TCS Daily


House of Pain: Why Failure Is Important

By John Baden - October 26, 2007 12:00 AM

I recently met with an intelligent and highly successful young man. Most of those with whom he deals are part of young families. He began our conversation with this statement, "I'm no economist, but I think we're facing a local and national catastrophe."

When asked why, he responded as though from a well-crafted script produced by the American Home Builders Lobby. The housing market is crashing. Folks will lose jobs and some their houses. Some businesses and even banks may fail. "This is a disaster," he said. Of course he's right -- and also wrong. It depends on the scale.

You know the litany; too many people have bought houses with low "teaser rates," some with no money down and no credit or income checks. Others up-sized to 4,000 plus square foot homes and assumed a far larger mortgage, one they can't afford as interest rates rise. They now find their homes financially "underwater" with the amount owed greater than the market value.

Concurrently, general contractors, having tooled up during the boom, now must contract. Subs can't find work as easily as before -- or perhaps not at all. While a short time ago any person showing up with a good pulse and clear eyes could find work at $18 per hour, now marginal and even average workers risk layoffs.

While the good hands will always have work, housing supply exceeds demand and adjustments will and must occur. This is the "local and national catastrophe" that so concerns my young friend. And no doubt lots of good folks will suffer. I join other tender hearts and empathize with their individual plight.

Despite our sympathy for individuals, and in the spirit of tough love for them and for the nation, we should cherish, though not celebrate, these failures at the national level. Here's why failure is important.

Observers interested in the overlap of economics and public policy celebrate success stories. Accounts of winners are easy and pleasing; there's little obvious pain and loss when visions lead to triumph. But not all businesses and families succeed. Some failure is inevitable -- and ironically is also valuable as a powerful purging force.

Every successful society has devised ways of separating incompetent or systematically unlucky people from the control of valuable resources. (That's why civilized nations provide children and legally incompetent individuals with guardians and trustees.) This is an essential process for all but the most wealthy of nations, e.g., those cursed by great oil wealth. (This windfall wealth situation is the national analogue of individuals winning the lottery; a harbinger of bad things that follow the lack of a need to husband resources.)

A society's economic success is increased if it has sure and quick ways to accomplish this separation, however painful to those who suffer losses. While there will be political pressures to buffer folks from the consequences of economic folly or bad luck, it is socially dangerous to do so. Reality checks should have force, so that those who fail to prudently manage resources will not keep control over them.

My banker friend and FREE board member Leon Royer recently wrote: "Too many people (borrowers, bankers, investors and investment bankers) have done too many dumb things for this situation to be resolved without substantial pain disbursed over many folks. No optimistic happy talk will change the curing time; it's likely measured in years."

Economist Peter Linneman nailed it more harshly in "Making Sense of the Current Capital Markets Disarray." He observed: "As for the idiots who lent (often without down payments or documents) to the idiots who bought speculative homes, they deserve to lose. People must understand this simple fact."

Our pressing danger is not that many folks will go broke, but rather that opportunistic politicians will bail them out and insulate them from past and future folly. We need to find and support those who instead recognize the ecological question: "If correction is not swift, then what will follow?" The longer we wait for a correction, the more massive and painful their suffering -- and ours -- ultimately must be. That's the way the world works.


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247 Comments

How can we mitigate the fear of correction?
I guess another good question is: why do we fear and hate correction?

Commonly used language seems to foster the sense that there should be, at some level, infallible insulation which we can count on to keep correction away from us--as though correction yields harm, not educated intelligence.

How do we discourage the cheap, easy pity that cheats our culture--and the world!--out of the advantages of prudence?

This article made for such thought-provoking reading...thanks so much.

It helps to have a society thaty rewards prudence.
When society rewards presidents who have affairs with interns, when society rewards irresponsible and illegal behavior and when society rewards stupidity, why should anyone expect less?

It's all Clinton's fault!!! Of course
You really believe that consensual sex in the oval office with someone over 21 and not an intern is a greater abuse of public confidence than starting a needless, useless war by spreading dubious, wrong and misinformation??

