Wednesday, May 30, 2012

Failure is Fun and Profitable

Capitalism gets a bad rap. Some of it is deserved and some of it isn't. The worst thing is when people don't even know what capitalism is.

Pop quiz: What is the defining feature of capitalism? I bet most of you said "Greed", and you'd be partially right. I prefer to call it "Self Interest", like Adam Smith did.

Actually, the defining feature of capitalism is Failure. That's right: Failure.

Failure is the balance to Greed. While Greed might lead people to take risks with their (and other peoples) money, Failure is what helps rein in the risks.

Small failures help prevent big ones. Just like small forest fires clear out the deadwood, small failures help eliminate poor businesses from the marketplace.

This is why if you ever hear things like, "The company is too big to fail," or "We have to stop this company from going bankrupt to save jobs," or any other nonsense that implies failure is bad, you know that is not capitalism. Government bailouts are not capitalism. Government subsidies are not capitalism.

Frankly, any government jobs are not capitalism because the government cannot go broke. Government jobs are like an actor playing a role. Natalie Portman did a damn good job in Black Swan, but she will never be as good as a real dancer because real dancers have more to lose. If a government agency screws up and goes over budget, who cares? In the real world, the company would go broke. When government jobs are lost, I'm usually happy because the private sector can do it more efficiently, if it needed to be done at all. (Just to be clear, losing a job is tragic. But the idea that creating government jobs helps the economy is crazy.)

Bailing out failing companies is terrible because it not only rewards bad behavior, but it punishes good behavior. All the competitors to the failing company (yes, I'm looking at you Air Canada), who actually know what they are doing, don't get any reward.

Capitalism has many flaws, but failure isn't one of them.

1 comment:

karen said...

you are so the Alex P Keaton to your Family Ties family. if you post ever post yay Ronald Reagan we will have to have a talk.