Success is in the eye of the beholder

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Are companies any smarter or more efficient than the government? Cactus at Angry Bear doesn't think so:

One of the reasons I don't buy the argument that the private sector is more efficient than the public sector (and I don't buy the reverse argument either - I think both are equally inefficient) is that there seems to be ample evidence that most companies don't know what they're doing. If they're successful for a while, they don't necessarily.

. . .

Now, whoda thunk that home prices can't continuously rise faster than the wages of people who buy homes? Clearly not Countrywide and a host of other companies that as little as two months ago would have been considered quite successful by Wall Street Standards (i.e., by very, very highly paid Wall Street analysts). If your typical right wing person thought of companies like Countrywide at all before two months ago, odds are they had such companies labeled as a "success story" in their minds.

Personally, I'm on the record as believing that companies quite often do stupid things. The difference between companies and the government is that thanks to market discipline, companies that do stupid things eventually have to stop, because they run out of money. Government programs that don't work, on the other hand, have a seemingly indefinite shelf life. The US government seems to be doing almost every stupid thing it has ever done, and to be planning to continue doing those stupid things forever. In the past sixty years we've had three serious attempts that I can think of that even partially grappled with the problem of programs that weren't working: the Carter/Reagan deregulations; the Reagan tax simplification; and the Clinton welfare reform. Of those, the first is intact, the second has been gutted, and the third is slowly eroding. This is not a promising track record for people arguing that the government should do more stuff.

For the market, Countrywide is a success story; the market succeeded in weeding this company out. Not perfectly, no instantly, but eventually, that which could not go on forever, stopped. Try that trick with the farm bill.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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