Interesting...
that you liberals love Clinton but have no problem with him using his power to have sex with those under his command. I thought liberals sought to elevate women beyond the work environment where a boss can use them as common prostitutes.

Oh how the liberal left has fallen.

To stay on point: Clinton's tax policy and lax reaction to the internet bubble caused the recession Bush inherited. The housing boom, and minor bust, is caused by Bush's tax cuts and booming economy. Market corrections are a fact of life.

"Society rewards stupidity",
as is evidenced by the fact that Eric has access to the Internet.

Granted. How can we vaccinate against the rewards for imprudence...
...other than, and in addition to, at the grass roots level--i.e., how we raise our kids?

Being an optimist, I believe that there must be a few types of pebble-ripple combinations that can be set in motion to slow the damage. Something that can be injected at the adult level.

I've seen the effect that common sense can have when splashed on otherwise hackneyed, conventional-wisdom-reliant conversations. So...blogs, talk radio, and individual chutzpah, I guess.

Because I could!
"After decreasing steadily and significantly for more than a decade, the percentage of teenagers having intercourse began to plateau in 2001 and has failed to budge since then, despite the intensified focus in recent years on encouraging sexual abstinence, according to new analyses of data from a large federal survey."

http://www.washingtonpost.com/wp-dyn/content/article/2007/07/21/AR2007072101275_2.html?sub=AR

" Former President Bill Clinton said in a television interview Sunday that his relationship with White House intern Monica Lewinsky was "a terrible moral error" "

Clinton told CBS he had no rational explanation for his behavior with Lewinsky.

"I did something for the worst possible reason -- just because I could," he said. "I think that's just about the most morally indefensible reason anybody could have for doing anything."

http://www.cnn.com/2004/ALLPOLITICS/06/20/clinton.book/index.html

Clinton, what a leader!

Dumbledorf
This is a really stupid retort.


Christianity
Christ led by example.

Raising children in a conservative Christian church might help.

As a Lutheran, I tend to favor the Wisconsin Synod over the ELCA, which absorbed the ALC years ago.

The most important defense against the world is to raise children to be independent. I have never understood the idea that children need role models. Since all humans are fallible, latching on to specific individuals can be dangerous. Better to pick and chose those times when people stepped up, and made the right decision regardless of the popular opinion.

A new pioneerism, perhaps
On the role models issue, I think early reliance on them is in our DNA. As a parent, I've seen that children use role models from the outset. Over-reliance on them later for various reasons, though, is a bad problem.

On the Christianity issue...sigh...the church spends so much time fighting itself...if Christianity is to help provide this vaccine, it must be muscular Christianity. (I am no theonomist, just so you know.)

Perhaps I have to view society as unsettled territory.

There is a free market in churches
At least pick up some books by Robert Schuller.

Is this really the major threat facing the country???
Give us all a break, but Clinton left office in 2000, and badmouthing him sounds desperate a half-trillion dollars into a useless war.

Nobody's defending what Clinton did - but there was no sexual harassment issue ever raised, and that is legally a very easy issue to reasie. Fixating on it is just silly: nobdy died because of adulterous sex in the White House. Your thoughts on Clinton causing everything that went wrong after 2000 are predictable, and giving Bush credit for eveything that went right is even more predictable.

Odd that your views on Iraq seem to be a minority these days...
http://www.americanthinker.com/blog/2007/10/antiwar_films_bombing_at_box_o.html

http://www.americanthinker.com/2007/10/code_pinkos_turn_red.html

Of course this insulting piece of trash. This insulting cartoon shows how low the left really has sunk.

http://www.gocomics.com/rallcom/2007/10/22/

But go on libs, your going to sweep 2008 arne't you?

If society rewards stupidity, The_Great_One will soon be rich beyond counting
Nothing to say on topic as usual, eh, big guy? But why not go down and audition for some standup? You'll kill 'em, with gags like that................

So you have someone who's able to frankly admit he made a mistake
But that's indefensible to youo: you'd rather have someone who starts a war on trumped up bogus double-talk, and then claims he did everything right.

