We’ve heard it before; we’re hearing it again. Some banks and businesses are simply ‘too big to fail.’ Too important, too vital to our economy, too big. But if too big is a bad thing, shouldn’t they need to get knocked up a little?
The prevailing deception behind TBTF is that the wealth, resources, and jobs from companies that bust are gone. To the contrary, big companies failing is exactly the medicine the market needs to grow.
Take for instance the dot-com bust in 2001. Sure, the U.S. entered a recession. No, TBTF companies weren’t on the brink of bankruptcy, but hundreds of over-priced internet start-ups were. The effects of their collapse rippled through the market and Internet Service Providers who had spent hundreds of millions creating a fiber-optic grid around the world suddenly found their money pool drying up. Unlike mortgage lenders who received a bailout when the housing market collapsed, Internet Service Providers entered bankruptcy.
But even though the major owners of the infrastructure that supported and made possible the modern era of information and communication were gone, the infrastructure itself remained. Bankruptcy opened the door to a quick recovery and a far more stable surge in internet growth. Venture Capitalists wised up and spent more time researching start-ups, stock traders didn’t gamble as much hoping each new start-up would turn them into millionaires, and more importantly, the companies who entered bankruptcy paved the way for cheap internet. Laying fiber optics not just nationwide but worldwide in less than a decade was no small feat, nor a small investment. As ISPs dropped like flies creditors were left with fiber optic networks on their hands that they had little use for, and they sold them to recover their investment at pennies on the dollar. With almost unlimited bandwidth available (limited only by your dial-up modem and the phone line into your house), companies who bought up the bankrupt networks were able to quickly offer low cost internet because of their drastically reduced sub-costs.
Al Gore didn’t invent the internet, recession did. The infrastructure didn’t disappear, it just changed hands. Sure a few jobs were lost, many large fortunes lost, but that was a small price for the economy to pay towards the growth in jobs and wealth that followed. The important lesson to learn is that letting big companies fail will be better for the economy in the long term than any short term fix is worth. The trillions Washington has committed to spending or already spent simply aren’t worth it, we shouldn’t reward mediocrity.
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James Thoburn is a student at the University of Chicago. He created Backyard Politics to bring together individuals interested in actively participating in the political discussion without giving up their day job. His other interests include running, golf, and music.