The Price of Progress

As noted here last fall, one of the key dynamics that is delaying the recovery of financial markets is the resistance of many societal forces to allow the markets to allocate the risk of loss among the various investors in failed businesses.

Inasmuch as private capital will not invest in even a potentially viable business until that company’s financial condition is likely to reward such an investment, the liquidation of unviable companies is an essential part of the process that has allowed market-based economies to generate the most wealth and jobs throughout modern history.

Despite the foregoing, the beneficial aspects of liquidating unprofitable businesses remains often unappreciated. A scene from the 1991 Norman Jewison film "Other’s People Money" illustrates this truth wonderfully, first as Gregory Peck’s character demonizes the forces of liquidation and then as Danny DeVito’s "Larry the Liquidator" shatters the myths upon which such demonizing rests. Enjoy.

2 thoughts on “The Price of Progress

  1. Danny DeVito splendidly explains, in laymanís terms, Joseph Schumpeterís creative destruction doctrine. Our hearts may go out to the impacted workers, but we cannot encourage them to continue indulging in wishful thinking. Itís best they move forward and seek more viable options. The world ultimately doesnít owe these modern day Luddites a thing.

  2. Thanks Tom,

    This should serve as a wakeup call to those in the current mindset that we have industries too big to fail! There are no such industries. Devitoís speech reminds me of the current situation with the big Three in the car industry: Ford, GM, and Chrysler.

    If the labor union at GM is worried about their workers losing jobs, then they should help their own industry. But in reality all they have done is take from the workers, promised them higher wages and benefits without showing real growth. How long cans this happen until we realize that it is time to either change or just shut the door.

    Letís face it, foreign automobile companies have been eating away at the big three for years. Even in the foreign car market we see the Japanese share of the market dwindling to the Koreans.

    Do we see change? No we see government propping up of old antiquated industries that should have failed years ago. That failure would not have seen the demise of the American automobile industry it would have seen great change.

    The real lesson learned is that if we continue to make bad decisions and not see real change, then our nation will become stagnate and worthless. Is that what we really want?

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