Zinger!!!
What the hell are you talking about??

So you drag up some lying slime from ultraright bloggers..
... and you're sure it's all god's own truth.

But gee, if the conservatism looks so invncible in 08, why are so many GOP legssators saying theyt won't run for reelection?

Having oral sex while discussing troop deployments?
"On another occasion, the President enjoyed a guilty thrill as Monica performed a sex act on him during his phone conversation about deploying troops to Bosnia. U.S. Army Col. (ret.) James R. McDonough, who commanded those troops in 1995, gave the best analysis for a President's gravest responsibility. As McDonough wrote in the Wall Street Journal, "All human beings, if they are to remain in balance, must go through alternating cycles of work and relaxation. In this case, however, the act of casual sex at a moment of great importance smacks of callous indifference, sophomoric arrogance, and reckless disregard of the sanctity of U.S. soldiers' lives."

http://www.nationalreview.com/flashback/obeirne200406210915.asp

Troop deployment is not a risky operation?

Its indefensible when there is no real remorse.
He is just sorry he got caught.

Wait...
The author of this article offers a flawed proposition.

He is equating the social mechanisms whereby incompetent individuals are denied "decision making authority" regarding important matters (where significant damage might be done) with some necessity that economic failure should occur.

Business players fail in some sense continually. It is the nature of game. There are simply too many ways to get things wrong and only a few ways to be completely right. In a fundamental sense, avoiding stupidity puts you ahead of most people.

However, the degree of failing to achieve one's destiny does not require utter failure. Just because financial capitalism exists with sufficient freedom of action that some people will act in an irresponsible manner does not imply that the entire market must crash and burn...or that this is a good thing...a lot of subordinated people who are simply "going with the flow" are needlessly harmed. Underlying stupidity might not seem foolish to most people until the entire structure collapses.

Similarly, we all have automobiles that are able to go well over 100 mph and super highways where this is actually possible. Of course, such transportation resources are necessary in our society (just as the financial markets are). Nevertheless, there is no requirement at all that we should, indeed, fly down the road recklessly...and the inevitable death and destruction that must follow could not be described as a good thing.

Returning to the author's original premise...Of course, if there are fast cars and good roads then from time to time someone will get out there and kill himself acting foolishly. And we try to protect such morons from themselves...we take the keys away when they are too young, too old or too drunk.

Certainly, when the entire market gets stupid then there must be a dramatic correction...but we have our Economists to blame for this...almost no one really wants to lose everything...people with enough money to play this game do have a certain aversion to risk. The problem is that no one seems to know for sure what market behavior would be prudent and what is actually misbehavior.

Our global economy relies on financial capitalism. A fundamental disruption in the mechanisms of banking and commerce could result in social breakdown. Of our civilization itself.

To suggest that any such "failure is important" (and a good thing) would be irresponsible...and this is simply wrong.

Who died?
Maybe you're not getting enough sex. What bad decision came out of this? Who died? Who besides Clinton had adverse consequences come out of this?

>In this case, however, the act of casual sex at a moment of great importance smacks of callous indifference, sophomoric arrogance, and reckless disregard of the sanctity of U.S. soldiers' lives

Ok, we now have thousands of American soldiers dead in Iraq, tens of thousands more crippled after a President fudged the facts to insist on invading and totally botched the job. But you're calling Clinton names? Have you no sense of proportion at all???

So now you're the one saying who has real remorse? You're the ultimate sincerity monitor??
How do you do this? Telepathy? Personal calls from Rush Limbaugh?

You really believe Bill Clinton has changed?
I have seen no evidence of that.

Your dumbass comparison of BJ CLinton and Iraq.
...

Lies?
They disagree with your MSM lies by omission and thus they are all ultra right wing lies?

Try again sheep boy.

Changed how? Become incompetent? Become dumb?
What in the world is your issue here? He did what millions and millions of married men have done: had a fling with a young woman who threw herself in his way. Nobody got hurt except for him - nobody died. But you're doing a DA, judge and jury thing where you're pronouncing him BAD. Thanks for sharing, but get serious. And I think you need to get laid, too.

