Sunk Costs and Tar Pits

Email Print
FacebookTwitterShare

In economic theory, there is a concept called sunk costs. Economic
theory informs the self-interested asset owner that the past is
gone. All that matters is the present in relation to the future.
Economic responsibility is always present responsibility, for we
must act in the present. Economic responsibility for the past has
already been allocated by the market. There have been winners and
losers, a fact made objective by today’s array of prices and the
value of assets that is revealed by this array of prices.

This
means that today, every owner of assets must compare the value of
whatever he owns with his expectations regarding the value of whatever
his wealth will be worth tomorrow. Then he must decide what to do
with his wealth today. He must allocate it: buy, sell, or hold.
As the song says, you’ve got to know when to hold ‘em, know when
to fold ‘em, know when to walk away, know when to run.

Because
of ego, the concept of sunk costs is not applied by responsibility-denying
owners. They pretend that the market has not already allocated responsibility
in an objective manner. Losers pretend that they have not suffered
losses. On what logical basis? Because they have not yet sold their
assets. But the price of each asset is no less objective. The loss
has been sustained, whether the owner admits this or not. Selling
has nothing to do with it. The market has imputed a price to every
marketable asset.

Economic
theory tells owners to face reality or face more losses. “Cut your
losses,” says the investor’s slogan. In other words, admit your
loss. Don’t make your decision today in terms of your erroneous
expectations yesterday. Yesterday is gone forever.

Nevertheless,
amateur investors do their best to (1) re-define a visible failure
as a success, either present or future; (2) blame someone else for
the visible failure — someone who cheated; (3) avoid all reference
to the failure, hoping that their wives will not notice. All three
strategies are called into question when a husband admits to his
wife that his investment strategy has produced a loss.

Amateur
investors therefore usually ignore the doctrine of sunk costs. It
makes them less efficient investors. Others steadily wind up as
the owners of capital owned by inefficient investors.

POLITICIANS
VS. SUNK COSTS

Politicians
are very much like amateur investors. That is because they, like
amateur investors, also seek to evade responsibility for past mistakes.
Ego rules them, not objective reality.

They
face an objective market: votes. If voters perceive that they have
been injured by the past decisions of today’s incumbent politicians,
they will withhold their votes or transfer votes to future challengers.
So, politicians do their best to (1) re-define visible failure as
a success, either present or future; (2) blame someone else for
the visible failure — someone who cheated; (3) avoid all reference
to the failure, hoping that voters will not notice. All three strategies
are called into question when a politician admits publicly that
his policies have produced failure.

Colin
Powell told President Bush before the invasion of Iraq, “You’ll
own it.” That was his way of warning the President. The President
paid no attention. This is the singular mark of President Bush:
he pays no attention to anyone, except possibly Vice President Cheney.

The
next President will not be burdened by such ownership. The next
President will not only not own the Iraq war, he will see that if
he accepts his inheritance of it, his Presidency will be a four-year
sinkhole: of poll ratings, body bags, and debt. It will produce
his defeat in 2012. (When I say “he,” I also refer to Mrs. Clinton,
who not only wore the pants in that family but succeeded in keeping
them on.)

The
Democrats who are presently in Congress have a major problem. They
have publicly affirmed their subordinate ownership of Iraq. They
are like co-signers of a large debt: if the primary signer defaults,
they are on the line to make good the debt. The voters extended
credit to President Bush in 2003. But they are changing their minds.
They show no interest in doing it again for one of the now-trapped
co-signers.

Except
for Senator Feingold, Democrats in Congress are still promoting
some version of John Kerry’s “I would also have sent troops to Iraq,
but differently.” Body bags are still body bags, whether the flag
covering the casket is red, white, and blue or merely white and
blue. Car bombs are still car bombs. Suicide bombers take out just
as many victims. To disown the Iraq war, the Democrats must admit
their ignorance, gullibility, or poor information when they took
possession of whatever it is. Only Feingold has done this.

Meanwhile,
President Bush is still telling the voters that they, through him,
own Iraq, and that the price is worth it. But voters are now telling
pollsters that the price is not worth it. Their public ownership
of President Bush after November, 2004 cannot be removed, but the
market value of that asset is falling day by day. The invasion of
2003 and the election of 2004 are sunk costs. What matters for the
public is the continuing streams of red ink and red blood.

