Nobody likes to lose their job, especially politicians. Particularly in the midst of our current economic difficulties, people worry about the impact that international trade, globalization, and competition can have on their economic security. I don't fault them for that. Politicians in the US and elsewhere often attempt to address that fear by making it more difficult to fire employees (such as in France, where the termination process can take more than 6 months and requires permission from a court), by restricting the ability of new firms to enter into an industry (either directly by adding layers of regulations and hurdles or indirectly by subsidizing incumbent firms), by restricting foreign access to markets, by making it more difficult for companies to sell their products, or by restricting entry into new occupations (such as by imposing licensure requirements).
In some occasions, these requirements appear reasonable. After all, who wouldn't want the assurance that the FDA provides when it checks the safety and efficacy of a new drug? However, in many instances, these particular attempts to increase economic security, particularly by restricting market entry or making it difficult to hire/fire employees, cause far more economic damage with little to no gain in economic security.
In short, we hurt ourselves by implementing these policies because doing so stops the vital process of creative destruction. We cannot expect new innovation as long as we shelter inefficient firms from competition or put up roadblocks that prevent companies from creating the most dynamic labor forces that they can. Does this mean we have to throw away economic security? No. I'll address that issue later. However, we cannot provide that security by pretending the forces that cause it are somehow bad or unnecessary.
2 comments:
Hey! Finally made my way here. I felt bad sending all those posts through Facebook. I continue to be totally intrigued with the election and the economic issues currently being played out.
I like this post because I think we sometimes get too sentimental about losses. It has to be the "yin/yang" thing if we want progress - we can't conserve and protect everything.
I read Ishmael this summer. My daughter hounded me until I did - very interesting. (They read it in Jr. Seminar?) Anyway, this post reminded me of that book, too.
Thanks for writing and sharing your thoughts. Hope all is well with you. Psyched for baby-o-rama!?!? :)
Lee :)
Hey Aaron,
Your creative destruction argument is interesting, but it seems to fail when you extend it to the larger economy. Bear Stearns got bailed out by the government, and the promises to Fannie and Freddie are essentially bailouts--those companies would have collapsed without a government promise of support.
The too big to fail argument is used to justify these actions, but that's not a politically defensible position. Saving the dumb decisions of financial executives while ignoring the dumb decisions of poor Americans simply exacerbates the view of a growing economic inequality in the US.
I think the answer has to be more regulation, honestly. Fannie and Freddie, if they need to exist, should be government agencies. Bear Stearns should not be permitted to make the investments that they did, if these choices were so risky that they endangered the economic health of the entire country.
In my opinion, regulations are useful when they prevent and correct negative externalities. These financial collapses are clearly negative externalities on the taxpayers who fund these bailouts. We need to undo much of the deregulation that occurred with Bush and Clinton.
Maybe Obama will do this. Let's start chanting like the youtube video.
Dave
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