in New England for shipment to New York and Philadelphia. The widespread availability of electrification and household refrigeration renders such ice harvesting today inefficient.

The profit motive obviously propels entrepreneurs to identify existing wasteful uses of resources and to eliminate such wastage. But the profit motive also, and more importantly, propels entrepreneurs to innovate in ways that transform today’s ‘efficient’ uses of resources into tomorrow’s inefficient uses – and then to eliminate the newly ‘created’ waste.