Friday, August 31, 2007

Historical Cost

Here's a tough lesson in reality: Historical cost is irrelevant.

I've seen people trying to make business decisions who can't accept that reality. You tell them that, if they scrap their old equipment and buy a new piece of equipment for $2 million, they will make more money. If their response is "But I paid $1.5 million for that old equipment just two years ago," then they don't get it. The money they spent two years ago is gone. The only question now is how to make more money, and there are only two choices: (a) Continue to use the old equipment, or (b) Spend money to buy new equipment. Choice (a) costs nothing except a loss of productivity. Choice (b) requires you to spend money out of pocket, but increases productivity and future profits. If the benefits of choice (b) exceed the costs of choice (b), then choice (b) is the right decision, regardless of what the old equipment cost. Why? Because historical cost is irrelevant.

I've also seen people trying to make investment decisions who can't accept that reality. You tell them that they can make more by selling investment A (which they bought for $X and now is worth $Y less) and putting money into investment B. If their response is "But I paid $X for Investment A and if I sell it I have a $Y loss," then they don't get it. They already have a loss of $Y. Their only choice is when they are going to realize it. (I'm using the word "realize" in both the tax sense and the cognitive sense.)

It is very therefore very disturbing to see the same mistake applied to our continuing military presence in Iraq. The human lives that have been lost or damaged in Iraq, which is part of the price of "blood and treasure" that we have paid for our military adventure in Iraq, is being promoted as a reason to stay in Iraq.

For example, in one of the pro-war ads that have been running on television from "Freedom's Watch" a soldier who has lost both legs in Iraq says "I know what I lost. And I also know that if we pull out [of Iraq] now, everything that I have given and sacrificed will be mean nothing."

And President Bush has stated that "under his watch" he will "never allow our youngsters to die in vain" in Iraq. (4/13/2004) After the U.S. military death toll reached 3,000 in Iraq, the White House announced that President Bush "will ensure their sacrifice was not made in vain." (CNN 1/3/2007) At Fort Benning, the President declared that "it is important for us to succeed [in Iraq] so that comrades would not have died in vain." (1/11/2007)

A Google search of "Iraq vain" turns up about 93 hits, so these are not isolated slips of the tongue, but part of a deliberate public relations effort that relies on emotion and not reason or results.

The plea to leave more soldiers in harm's way, ensuring that more will be killed or injuried, merely because others have already been killed or injured, is a failure to recognize that historical cost is irrelevant. In deciding whether to send people into battle, the only relevant question is whether risking more lives is justified by the possible future benefit. The number of lives that have been spent in the past is, in the hard calculus of reality, unimportant.

Am I equating human lives with financial costs? Yes. Money spent is money gone. And dead is dead. Someone doesn't become less dead (or less maimed) just by spending more lives.

The President owes a debt to the living to spend their lives wisely, not a debt to the dead to justify their deaths.

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