Anna Schwartz, a giant in the monetary policy world, has died at 96. Call her the silent partner with Milton Friedman, he of “if only we had done what he advised we’d not be in this situation” fame.
In two words: the free market. Anna Schwartz, as was Milton Friedman, were staunch proponents of the free market. Stated in the negative, there is no such thing as “too big to fail.” Good firms prosper; poor firms fail. Or ought to, to clear the playing field.
If failure doesn’t result in failure, but in being bailed out, it only invites more failure. Behavior that is rewarded will be repeated. Plus, how big is “too big to fail?” If we bail out a giant corporation that has made poor choices, it’s not too long before the next-largest corporation comes to you, begging cup in hand, looking for a bailout. And on and on, down the line. Where it stops is arbitrary and, as we’ve seen before, crony capitalism, where friends of friends do well. Others not so much.
Anna Schwartz’ philosophy was simply stated in an October, 2008 article in the Wall Street Journal:
“firms that made wrong decisions should fail,” she says bluntly. “You shouldn’t rescue them. And once that’s established as a principle, I think the market recognizes that it makes sense. Everything works much better when wrong decisions are punished and good decisions make you rich.”
Failure is, and must be, an option. Else we will continue our decline, as we reward poor choices and even celebrate propping up buggy whip makers and union sinecures (yes, you, Chrysler and General Motors, makers of crappy, unreliable junk heaps).