Thursday, December 18, 2008

Zombie Businesses

Anthony Randazo has an excellent piece in Reason magazine on what lessons we can learn from the Japanese by examining the steps they took when their bubble collapsed in the early 90's. Unfortunately, the US government aren't learning and falling into the same trap. (read here)

With the government propping up poor business models rather than allowing further job losses, firms wound up operating over the long-term without making a profit or adding any value to society. Their utter lack of vitality earned these perpetual money-leaching entities the moniker "zombie businesses." And unless American policymakers understand the failures of the Japanese response, we will suffer the same zombie fate.


The length of Japan's asset deflation, recession, and liquidity struggles has been blamed largely on the lack of foresighted policies and political leadership. Politicians bent on retaining their power took action that sought to solve the present day concerns, such as infrastructure projects, without regard to their long-term effects. As a result, economic growth was not sustained.

America suffers from a similar vision problem. Intent with avoiding any semblance of economic pain, federal officials have thrown moral hazard and laissez-faire principals to the wind. Creative destruction has been rejected, despite long historical proof that it is the best way for an economy to grow.

Read the whole thing. There is a living, breathing example for us to study in Japan. It bothers me that there seems to be such a rush for government to do something. This notion that we can't waste any time or the whole economy will collapse. No, we need to think about this. There needs to be a big debate. Unfortunately, the majority of the population are just waiting for government to make it better and aren't concerned about the details, or considering the consequences. What if they don't make it better but make it worse?

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