Supply Creates its Own Demand

One sign that the overall economy is improving is that completely asinine business proposals are starting to bubble up again.  It's not as prevalent as it was during the dot-com boom of the late 1990s, but it does seem to be resurging, and I'm getting nibbles for "exciting ground-floor opportunities" that are very bad ideas for untenable services, particularly in the mobile channel.   In one such instance, a recruiter responded to my disinterest by insisting "Somebody's going to buy this.  It's a basic economic principle that supply creates its own demand."

The problem is, I've read a bit of economics, and am familiar with that phrase: "supply creates its own demand" is a attributed to Jean-Baptiste Say, an eighteenth-century French economist - and while the phrase is entirely pertinent to the situation of a firm with an untenable proposal, it's not meaningful in quite the way that people who misuse the phrase seem to think.

Say used this phrase in defense of laissez-faire capitalism, arguing against the proposition that a regulatory agency should prevent entrepreneurs from pursuing frivolous ideas that are wasteful of financial resources.   His counterpoint was not that any product that is manufactured can be sold, but that the process of manufacturing a product created economic activity equal to its value -  the producer pays his workers and his suppliers (who in turn pay their workers and suppliers) - such that even if the product is completely unsellable, the producer has still generated valid economic activity (particularly the employment of labor) that has provided income to others who will spend it less frivolously.

That is to say that an entreprenuer who pursues a ridiculous and fruitless scheme ultimately wastes only his own fortune in doing so, and brings the loss upon himself for his own foolishness.   In the sense of the economic efficiency of a market, I can't find reason to disagree with that assertion - but in the sense of reputation, it is not entirely correct.

Anyone involved with an ill-conceived venture takes damage to his reputation for having chosen to be involved in it.   A candidate whose experience reflects a string of misguided failures (Flooz, WebVan, eToys, Kozmo, Pets.com, Friendster, and the like) is likely to have a hard time finding employment with a reputable firm, and rightly so: he has clearly made very poor career choices, to the degree that his intelligence and judgment are not to be relied upon.

So in the economic sense, the money that was spent chasing bad ideas is still in circulation and found its way into the pockets of people who would spend it with better discretion, bankrupting only those who were less that circumspect in investing in it.    But the time, effort, and expertise that went into realizing a foolish plan are gone forever - and it's incumbent upon prospective employees, as the owners of that time and expertise, to make better judgments about how it is applied.

Granted, there are ulterior motives to signing on with a doomed company - an unemployed person who must tend to the needs of his family can't be too choosy about where he gets a paycheck.  It's also fair to say that even a good company has a shocking number of very foolish projects, and if an employee were to flee every time he's called in to lend a hand to giving birth to an executive's deformed brain-child (or even, in some instances, even to remark that the idea is ill conceived), he would likely change jobs several times a year.  Such are the trade-offs we must make in this life. But at the same time, I don't expect that the worst-case scenario applies to every case, and it is more often the case that career decisions are not made in a desperate situation.

But to the original point, "supply creates its own demand" does not mean that any product that anyone cares to produce will find a customer base to return his investment and generate a profit.   It means that the act of creating something (even if it be useless) generates demand for labor and supplies and does negligible damage to the economy.   However, individual fortunes will be lost and individual reputations will be damaged  - and while to former may be restored with some difficulty, the latter is often an irrevocable loss.   This should not be blithely ignored.