Posted by
Andrews on Tuesday, April 14, 2009 11:06:20 AM
I am tired of hearing that this or that company is "too big to fail".
The economy is supposed to be dynamic, that is the foundation of the free market. if a company is losing money and cannot convince investors to carry it until it can turn things around, then it is a poor allocation of resources and should be allowed to go under so those resources can be sued by more profitable firms. If it is big that is even more urgent, as it ties up even more resources.
And when I say "resources" that includes workers. While politicians pretend that GM going under would lead to all those workers sitting about unemployed, the truth is,t hey are misallocated right now. If GM went under they would be hired by other firms and put to more productive use. Granted, individually they would not get better pay, as the absurd union contracts guarantees they are paid at a disastrously high rate, but as a whole their wages would increase, as union policies guarantee many union employees sit about without work so the other union members' wages will be above market. (Just ask any longshoreman how much work new union members get. They would be better off with those "burger flipping" jobs that the left so despises.)
Then again,t he unions are a big part of the reason the government argues auto giants are "too big to fail". The auto makers who replace them are likely to be located in right-to-work states, farther weakening the unions and their ability to channel massive quantities of cash (and goons for hire*) to Democrat politicians.
And what of the banks? Well, that is a different story. The reason the banks get so much attention is because the banking system isn't exactly free, or anywhere close. With high barriers to entry and huge federal involvement, there may be problems should a bank fail. And those problems may serve to point out some of the problems with our financial system as a whole. However, none of that has anything to do with the free market. Instead, it is a problem created by regulation, and the subsequent fear that the problems of regulation may become widely known. (Sadly, the solution most propose seems to be even more regulation, which is akin to treating obesity by doubling one's food intake.)
The truth is that there is no firm "too big to fail". Of course that will not stop more interventionist solutions, just as the fact that intervention and money "management" caused our problem does not dissuade them from proposing more regulatory solutions. The easiest way to solve the whole fiasco is to let it resolve itself**, stop the many damaging government interventions, stop borrowing and printing money, and let the markets recover. It will hurt, but in the long run it will be the best for everyone involved.
It will never happen, but it would be the least painful solution overall.
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* As a Marylander, I can attest that the age of the union goon causing trouble at political rallies is far form over. Though many may think it sounds like something from the twenties or thirties, Maryland still has a proud tradition of sign defacement, rally disruption, and other mischief being committed on the union dime. For that matter we have actually had reports of incidents where Department of Public Works workers were seen cleaning up "illegal" signs form one party, while leaving neighboring signs from the other. Quite a state we have.
** Ideally, the solution would involve restoring some tie between our money and some commodity, be it gold, silver, platinum, uranium, anything tangible, valuable, and capable of being infinitely divided. Uranium may be bad, as the government would never let citizens cash out their holdings, but the rest still work. Anything that would allow citizens to convert their holdings into a commodity would check inflation. But, this footnote is getting long, so I will write another post on this topic later.