Okay, so now that we have answered the Big Question, we need to collectively start focusing on a bunch of little questions…
On Creative Destruction
Not so long ago, corporate giants with names like PanAm, ITT and Montgomery Ward roamed the earth.
They faded and were replaced by new companies with names like Microsoft, Southwest Airlines and Target.
The US became famous for this pattern of decay and new growth.
Over time, American government built a bigger safety net so workers could survive the vicissitudes of this creative destruction — with unemployment insurance and soon, one hopes, health care security.
But the government has generally not interfered in the dynamic process itself, which is the source of the country’s prosperity. (Excerpted from Bailout to Nowhere, David Brooks, NYT Op Ed.)
Bail Me Out, Please!
In ‘How to Fix a Flat,’ Thomas Friedman listens quizzically to pleas for a bailout of the auto industry (and why it makes no sense):
They were interviewing Bob Nardelli, the CEO of Chrysler, and he was explaining why the auto industry, at that time, needed $25 billion in loan guarantees.
It wasn’t a bailout, he said. It was a way to enable the car companies to retool for innovation. I could not help but shout back at the TV screen: “We have to subsidize Detroit so that it will innovate? What business were you people in other than innovation?”
A Question of Principles
David Brooks of The New York Times frames the road ahead in 'Bailout to Nowhere': Going forward, the larger principle is over the nature of America’s political system.
Is this country going to slide into progressive corporatism, a merger of corporate and federal power that will inevitably stifle competition, empower corporate and federal bureaucrats and protect entrenched interests?
Or is the US going to stick with its historic model: Helping workers weather the storms of a dynamic economy, but preserving the dynamism that is the core of the country’s success.
A Failure of Enforcement, Not Free Markets
Put it all together, and you have to ask yourself, "What's the Moral of the Story?"
Steve Forbes in Forbes Magazine offers a pretty crystallized view of the WHAT and the WHY behind our systemic conundrum:
"Free markets need to have sensible rules of the road. For example, we're free to drive where we want, but we're supposed to adhere to speed limits and signal when turning.
When the housing market became truly chaotic in 2004-06, and bankers were doing things they had never done before, the Fed--as road cop--had the power to turn on its siren and pull those bankers over. Greenspan chose not to. That was a failure of enforcement, not free markets."
SIDEBAR: Forbes also argues for formally announcing that a strong dollar is now US policy (agreed), suspending mark-to-market rules (totally disagree – see Capitalism 2.0), having the SEC reinstate the uptick rule regarding short-selling and enforce the rule against "naked" short-selling.
I guess this is one of those moments when you have to embrace the credo that when you get to the fork in the road, take it.
