Along the same theme from yesterday that other people are writing very sensible things about the folly of our current federal government policies, I draw your attention to Pete Leeson’s excellent op-ed in Friday’s Washington Times. His theme: business failures are a valuable and important part of economic processes, and when we stifle those failures we do ourselves harm because we distort and truncate the reallocation of resources from less-valuable uses to more-valuable uses:
Far from cause for concern, this failure is cause for celebration. When ineffective producers fail, resources committed to producing goods we value less are freed for producing goods we value more. Polaroid’s failure released resources for the production of digital cameras; Commodore Computers’ failure released resources for the production of IBM computers; and Chi Chi’s restaurant’s failure released resources for, well, the production of food that tastes good. Who better to sacrifice the resources required to expand production of the things we want than producers of the things we don’t?
If government prevents failing producers from going out of business, resources get “stuck” in employments where they’re less productive. We can’t have as many of the products we care more about because the means needed to make them remain locked in the manufacture of products we care less about. Society suffers as a result.
We are living with the distortionary incentives of the “too big to fail” and “too important to fail” arguments that we’ve heard daily for the past eight months, and we’ll be paying the costs of these flawed policies for years to come.
Relatedly, Shika Dalmia’s article in Reason today reminds us that “by avoiding bankruptcy, GM only risks trading union demands for federal tyranny”.