This
does not matter to President Bush. No matter what the costs to the
country in lost lives and costs to the U.S. government in wealth
transfers to American producers of war material, President Bush
will ignore the doctrine of sunk costs. He will pour good money
after bad to validate his decision to purchase the Iraq war in 2003.
He will continue to justify this policy in the name of dead troops,
not in the name of his decision to send them into harm’s way. He
justifies the war today by means of the sunk costs themselves: six
feet under.

Yet
he never attends one of these sunk-cost memorials. He never sees
a military casket being lowered into the earth. “Out of sight, out
of mind.” Or, as the phrase has been translated by a computer, “blind,
crazy.”

THE
TROOPS WILL BE PULLED OUT IN 2009

Most
American troops will be pulled out of Iraq, probably in 2009. The
next President will order this. He will not stay the course, as
defined by President Bush. He will openly, visibly abandon Bush’s
course.

By
the time he does this, most voters will support his decision. But
those voters who linked the Iraq war to any of the following goals
will not forgive the next president.

1.
American prestige
2. America’s destiny
3. Israel’s foreign policy
4. “Teaching the wogs a lesson”
5. Sticking it to “Old Europe”
6. Maintaining cheap oil.
7. Stabilizing the Middle East
8. Speeding up the Rapture

At
best, they will stop promoting these goals publicly because they
will know the most voters are unwilling to pay the domestic price
to maintain them. But they will not forgive. They will see the pull-out
as a betrayal. They are committed to the ideal of empire, though
not to the term. They will have their self-definition removed from
them. They will deeply resent this.

Most
voters accepted one or more of these goals in 2003. That will not
change. This is a large sunk cost in American politics, though not
as large as the sunk cost of Medicare/Social Security. Most voters,
to quote John Kerry’s opening line in his acceptance speech to the
Democrats, reported for duty . . . on behalf of other people’s sons
and other people’s daughters.

Losers
do not like to admit the doctrine of sunk costs. That is why Democrats
nominated John Kerry in 2004. That is why most voters have accepted
the victory of President Bush. That is why no Democrat except Feingold
is saying “let’s cut our losses.”

The
legitimacy of both parties is caught in the Iraq quagmire. So is
the legitimacy of the media.

When
I was a child, I visited a museum that had bones of animals dug
out of the La Brea tar pits in Los Angeles. I vividly recall one
painting — the only painting of my youth that I remember. It
was a painting of a mastodon sinking into the tar, surrounded by
predators that were also sinking. Anyway, that’s how I recall it.

Iraq
is the equivalent of the La Brea tar pits for today’s incumbent
politicians, predators all. The mastodon is the American empire.

CONCLUSION

American
politics will be shaped by how voters deal emotionally with the
sunk costs of the Iraq war. Will voters forget Iraq because some
other problem overshadows Iraq, such as the bankruptcy of Medicare/Social
Security? Will they look back and feel duped? Will they abandon
the dreams of empire that tempted them to back the President in
2003? Will the media run historical videos of the shock and awe
attack on Baghdad, or will they, too, agree to a joint amnesia project
— Alzheimer’s for dummies?

Of
all photos of the Vietnam War, the photo of the last helicopter
out of Saigon is the one that most Americans remember. That photo
is very different from the memorable photo of the flag-raising at
Iwo Jima, in two ways. First, Iwo Jima was a military victory for
America. Second, it was the greatest staged photo op in American
history. The real flag raising had taken place hours before. The
last helicopter out of Saigon was not staged. It also did not memorialize
a victory.

We
will see if there is a photo to mark the last troops out of Iraq.
Surely, there deserves to be.

There
will surely be a poster. It will be of Osama bin Laden. Under it,
in Arabic, will be these words: Mission Accomplished.

This
is always the price of empire at the point of its reversal. When
you think “empire,” think “LaBrea tar pits.”

August
31, 2005

Gary
North [send him mail] is the
author of Mises
on Money
. Visit http://www.garynorth.com.
He is also the author of a free 17-volume series, An
Economic Commentary on the Bible
.

Gary
North Archives

Email Print
FacebookTwitterShare
  • LRC Blog

  • LRC Podcasts