Governments and Economics

As a citizen I am confused about where we stand. First off, we are the people, the voters, we elect a government and they represent us. According to my high school civics classes that makes us a democracy. However, governments elected by us often sacrifice our well-being in order to further the goals of industry, and justify this by saying they must protect and create jobs or else we will lose our high standard of living.

So far, I’m kind of in the ballpark on this. I like goodies as much as anyone. On the other hand, in the process industry has become so important that if they happen to make bad decisions, such as building dams that collapse, or investing in worthless securities, or not holding enough money to meet their commitments, our governments are on the hook to bail them out. Some companies, like a few giant auto manufacturers and financial concerns, have even been designated as “too big to fail”. Not that having an official designation means much. Far smaller companies get the same treatment if they create jobs in less populated regions.

This isn’t so bad, except that during economic downturns, even ones that have been instigated by the mismanagement, or greed of these same companies - they still seem emboldened to ask for more. And if they don’t get what they want in the way of tax relief, cheaper raw materials, favorable environmental laws or outright grants, they threaten to shut down their business and lay off all of their employees. Our governments are, in effect, being held to ransom for the poor planning or bad management of many businesses, and both government and industry claim this is simply the way things are.

Something here is amiss. While these companies want to be subsidized through lower taxes and cheap resources – and even bailed out if they screw up – they also insist that they be allowed all the privileges of a free-market economy. This includes freedom from government “interference”, especially from the dreaded bureaucrats. Such interference, they tell us, would be socialism and it would mean the death of all that is good and true in the business world. In effect, all the largess must flow one way – toward industry.

It seems to suggest that government support for these companies is considered both good business as well as good government. Yet, if governments want anything from them in return, like a reasonable amount of taxes or a contract saying they must repair public land after they have severely disturbed it, that’s intervention, and the death of our economy. 

Are you following all of this? I’m writing it and I’m having a bit of trouble with the logic, but it must be purely my problem because it’s completely sanctified by a horde of both government and industry experts, which means there truly can’t be anything wrong with it. 

Here’s where I run into absolute confusion. Many years ago, at university when I took Economics 101, I was told that capitalism was based on the idea of companies failing when they are poorly run. It seemed logical at the time. Efficient companies, which provide a better product at a more affordable price are the ones that grow and become successful, while inefficient ones that make bad (or criminal), decisions disappear and make room for better companies. Capitalism is supposed to be as much about the failure of the bad as the success of the good.

But now we aren’t allowed to let big companies fail. For instance, we are told if we didn’t support certain huge car manufacturers, or insurance providers who employ many thousands of employees, we would lose all of those jobs when the companies mess up. Of course, that seems to predispose that we, as consumers, will stop buying cars or insurance if those particular suppliers aren’t in the marketplace, and that’s a bit strange. They may be large suppliers but they aren’t the only ones. It also assumes that other companies, the ones who are making a better product as well as better management decisions, (who also have plants in this country employing many residents), wouldn’t be able to hire more workers and expand their production to meet the challenge and take up the slack. It’s true, I suppose, the dislocation of workers from one area to another would be a hardship, at least for the area they are leaving. On the other hand, it would be a plus for the area where the expansion would occur. 

This concept of “bailout” and “subsidized” capitalism disturbs my fundamental values. If I were to expect such an entitlement as a working individual I would be called some very ugly names, but industry and government can engage in these transactions and still heap platitudes of praise all over each other.    

A prime tenet of capitalism is that if a business, no matter how large, screws up, they should be allowed to fail. In fact, they should be encouraged to fail, because that’s how a healthy system works. If there is a demand for their product or service, other better managed businesses will move in to fill that void. That is what free markets are supposed to do, that is what defines capitalism. But governments, for their own political reasons, ignore this fact and redefine the basic principles to include a level of support for business that renders the whole process of free market capitalism dysfunctional – and, somehow, they manage to claim it’s done in the name of capitalism. This is so confusing. 

What isn’t confusing is the outcome. We the people pay the price. We pay for these companies to be poorly managed, we pay for them to be bailed out, we pay for the second-rate products they continue to produce, and we even pay when they shut down and leave a mess behind them. And we will continue to pay, sacrificing our opportunities for a more secure and prosperous lifestyle, as long as we continue electing people who seem to fit very nicely in the back pocket of these businesses.  

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