The Obama Administration and the Importance of Failure

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One of the most damaging faults of the Obama Administration is how it tries to deal with failure and its attempts to avoid failure–except, of course, when it pumps money into high risk “green” projects. In those cases, failure doesn’t matter to Obama because it’s only the taxpayers’ money at risk.

As a general economic rule, however, failure is essential for learning and leading to eventual success. It is not something to steer clear of at all costs.

Our country’s free-market system is so vibrant not because all efforts always lead smoothly to success, but because they provide a way to learn from mistakes as well as the incentive to correct mistakes. Business people make missteps. But they know that when they’ve got it wrong they set out to get new information for a new course needed to get it right the next time.

More than half of all small businesses, for instance, fail in the first five years, according to Small Business Administration records.

The Obama Administration’s auto bailouts was a particular example of failure avoidance. By not letting Chrysler and General Motors fail during the Great Recession, Obama forestalled a positive entrepreneurial response by this gross misuse of government resources.

“The bailouts created two types of negative incentives,” explained a study published in The Freeman, the respected libertarian journal. The auto companies were encouraged to continue to build cars even though their losses showed the resources and labor could better be used elsewhere. Also the Administration kept any new entrepreneur from entering the industry and succeeding where others had failed.

The bailout was defended on the theory that many thousands of autoworkers would be without jobs. And when labor union workers are involved they must be treated with the respect accorded royalty–in the Obama Administration rule book.

But, as economists Steven Horwitz and Jack Knych, pointed out in The Freeman November article, “When hundreds of thousands of workers become unemployed they do not disappear.” Many find different jobs “that would contribute to society in a better way than working for a bankrupt auto company.”

The physical assets of bankrupt companies also become reallocated to alert entrepreneurs who may be looking for bargains.

So, failure drives change. “While success is the engine that accelerates us toward our goals, it is failure that steers us toward the most valuable goals possible,” the Freeman authors wrote.

Obama hop-scotched around the country insisting the U.S. needs a $470 billion spending bill to create jobs and spur the economy. He has learned nothing from the results of his earlier $800-plus billion ineffective stimulus package. It and other federal spending produced a dangerous increase in the money supply, yet were ineffective in stimulating the economy or job growth. His policies could be described as failures–never to be acknowledged.

So, the Obama Administration continues on the narrow, bumpy path of Keynesian economics: stimulus I, stimulus II; maybe stimulus III is next. The Administration’s policies remind one of Albert Einstein’s quotation that doing the same thing repeatedly but expecting a different outcome is a definition of insanity.

Obama has learned nill from the Keynesian experiences that have flopped both here and abroad. But he’s blind to the failures.

He fits Nobel economist Friedrich Hayek’s observation that the most orthodox disciples of Keynes have consistently “thrown overboard…all that used to be the backbone of economic theory, and in consequence, in my opinion, to have ceased to understand any economics.”

It may be correct that if the government had not stepped in and dictated the terms of the auto industry restructuring, G.M. and Chrysler would have collapsed and a million jobs would have disappeared at those companies.

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  • StephenD

    "For a high standard of living we must “constantly change how we do things.” Change won’t be fueled by “lucky guesses or bureaucratic decrees,” but instead by entrepreneurial activity in the face of possible failure in the market. That has always driven the train of progress."

    Not if we listen to this Administration. After all, Solyndra was a perfect example of what our tax dollars could accomplish.
    “It is here that companies like Solyndra are leading the way toward a brighter, more prosperous future,” Obama said of Solyndra.
    So, we see a few elites that think they know better how to use our money as an investment when they really have no right to do so.
    Why haven't there been lawsuits against this fraudulent use of our money?