June 15, 2009
The Slow Motion Walk to a Managed Economy
It started with fear, that the failure of some companies would tank the economy. The government then eschewed market self-correction and accepted the need for bailouts; only the government could fix the crisis. The fear moved to an implied government guarantee. Then the guarantee morphed into theory, the most dangerous move of all -- some companies are "too big to fail." The theory is now moving to regulation -- the government must have a unified regulatory agency that regulates the risk practices of those companies that are too big to fail. The result? Companies have an incentive to grow to access the government guarantee and to enjoy the bailout money. These incentives are only mildly related to business goals, low gross margins and the like. Companies will be selected for success on their political power and size. Not good.
June 15, 2009 | Permalink
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The Government is taking control of economic lives. This may be good in the short term, because it saves the jobs of many people. However, in the long term we will probably have slow growth (the same way Europe is now).
Posted by: carlos sousa | Jun 15, 2009 10:48:35 AM
If business leaders and business advisers want to know where this problem came from, they should look in the mirror.
The pendulum will swing back - someday.
Posted by: save_the_rustbelt | Jun 16, 2009 6:32:18 PM
I'm afraid that Government power is a rachet - once the Govt has power, they do NOT give it back - the swing back just means that for a certain amount of time no NEW power grabs take place. Once the Pols, and the Govt unions have something, they never give it back
Posted by: KG2V | Jun 17, 2009 4:50:32 AM