What’s so wrong with failure?
Econ 101 blew my mind. Opportunity cost and specialization of trade finally made me understand why my friend’s dad, who was a dentist, didn’t mow his own lawn. I thought he was just lazy. Turns out, he wasn’t lazy at all – he just had better things to do with his time. The macro side of Econ 101 was the lessons of the free market system, private property rights, and Adam Smith’s invisible hand. How capitalism prospers with free markets, is dependent on ownership, and how acting in self-interest can actually be good for society as a whole.
As our government reacts to this fiscal crisis that is extending the retirement age of our elders, those who have been prudent in their spending, those who’ve saved and prepared for their golden years, I can’t help but wonder if our nation’s leaders have forgotten the fundamental lessons of capitalism. In a free market system, firms prosper while others fail. That is the beauty of capitalism. That is why so many immigrants flock to our country chasing the American Dream. If you work hard and make good decisions, you can prosper in the free market system. On-the-other-hand, if you act irresponsibly, become complacent, you might very well end up broke wondering where you went wrong.
The government should not “bailout” failing businesses. As the legendary investor Warren Buffet put it, “Only when the tide goes out do you discover who’s been swimming naked.” Well the tide is out and we’ve seen those firms who do not have viable business models, yet the government doesn’t want to accept that. Washington would rather poor ridiculous amounts of money into failing businesses and sell it as the only option. “We don’t like it anymore than you do, but it’s for the good of everyone.” Nonsense. In a capitalist society, a system that is dependent on free markets and private property rights, some firms fail while others prosper. Let them fail and let them prosper.
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Hey Michael. I’m with you on the free market approach. Although at the same time, if the government is gonna be giving the bailouts, companies would be fools not to try to “capitalize” on that either… until the Executive compensation rules came into play.
Thanks Ray, I agree. If my business is failing and the government will help save it, damn right I will let them bail me out. But from the taxpayer perspective, I’m tired of the government throwing cash at firms that have acted irresponsibily. Take AIG for example. They were backing sub-prime loans that were extremely risky, which created liabilities for sectors of AIG that had minimal risk. AIG’s executives acted liked fools and got paid big bucks for it, but when the market went south, they were provided with a nice insurance policy courtesy of the taxpayer, which AIG never paid premiums for. They ran their company into the ground, and Bernanke came in as their holy savior selling it as the only option. On 60 Minutes last night, Bernanke said, “If you have a neighbor, who smokes in bed. And he’s a risk to everybody. If suppose he sets fire to his house, and you might say to yourself, you know, ‘I’m not gonna call the fire department. Let his house burn down. It’s fine with me.’ But then, of course, but what if your house is made of wood? And it’s right next door to his house? What if the whole town is made of wood? Well, I think we’d all agree that the right thing to do is put out that fire first, and then say, ‘What punishment is appropriate? How should we change the fire code? What needs to be done to make sure this doesn’t happen in the future? How can we fire proof our houses?’ That’s where we are now. We have a fire going on.” If you cant tell, I’m working on another post about Bernanke’s 60 Minutes interview.
But back to your point, I agree. If the government is giving handouts, you would be a fool not to take it.