Reading thru an article by Elliot Spitzer this morning, I was stricken again by the phrase "too big to fail" which has been flung around by protectionists and internationalists alike, of late. The phrase has been applied to multiple financial institutions and to the Big 3 car-makers, with the claim that if they went bankrupt that the economic ripples would become a tidal wave. Those looking to save the institutions are clear to say that they do not advocate socialism or nationalization as a cure.
But really, if we're even using the phrase "too big to fail" aren't we already socialized? A fundamental tenet of capitalism is that failure is a good thing. The ability to fail allows corrupt or inefficient companies to be eliminated without the need for outside influence. It punishes bad decisions (with bankruptcy) and rewards good decisions (with wealth). By saying a company is "too big to fail", we are (1) not allowing the market to work for us and eliminate failed companies, and (2) we are encouraging ALL companies to become "too big to fail". We have socialized our economy by deciding which companies deserve to live and die, and governmentally-enforcing which companies are on top.
It is time to start calling this "too big to fail" mentality what it is. And it is time to start thinking about allowing companies like AIG to fail. Some cancers can be treated. But others can only be cured by cutting them out, despite the pain and recovery time that the body must go thru.
Monday, March 23, 2009
Does "Too big to fail" mean we're already living in a Socialist America?
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3 comments:
I totally agree. We act as though these companys are losing money in spite of good leadership. Normally, they are where they are becuase of poor leadership. Look at Apple during the interim time when Steve Jobs was not the CEO. They did not go out of business, but were irrelevant. Good corporate leadership is the only way to turn around these big companies and that can't be mandated by the government. It is time to trim the fat and allow a couple of these companies to fail.
One reason to keep them around though is that we've now got money invested in them. We'll lose all of that money.
FATHER: "Our son is a deadbeat. We leant him $1000 for rent, and he blew it on comic books and bubble gum. Now he wants ANOTHER $1000 for rent!"
MOTHER: "Well, we better give it to him, or we'll never get the first $1000 back."
A very common conversation in American families. But we all know what they SHOULD do. Just say "No" once the son has shown himself to be untrustworthy.
Same with the government and these companies.
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