Too Big To Fail

Enter President Obama’s bipartisan fiscal commission, which will hold its first meeting in a few weeks. While I was reading about the mountain they have to climb and the tools they may employ to climb it, I was reminded of an MBA economics class I once took. Back in those days the deficit was just over 175 billion dollars and the debt was about 1.57 trillion. Discussing this in class our professor explained what he called two facts of American Economic Life. First, there was no such thing as 1965 dollars or 1975 dollars, there were just dollars. In his words, “A dollar is always worth a dollar.” The second and more significant fact was that if the deficit were zero and the national debt was also zero the first act of congress would be to incur debt.

Where I work we have two types of divisions. One is called a profit center. Its purpose in life is to make money thereby allowing us to grow and make money. The other is a cost center. Its purpose in life is to operate within a budget with no surplus and no deficit simply clearing its costs. The profit centers are like the private sector, they produce products and produce growth and income. The cost centers are like government and provide the supporting infrastructure that the profit centers need and share since it is more efficient than duplicating their purpose in each profit center.

When we look at government it seems that they are tasked with running an efficient infrastructure that the private sector would benefit from. This would allow the private sector to flourish and grow, producing more income and thereby providing more funding for a proportionate growth of government support. Get this balance out of whack and the company or country goes bust.

We have seen how government has perverted this balance eliminating the great equalizer and arbiter of success, failure. They justify their actions by suggesting that some institutions are too big to fail. I, on the other hand contend that there is no such thing as too big to fail. It is a fairy tail that would be nice were it so, but in reality just does not exist. While government is busying itself trying to convince us that they were right and we were wrong, I searched for someone who could support my position. I wanted to find someone who understood first hand how big was big and that even that big it could fail. Fortunately I found such a person, Mikhail Sergeyevich Gorbachev.