Oh, I have heard it all
You are defending his actions while conducting business. How about prudence and class? Oh, did I forget, liberals have no class.

Thanks for reminding me.

As to Iraq, your a MSM parrot. Bush had the same info as Hillary, Smucky and the rest of the Hill as well as Blair.

They all thought Iraq had WMD's. Now it is Bush lied people died. BTW, why are things so quiet there? Gee, were winning thats why.



So your staying that having an affair was much worse than starting an unnecesssry war?
Seems like you need a BJ. Here's a quiz. How many people died because of Clinton's adulterous sex?

Dittohead calls people who disagree "sheep"- now that's funny
The stories aren't lies; I retract; they're just stupid hysterical conmmentary.
But go ahead and believe them. You seem to need to feel special somehow. Listening to people who tell you you're an independent thinker if you repeat their rightwing talking points seems to fill an empty place in your life. don't forget to wear your dittohead t-shirt; and it's funny to be called a sheep by a dittohead

so now you have your fingers in ears and are singing "I can't hear you."
Now you're being silly

>You are defending his actions while conducting business. How about prudence and class? Oh, did I forget, liberals have no class.

How about getting the job done? Or maybe you think Larry Craig is an example of high class.

>s to Iraq, your a MSM parrot. Bush had the same info as Hillary, Smucky and the rest of the Hill as well as Blair.
Hillary and the rest had misleading information that was disintegrating rapidly as inspections found it was wrong. Blair's head of intelligence said the decision to invade was made first and then the "intelligence was fixed around the decision." This isn't "MSM" it's the historical record. But stick your head further down into the sand.

Obviously honor and integrity have no meaning for you.
" We laugh at honor and are shocked to find traitors in our midst.
C. S. Lewis
English essayist & juvenile novelist (1898 - 1963)

"

Obviously you have a bizarre conception of honor and integrity
And you also seem to set a low value on human life, intelligence, and competence. All you seem to care about are appearances.

And who, please, is a "traitor?"

Clintons are the traitors.
"THERE HAD BEEN RUMORS OF ILLEGAL CHINESE GOVERNMENT
CONTRIBUTIONS TO THE CLINTON-GORE RE-ELECTION CAMPAIGN FOR
MONTHS, IF NOT LONGER, BUT NO PROOF. AT THE BEGINNING OF LAST
YEAR'S SENATE HEARINGS INTO CAMPAIGN FINANCE WRONG-DOING,
CHAIRMAN FRED THOMPSON CLAIMED THERE WAS A CHINESE CONNECTION,
BUT THE HEARINGS NEVER PRODUCED SPECIFICS.

THEN LAST WEEK, "THE NEW YORK TIMES" REPORTED THAT FORMER
COMMERCE DEPARTMENT OFFICIAL, AND KEY CLINTON FUND-RAISER, JOHNNY
CHUNG HAD ADMITTED TO JUSTICE DEPARTMENT INVESTIGATORS, PASSING
ON A 100-THOUSAND DOLLAR CONTRIBUTION FROM A CHINESE MILITARY
AEROSPACE AND INTELLIGENCE OFFICER TO THE CLINTON CAMPAIGN. "

http://www.fas.org/news/china/1998/980521-prc2.htm

"Clinton has enlisted the aid of Chinese neighborhood associations, especially those representing recent immigrants from Fujian province. The organizations, at least one of which is a descendant of Chinatown criminal enterprises that engaged in gambling and human trafficking, exert enormous influence over immigrants. The associations help them with everything from protection against crime to obtaining green cards.

Many of Clinton's Chinatown donors said they had contributed because leaders in neighborhood associations told them to. In some cases, donors said they felt pressure to give."

http://www.latimes.com/news/politics/la-na-donors19oct19,0,4231217.story?coll=la-home-center

Marriage vows and oaths of office are bizarre concepts?
Having the integrity to honor your oath to your wife or to your country is bizarre?

So where was the legal action??
I mean, every single questinable thing the Clinton's ever did was prosecuted by Kevin Starr. But treason was too petty for him to bother about??

