Friday, September 19, 2008

Let Them Fail

One of the biggest disservices parents are doing to their children is protecting them from ever failing. It is better that they learn from failure when they are young and the consequences are not so great. I have heard so many stories about helicopter parents. You know, the parent that is always there to catch their child when they scuff their knee or, worse, berate their child's teacher when little Suzie gets an “F” for not turning her homework in on time. Do these parents really think they are helping their children by never letting them fail and, more importantly, never allowing them to learn from their mistakes? When parents remove consequences from actions, a child doesn’t learn responsibility.

So now we have a helicopter government. It has been a tough year for many Wall Street investment companies, insurance companies and banks. These companies have made some really bad business decisions. In a free market, companies that make bad decisions are punished and companies that make good decisions are rewarded. Well, apparently not anymore. These companies are deemed “too big to fail" so the taxpayers are on the hook for the bad decisions that these companies’ management made. (And well compensated management I will add.) We have privatized profits but socialized losses.

What is preventing companies from acting even more reckless in the future if they know the government will bail them out? I guess the answer is going to be more regulation. But the market has a mechanism for regulating itself, it is called failure. So a few companies acted irresponsibly and the fix is going to be more regulation for all companies - even the ones that didn't act recklessly. This is kind of like when a teacher punishes the whole class because one or two kids have misbehaved. I have never thought that was fair and I don’t think what is happening with the government bailouts is fair either.

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