Pushing On A String

This weeks Hood River Weather site poll wonders what we should do about the impending bankruptcy of the Not So Big 3 U.S. automakers.

My thoughts? I believe capitalism and a "free market" system (with just enough regulatory oversight to keep companies relatively honest and/or legal) are probably the best fit for human nature. Capitalism allows companies to take risks and either succeed or fail based on product quality, consumer demand, and how well the company is run. It's far from a perfect system, but much better than economic systems where the government runs the companies.

Of course, we've never had a pure capitalistic free market system. There have been and always will be elements of government control and socialism sprinkled into the mix. But lately the sprinkling has turned into a downpour, as banks, insurance companies, and now automakers have been deemed "too big to fail". Unfortunately, as economists have increasingly pointed out, some institutions may prove to be "too big to save".

So where do we draw the line with taxpayer money being used to sustain companies with failing business models? My opinion is: right here, right now, starting with US automakers. Let the bankruptcy system work. Let creative destruction eventually fill the niches with leaner, smarter companies. Yes, thousands, perhaps millions of people will suffer tragic economic hardships, at least temporarily. Yes, facing the music and letting companies fail will deepen the recession. But recessions NEED to happen occasionally to wring the excesses out of the previous economic boom times.

And besides, governmental attempts to avoid recessions are usually about as successful as pushing on a string.