When capitalism’s critics complain about greedy, money-grubbing businessmen pursuing profits, they seldom say anything about losses — despite the fact that losses are just as important to the profit-and-loss system as profits.
Losses send a loud, clear signal: Stop doing what you’re doing!
The latest Newsweek offers a great example: Microsoft co-founder Paul Allen explains how he and Bill Gates struck out with Traf-O-Data.
Once losses convinced Allen and Gates to ditch their proposal for computer-based traffic-flow data analysis, they focused their attention on other ideas. At least one of them worked out pretty well.
The story could have taken a diffeent turn. Government officials could have latched on to Traf-O-Data (“It’ll create jobs!” “It’s a perfect business for the knowledge-based economy!” “These guys gave me campaign cash!”), and the idea would have lingered much longer than it should have. Allen and Gates would have been deterred from finding another idea with much greater benefits for consumers.
Politicians’ efforts to pick economic winners and losers would have made all of us a lot poorer.
