[..] after all, what is growth promoting about forcing all of society to cover businesses mistakes?There is no such thing as too big or too important to fail and business have to know this. Why run a firm well, if the taxpayer bails you out if you run it badly? A bailout by the government gives businesses a reprieve that the market wouldn't give them. Bailouts have at least two effects. They permit continued unwise use of resources and it creates what economists call moral hazard, the expectation of future bailouts and others hopping on the bailout wagon. Within free markets a firm can pay the ultimate price for bad decisions but when the government interferes, that discipline is removed.
Monday, 16 February 2009
Don’t bail out F&P
Matt Nolan has a posting at TVHE giving good advice: Don’t bail out F&P. The last we need is for the government to start picking winners in so much as it starts to decide which firms should survive because of a bail out and which shouldn't. Firm survival is matter for the market. As Matt puts it