Tuesday, November 18, 2008

Burn, Baby, Burn

With the world financial system still in turmoil (and Japan joining the recession ranks), governments hear the public cry for action. It's a knee-jerk call with little forethought. People mistaken the current economy as a burning building: clearly, something has to be done. This analogy makes a series of errors, assuming the government could fix the problem, knows how to fix the problem, and wants to fix the problem in a way that actually works (instead of just claiming it works).

If you insist on the analogy, we should wonder if the fire's too hot to suffocate. We should wonder if the buckets contain water or kerosene. We should wonder if the firefighters wish to get burned putting it out or stay away and roast marshmallows. But most of all, we should wonder if if the building should just burn down.

The financial sector is really large. Arguably too large. At the very least, many firms made some big errors. Saving the company that's a proven failure is not a recipe for long term growth. Ditto for Detroit, who focused on SUVs while gas prices climbed. The same goes for virtually any struggling industry, especially its old and unimaginative players. They made a mistake, honest or not, and now they're dead weight.

Forest fires occur naturally. As forests age, dry undergrowth covers the ground and old trees block out all light. Nothing new grows. It takes only a bolt of lightning to ignite the old structure and wipe it away in a cruel immolation. This is the only way new life can flourish and the forest can ultimately survive.

Let the ancients burn.

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