The Joys of Failure
You know—you must—you can't help it—aren't you alive?!—that the marketplace isn't perfect. Haven't we all been told often enough, amid the political chatter concerning how to crack down on Wall Street?
Bad, bad bankers whose pay should be regulated and selfish brokers—not to mention negligent directors of corporations—are among the current targets. John Maynard Keynes is the new op-ed page superhero. Michael Moore has another documentary out about the ills of capitalism. The agitprop director Oliver Stone is springing Gordon Gekko from prison, where his escapades in Stone's 1987 movie Wall Street landed him. In the new Gekko movie, we'll relearn that capitalism and human values are a mismatch.
Not much is new here. Americans have been banging bankers around as long as there have been things such as banks. Any letdown in the functioning of the economy ignites reproaches and calls for enhanced oversight by those who understand keenly that the marketplace isn't perfect.
And whoever said it was, please? The "defects" that commentators keep finding in private-sector economics aren't defects at all—bad guesses, stupidities, rapacious maneuvers and all the rest. They reflect the nature of the people—humans, that is—who engage in economics. People are people, wherever they live, whatever they do. The free market's job isn't to win; it's to enable the common sense of the people to assert itself though thick and thin, through failure and success.
A critic of America's reliance on market forces—Robert H. Frank of Cornell University—explained to us in the New York Times the other day that standard economic models don't account for people's propensity to focus on the long term rather than the short—to take insufficient notice of penalties and rewards attendant on this economic action or that one. "Delayed or uncertain payoffs often get short shrift," said Frank.
Tell us another one, Doctor. Hard as it may be to believe, people do tend to evaluate actions with reference to their own, unique perspectives of need. Thus it was in the beginning, is now and ever shall be.
The key perhaps to dealing with such a deficiency is one that shapers and caterers to public opinion are unwilling to insert in the lock. By which I mean the willingness, save in extreme conditions, to let bad decisions meet with bad consequences. To allow failure.
Naturally, you can't always do that. We've heard in recent days and months of economic institutions "too big to fail." Let 'em go down and too much chaos ensues, too much human hurt. AIG, for example, or possibly General Motors and Chrysler. In steps the government to avert immediate damage. The question of how to judge between institutions deserving of failure and those too important to let go is a question on which few non-economists, and probably many professional economics as well, can rightly pronounce. Shall we just agree that failure is the just, if not the inevitable, reward for human obtusity?
Unless—aha -- the government steps in: a whole corps of regulators and wise men sorting things out, eliminating stupidity. Many in the Obama administration would like to see things happen just so—not least those talking now of regulating mortgages, credit cards or whatever else we might use to commit stupidity.
The assumptions behind this thinking are dangerous and, yes, dumb. First, because failure is often the engine of progress. You try something, you see whether it works efficiently, and you go on from there. Failure is a signal: this is no good, try something else.
There's an equally cogent reason to avoid letting government protect us from adventure's consequences. We're human, and the regulators aren’t? Whence their superior knowledge and judgment? Aren't they as likely as anyone else to evidence shortness of sight, poverty of judgment?
We're surely better off to stick with our own instincts, our own dreams, inspirations and reckonings. Dropping them when they go south is quicker, at a minimum, than repealing the stupidest law you ever heard of—when the political process allows any admission of failure.
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