Economic news, these days, seems to be driving home some very old economic wisdom — about foolishness.
In an essay on banking from the 19th century, a writer quipped, “The ultimate result of shielding men from folly, is to fill the world with fools.” This basic lesson — that it is dangerous to shore up bad practices with bailouts and specially tuned central banking policies — is being borne out, once again, in the American economy. Thank the L.A. Times’s sad, sad article “Forget too big too fail: some banks now too small to succeed.” The article’s blurb nicely synopsizes smaller, non-bailed-out banks’ plight: “Small banks are finding it increasingly tough to survive, in part because of the cost of complying with regulations stemming from the financial crisis.”
Remember that 2008’s financial implosion led to a double whammy of governmental overkill:
- Bailouts for the biggest fools and
- Regulations for everybody, including the wisest players.
The former kept the fools in place and ready to do more damage, since their folly had basically been rewarded. The latter burdens all players, but the costs are hardest for smaller outfits to bear, while bigger outfits can easily jump those regulatory hurdles.
The details of all this constitute “news,” but the principles are old (I’ve discussed them here many times). Bailouts reward the biggest fools, and regulations protect the biggest players from competition from smaller ones.
Yes, indeed, the ultimate result of shielding bankers from the effects of their folly is to fill the world with foolish bankers.
This is Common Sense. I’m Paul Jacob.