Mal-investment destroys worthy ventures.

A government subsidy can negate the influence of a real market loss and make an unprofitable venture last longer.  Subsidy can stand between a loss and a necessary change in strategy, preventing a necessary adjustment.  A loss ordinarily tells a producer that a product change is needed because his product isn’t making any money.  To preserve his business capital, a business person makes the changes that lead to profits.  To do that he has to know what the public wants and what they can afford to pay.  Prolonging the lifespan of an unprofitable venture might save a company from going out of business in the short term and therefore it might also keep some people employed who would otherwise lose their job.  But it also causes prices to be higher.  And it causes harms to the rest of the economy.  Why does it cause harms?

Because mal-investment wastes resources.  There’s only so much economic opportunity and putting money into unprofitable ventures keeps money out of profitable ones where money can circulate virtuously to benefit more people.  By putting money into unprofitable ventures, markets can become fantastically removed from real world feedback.  And a subsidy can make an unprofitable venture look profitable when it is failing to provide services or products that anyone wants.  That warps the market which is supposed to give everyone the opportunity to make mutually beneficial exchanges.  In fact it can undermine the benefit of exchange entirely.  The market should be respected as a negotiated space for free people to exchange products and services that provide real benefits.

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