Raise the Hammer

Ryan, where do most of the new, most innovative companies come from? It's not Germany or Japan, but the U.S.A., where failure has, up until recently, been embraced as a badge of honour. By allowing companies to sink or swim on their own, which includes allowing workers to lose their jobs, the U.S. economy has provided the world with the greatest and most diverse market for goods and services.

Whereas most people look at failure as a negative thing, it is also has a positive side. Take the recent housing bubble as an example. The people who were smart and sat on the sidelines as home prices went through the roof, are now in a position to scoop up real estate on the cheap. The same thing goes for banks that were prudent in their lending style. Therefore, over time, there will be a whole new set of winners in the U.S. economy, it's just that they will be the ones who were smart enough to do it on their own.

Over time, this freedom based approach acts as a filter to keep the best and brightest in control of most of the capital. When you combine talent and capital, you get good business decisions, which ultimately helps economies produce better products more efficiently.

The alternative is to let government impose "sensible" regulations, which while they may help certain industries, limit the benefits that come from failure. By decreasing the turnover of capital, you smooth out the disruptions these failures entail, but you also miss out on the next big thing. That is why Japan or Germany will never the lead world in bringing forward value added ideas, but will be resigned to second tier adopters of new technologies and business innovations.

I understand there has to be a balance between chaos and order, but I think the examples the twentieth century gave us point to erring on the side of too much chaos, rather than too much order. All one has to do is look at which economy produced the greatest advancements in technology, the U.S.A., or the former U.S.S.R..
One economy produced output based on signals from the consumer and the other produced output based on ideas from politicians. The former gave us T.V.'s, computer games and modern electronics, the latter gave the world nothing that consumers value.