What's bizarre is your conception of them in connection with the Clitnons
I mean, marriage vows - wasn't that between the Clintons (and Senator and Mrs. Craig, for that matter).

Oath of office- where did he violate his oath of office???

Yes, how stupid! Why should I expect the Clintons to honor any oath?

Now you're not making any sense
As mentioned, the marriage oath was between him and Hillary. If you have a specific instance in which you know he violated his oath of office, please share it.

Legal action all around the Clintons
"A Justice Department spokesman referred questions to the State Department. A State Department official had no immediate comment.

The missile-technology-transfer case highlighted the pro-China export policies of the Clinton administration, which critics say damaged U.S. national security."

http://cryptome.org/loral-china.htm

"Democratic fund-raiser Johnny Chung has agreed to plead guilty to election law violations and cooperate in the ongoing Justice Department investigation into illegal campaign fund-raising in the 1996 elections."

http://www.cnn.com/ALLPOLITICS/1998/03/05/chung.pleads/

"Norman Hsu, a major fundraiser for Democratic presidential candidate Hillary Rodham Clinton. Hsu, a onetime fugitive in connection with a 1992 guilty plea for theft, was charged Thursday with fraud and illegally making campaign contributions in the names of others."

http://www.usatoday.com/news/politics/election2008/2007-09-23-Bundler_N.htm

It's amazing how many people surrounding the Clintons end up in jail.

If he lies to his wife, why should I trust him?

Is there some reason you aren't filled with moral rage at Republican sinners?
I mean, any number of Republicans have done what you're screeching about and much more. Why aren't they on your moral radar?

And if the wife knows of the lies, why should I trust her?

How many Republicans 'sinners' are in office or running for office?

Very interesting...
that there is no proof that Bush mislead, fabricated evidence, or did anything illegal leading up to the Iraq War. Whether or not it is a "useless" war is your interpretation.

In my book, freeing 50 million people from Islamofascists and tyrants rates higher as an accomplishment than getting head from a plump intern.

>"Nobody's defending what Clinton did"

You are. Any attempt to sweep this under the rug as "just sex" is a defense. And a rather shameful one at that.

>"Your thoughts on Clinton causing everything that went wrong after 2000 are predictable, and giving Bush credit for eveything that went right is even more predictable."

Clinton didn't do everything wrong and Bush didn't do everything right. Easy to see how simple minds comes to such simple conclusions.

Clinton was more involved with the celebrity of being President than with actually being the President. He kicked the terrorism can down the road for future Presidents to handle as well as crippling the economy with a huge tax burden.

Say what you will but these things ARE Clinton's fault. I even stated that the current housing adjustment is NOT Clinton's fault.

The only impact a President really has on an economy is taxes. Bush gets an A+ for his tax policy. Now if only he could get his spending under control and quit trying to appease the Democrats...

Then don't trust him.
Bust him if you find out he's done something wrong that affects the country, or if he commits a crime. But do you have the same standards for Republicans who do the same thing?

Um, besides Rudy Guiliani?
You haven't kept track of his marriages?
How about Senator Craig? How about Senator Vitter? You don't seem to keep up much with the news.

And if she's a democrat, you wouldn't trust her anyway
You need to do something about your hate thing.

bottom line no prosecution of Clintons
even though Ken Starr was in place. But what worry about facts?

Ummm... Bosnians?
Many people died in Bosnia and Kosovo. In fact we are now stuck in a quagmire with no end in sight. Clinton went in without an exit strategy and without the approval of Congress and the UN.

Also, our steadfast European allies are making us shoulder the majority of the peacekeeping tasks. We are currently considering removing those troops in order to get our "allies" to live up to the promises they made us.

It would seem your sense of proportion is slightly out of whack when it comes to judging the effects of decisions made while getting head.

The majority of our soldiers support our mission in Iraq, don't insult them by pretending to actually care about them. To you, this is about anti-war talking points and the Democrat agenda.

Check this out then
http://prorev.com/legacy.htm

Yep. No prosecution of the Clintons. Everything was above board and squeaky clean!

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