Free Market Mystery Revealed

Since today is the one-year anniversary of the Lehman Brothers collapse, I thought it might be nice to discuss the free market.  And not the semi-socialistic market we currently enjoy. 

The Lehman Brothers CEO is still amazed, after a year, that the federal government didn’t bail Lehman out.  Goldman Sachs got a bailout, presided over by President George W. Bush.  This is not a free market response to a failing financial institution!  A free market response would be to let Sachs fail.  In a true free market, businesses that take bad risks, use capital unwisely, and cook the books don’t survive.  Businesses that give out bonuses to CEOs who fail the company and the stockholders typically don’t make it.  Here’s a simple free market example.

You live in a town that is supported mainly by farming.  You know most of the farmers in your area, and they are complaining constantly that they have to drive 175 miles to buy farm equipment.  You see an opening to start a business.  So, you come up with a business plan and talk a bank into loaning you money to start up your business.  You build a cheap steel building on the end of main street in your small town, buy some inventory, and open for business.  The farmers are happy to have your business in town, and gladly buy your farm implements. 

The business 175 miles away, losing business from your little town, is more than a little peeved that you have taken money away from them.  They are a conglomerate, a huge business, and they decide to open a satellite office across the street from your little business.  They build a nice building, and stock up with twice the inventory you have.  The farmers are happy, because the conglomerate (we’ll call them “SCAT”) is offering implements at about 90% of your prices.  You have a few customers who see what is happening and continue to buy implements from you, but not the high dollar items you really need to sell to stay in business.  Plus, SCAT has more stuff in stock than you.  You can get the farmer a combine, but it will take a few weeks to order it and get it shipped.  SCAT has one in stock.  And cheaper than you can sell it.

Now, you have to reduce your profit margin to stay competitive.  It’s a stretch, but because your overhead is low and your employees know the community, you continue to stay in business.  This really aggravates SCAT, so they cut prices even more, figuring that they can run you out of business, then jack the prices up to a higher level than before you started.  What they don’t count on is a third competitor, we’ll call them SCUMMING, moving in on the town.  Now there are three choices for the farmers to choose from.  Prices fall, the farmers are happy, and the farms make money. 

Oops.  The IRS shows up and SCAT and SCUMMING have been cooking the books.  The local paper reports that they have been selling at a loss to run you out of business.  They interview you and you invite the IRS inspectors in to look at your books.  You are clean.  SCAT and SCUMMING have to pay fines that more than even up the amount of money they made, and they have to shut down for “restructuring.” 

With our bailout-happy president and liberal congress, SCAT and SCUMMING would be written a check to stay in business.  It would be too bad for the farmers to have to pay an extra 15% for their tractors and cultivators.  But SCAT and SCUMMING have not done good business.  They should be allowed to fail. 

The same is true of banks, corporations, and, yes, auto makers, who don’t do good business.  Would it hurt the economy in the short term?  Sure it would.  Would it mean overpriced union labor would have to work at the Dairy Queen for a while?  Absolutely.  Would the economy correct itself?  Absolutely. 

There is no such thing as a company too big to fail.  The eagerness of the liberals in power right now to hand out hard-earned tax dollars is frightening.  And the need for it is usually caused by the government dilly-dallying in something they know nothing about.  Regulating businesses to the point of failure is what the government is good at.  Last year, it’s estimated that businesses spent $100 billion just to COMPLY with tax code.  Tax code no one, not even the jackasses who wrote it, understand.  The tax cheats surrounding the president right now are proof of that. 

The free market will clear itself of businesses who don’t perform and operate in an ethical way. 

The last thing we need is for the government to get involved.  This promotes even more risky behavior, since there is no down side for doing things ethically and right. 

I guess if President Obama or any of the Ringling Brothers clowns he has advising him had ever run a business, or had a real job, they would know that. 

It’s obvious that they don’t.


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