New Venture Lab: Equipping Christian Entrepreneurs

The bailout of the banks, auto manufacturers and everyone else that will line up for a handout is a colossal mistake and will only lead to inflation and a declining dollar.

In a recent television interview, Jim Rogers, Chairman of Rogers Holdings -- and a highly-successful investor -- named a few examples of how other national economies reacted to a similar situation and the vastly different outcomes they experienced:

• Japan did this in the early 1990's to prop up their failing banks and various companies (remember the "zombie banks" and "zombie companies" that were the result?).  Now all these years later, Japan's stock is 80% below what it was in the early 1990's.
• By contrast, when Korea hit similar hard times, they let the market clean itself up and avoided any intervention.  Weak companies failed and strong companies got stronger and their economy only suffered for one to two years before rebounding.  Korea's economy has experienced very robust growth ever since.

The bottom line is that bad companies should be allowed to fail.  Competent companies should be taking the customers, assets and market share from the incompetent companies.  Strong competitors should be winning in the market against weaker competitors. 

Survival of the fittest is the law of capitalism, but only if we do not meddle with the free market.  Any amount of meddling will only create more havoc and confusion in the market and impair the market's ability to correct itself.

This entire bailout business is a slipperly slope.  If we bail out the auto manufacturers, how can we say no to the auto parts firms and the auto dealers?  The third largest credit-related sale after homes and autos are home furnishings and electronics.  Will furniture, appliance and electronics manufacturers, suppliers and retailers be next?  (Some such as Circuit City have already declared bankruptcy).  As Tevye cried out in Fiddler on the Roof "Where does it end?  Where does it end?"

Read the first installment of Government Intervention with Free Market Mechanisms here.  Read about Governmentium here.