Ok. I get that you’re maybe trying to salvage a poor argument, here…but your understanding of investments is seriously lacking.
I’ve worked in manufacturing for over 30 years, and I’ve watched companies go bankrupt simply by making investments in equipment, expecting certain contracts…only to have those contracts be awarded to other companies. No one can afford to pay for those kinds of investments in cash. That money is still owed, until the loans get paid off. And those loans can’t get paid off, unless that equipment is producing income. All the money spent to tool up a factory, would bankrupt the company that owns it, if it can no longer sell the product it was designed to produce.
Most manufacturers are in a constant cycle of investment. As soon as they’ve paid off the last round of purchases, they reinvest and upgrade their equipment again. If you don’t, then you fall behind on your capabilities, and fail to acquire new contracts. You either keep up with the latest technology, or your company begins to stagnate.
So, if the government steps in and declares that a company cannot finish its current cycle…that company will fold. If the government even declares that company needs to shift its production focus too quickly…that company will fold. And the downstream impacts that a large company has on the rest of the industry, is immense. Sub-contractors would also go under if there was no alternative to the revenue they just lost. How would the government be able to prevent those losses without “printing money”? They would have to wave a magic wand and create new customers for those shops, out of thin air, or watch them all close.
Which brings us to subsidies and other incentives. All the measures you stated for how the government can “pivot”, are voluntary. The government can’t force industries to “pivot” at all. Why do you think the investments that the federal government made into EV’s never materialized results, even after dumping billions of dollars into the effort? Unless you are willing to take full control of those industries, it is almost impossible to turn them towards other things, on demand. The cost is prohibitively high. The fact that you don’t seem to get that, tells me that you don’t understand economics as well as you think you do.
It is far more cost effective to invest in new companies to produce new products than it is to simply tell existing companies they can no longer sell the products they are tooled up for.
Lol! That’s hilarious. You obviously don’t know what the sunk cost fallacy even means, if you’re using it in this context. It doesn’t apply here.
If you have a factory full of equipment, and enough workers to run that equipment…how do you pay for that, without contracts? You can’t just sit there producing nothing, and expect to stay in business. Even if all of your machines were fully paid off…which is almost never the case…you would still need work to keep the lights on and the doors open.
How is that so hard to understand?
When you’re talking about sunk costs, you’re talking about investments that haven’t returned anything yet, and are unlikely to in the near future. That’s not at all what I’m talking about. If you read my comment again, you should get to the part where I said, manufacturers are constantly reinvesting in more capacity. Newer technologies. More capabilities. When machines or equipment wear out or newer technology becomes available, they cycle out the older, outdated machines and equipment for new ones. This is a gradual, but constant cycle. There are almost always machines and equipment that are still being paid off. And as soon as they’re paid for, you start the cycle again. Whatever expands your capabilities, is next on the list. Wash, rinse, repeat.
If a company isn’t reinvesting in its own capacity like that, they cannot accept more work. They have a hard limit on what can be produced in a given amount of time. The only way to produce more, is to buy newer equipment, that can produce products faster or in greater quantities. That kind of equipment is very often extremely task specific. Those capabilities are very often not transferable to other industries. That means any investments made into that equipment would be for nothing, if you had to switch tasks. You would have just paid off…or would still be paying off…equipment that can no longer be used for its intended purpose. The only way to see a return on that investment, is to use it.
And if your customers want something new, you need to have the equipment needed to make it, before they’ll give you the contract. Why would they agree to pay you for something you don’t have the capacity to produce?
Again. How is that so hard to understand?
See, I really don’t think you’re understanding what I’m saying. I brought up that example to point out that the government itself can’t just force a company to “pivot”, no matter how much money they throw at the project. It’s up to the car companies themselves to make those changes, at a pace they can afford. What you’re describing here, is exactly what I’ve been saying about individual companies themselves reinvesting in their own capabilities. If there are subsidies to take advantage of in order to upgrade thoae capabilities, great…but those car companies aren’t “pivoting” to completely different industries, like you seem to think they can.
Using this analogy, what the government is effectively trying to do to the defense industry, would be to stop those car companies from producing EV’s after the companies have already invested in those upgrades. And you’re here saying they should have just used all that money on other things, like healthcare or housing.
The bottom line is, none of those companies would survive a transition away from car manufacturing. Without seeing a return on that investment, they would go bankrupt. That’s not a sunk cost fallacy…it’s just how businesses work.