Rewarding Failure: The New American Standard

This commentary on the current economic stimulus debacle comes courtesy of our friend Trey Garrison, who received it from a friend in Portland (just want to cover all my attribution bases there!). It explains perfectly why sometimes you just have to allow the weak links to die off.

Times are tough. Some banks made some stupid loans. More than a generation of poor business practices are finally sinking the Detroit auto industry. And everyone is nervous.

Today on a plane, completely unannounced and for no reason whatsoever, as we were coming in to land, the stewardess handed out $20 gift certificates to McCormick & Schmick’s Steakhouse. This is the third McCormick & Schmick’s gift certificate I’ve gotten in under 2 months. It got me thinking:

Because people aren’t spending, merchants are dropping their prices to lure in customers. Falling prices encourage spending and restart the economy. However not every business can afford to cut prices. The ones that can’t, fail. But that’s OK, because then the ones that didn’t go out of business can pick up their assets at bargain prices, allowing them to grow and get stronger while helping pull us out of this nosedive. If GM & Chrysler fail, it opens the way for other automakers; people who’ve been blocked by the American automotive oligopoly in the past. They can pick up machines, tools and maybe even factories at heavily discounted prices. They may even find skilled workers for reasonable terms if the UAW goes under. Defaulted homes will drive real estate prices down, allowing people who’ve been saving, but have been priced out of the market, to finally own their part of the American Dream.

In other words, the market will quickly and efficiently (albeit ruthlessly) correct itself. BUT…

Instead, we’ve got the government, propping up failing banks, failing automakers; we’ve got the government, helping people stay in a home they can’t afford, artificially keeping real estate prices up. To make it even worse the government has apparently decided to punish people who’ve been successful by jacking up their taxes to subsidize failed businesses and bad loans. So now, not only does that keep rents high for the people who are weathering the storm, but it keeps their competitors in business; it restricts their chance to grow and capitalize on their hard work and good decisions.

And the final insult is that it slaps a penalty on them for being successful, shunting the money off to the people who haven’t been. If the government would just say “OK. This is going to get bloody for a bit, but it’s like ripping off a band-aid–the faster you do it, the less pain there is,” it wouldn’t be popular, but it would be the quickest, best way to get the economy back on track. And it would have the benefit of clearing out the deadwood and encouraging success instead of propping up zombie corporations, that died long ago, but just haven’t realized it yet.

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