Too big to fail. I'm sure many of us are tired of hearing this phrase. That's the phrase that the Bush administration (Treasury Secretary Paulson and Federal Reserve Chairman Bernanke) used to explain why they had to bailout the major financial corporations in October and November of 2008. They stated that allowing these entities to fail would cripple our economy and lead to a worldwide economic depression.
What they didn't say is that the financial crisis that led to the bailout is a natural outcome of the unfettered capitalism which many in the conservative movement have always called for. Conservatives and the Tea Party patriots are always the first to tell you how capitalism, unburdened by government regulation, is the best economic philosophy ever created. And as is always the case, economic philosophies work better on paper than they do in the real world.Capitalists will tell you that there are some basic truths about unregulated capitalism. The first truth being that supply and demand will determine the price of any given commodity. The second is that competition is essential for capitalism to benefit consumers. And the third one is that profit is king. All things being equal, this would be great. But all things are not equal.
When capitalists are allowed to act without regulation, it becomes economic survival of the fittest. The strong companies will overcome the weaker ones in any given industry. The strong companies will grow bigger, take up more market share and the weak companies will fade away. This will continue until there is only one company left. That one company, without any competition and to maximize profit, will now be able to arbitrarily set the price of the goods or services they provide. They would also be able to dictate the price they will pay for labor and profit now becomes more important than competition. At this point we have a monopoly, the natural result of unfettered capitalism and the worst thing that could happen to consumers.
Today monopolies rarely occur. There are two reasons for that. The first reason is that there are government regulations that prevent them. The other reason is that capitalists will enter into agreements to cooperate rather than drive each other out of business. These agreements or cartels (see OPEC) have the same effect as monopolies. But instead of one company setting the price, you will have a group of companies doing it. These cartels will grow so large that they will use their power to water down regulations in order to protect their economic interests. They then will expand their influence to become what we now know as too big to fail.
Ironically, the people who were outraged by the bailouts are the same people who currently support the deregulation that allowed those companies to become too big to fail and made the bailouts necessary. Actually they want more deregulation. Perhaps doing the same thing and expecting different results is not a sign of insanity. I doubt it.
