It seems that our politicians and their followers always forget the admonition on Santayana that "those who cannot remember the past are condemned to repeat it." This is never more evident from our forgetting that the greatness of America lies in its willingness to benefit from failure. Imagine an industry vital to national defense, with high levels of employment being allowed to fail. No I am not talking about the banks or the automobile industry, I am referring to the horse industry. It was vital to the military, vital to workers and essential for the functioning of the economy. Yet it failed - displaced by innovation and a new product, the automobile. Milton Friedman once said that if we used the same arguments then as we used on Lockheed and Chrysler, that we would still be riding in stagecoaches between Philadelphia and New York. Yet here we are at this time not letting Chrysler (again), General Motors and nineteen big banks fail, although to date we have let 31 smaller banks fail. But what the past has shown us is that failure is good. Yes it is disruptive. Yes it is traumatic. But it is also cleansing. It sends the harshest market signal that change is needed. Failure begets innovation and creativity. From the ashes of the dinosaurs come new products that take advantage of the opportunities created by failure. Instead of resisting change the market economy embraces it. Instead of fearing change, a capitalistic economy welcomes it. Preserving the old by propping it up hinders innovation and growth, stifling the new. Is it any wonder that those economies that have not allowed failure have themselves failed? They condemned themselves to slow growth, low productivity, high unemployment and meaningless make work jobs. The Obama administration and the Bernanke Fed do this country a disservice by propping up failed institutions and in so doing waste the nation's fortune. That disservice is compounded by injecting government control in autos and in banks with more to come in education and health care. Want evidence that government control stifles innovation? Just look to pharmaceuticals where the US is the world's leader in developing new drugs. Countries with government controlled health care do not innovate because it is costly to do the R&D necessary to bring those drugs to market. Look here in the US at what drugs are available in VA hospitals to see the impact of price controls. Anyone who knows and understands markets knows that as a result, government control makes us worse off. We will be poorer, less healthy and less educated. The government without a profit motive will not ruthlessly produce the products that people demand at minimum cost. It will not be motivated to bring products to market that people demand rather it will bring to the market what the government wants us to consume. It will be like the old Soviet Union with underpriced products and overpriced products. There will be products on the shelves that cannot be sold and shelves empty of products that people want. There will be shortages and government made crises. There will be more waste and fraud. There will also be a dirtier environment. There will be a small privileged class and virtually no middle class. Don't believe me. Just look to history and tell me I am wrong. Are you sure this is the change you wanted?
Harold A. Black is professor emeritus in the Department of Finance, University of Tennessee, Knoxville having retired after 24 years of service. He has served on the faculties of American University, Howard University, the University of North Carolina - Chapel Hill and the University of Florida. His government service includes the Office of the Comptroller of the Currency and as a Board Member of the National Credit Union Administration. He also has served on the boards of directors Home Savings of America and its parent company, H. F. Ahmanson & Co., Irwindale, California prior to its merger with Washington Mutual Savings Bank, on the board of New Century Financial Corporation, Irvine, California, then the nation’s largest real estate investment trust and as director and later chairman of the Nashville Branch of the Federal Reserve Bank of Atlanta. He writes an occasional article for the Knoxville News-Sentinel at http://www.knoxnews.com/staff/dr-harold-black/. His web page is haroldablackphd.com