# "Too Big to Fail" Is Too Big. Period. **URL:** \ **Category:** Great Debates\ **Created:** [November 25, 2008, 3:31pm UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433 "2008-11-25T15:31:28Z")\ **Posts on this page:** 18\ **Page:** 2
**Author:** ![mswas](https://avatars.discourse-cdn.com/v4/letter/m/e99b99/32.png) [@mswas](https://boards.straightdope.com/u/mswas)\ **Post date:** [November 25, 2008, 7:36pm UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/21 "2008-11-25T19:36:50Z")
> [@BrainGlutton](#): > > Which might be the best thing for society. Think about it. The lazy are not to blame for our troubles, quite the reverse. Depends on who you ask I suppose. It’s funny the conservative viewpoint would be quite the opposite. ---
**Author:** ![Snag](https://avatars.discourse-cdn.com/v4/letter/s/94ad74/32.png) [@Snag](https://boards.straightdope.com/u/Snag)\ **Post date:** [November 25, 2008, 7:51pm UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/22 "2008-11-25T19:51:24Z")
> [@brazil84](#): > > My concern is that there may very well be some industries in which there is a natural economy of scale which favors really big players. > > For example, it may very well be more efficient to have 1 or 2 companies manufacturing commercial aircraft than 10 or 15. > > If that’s the case, it may be difficult to enforce your policies. Imagine there are 15 airplain manufacturers, and during a recession, 5 or 10 of them fail. Would you step in and prop up the failing companies? If so, then fundamentally, how is that any different from propping up a big company? And if not, how will you prevent the surviving companies from growing to pick up the slack? I suppose that you legally limit the amount of business they can do, opening up the field to more competitors. But that seems like an awfully inefficient way of manufacturing airplanes. On the other hand, in areas where we’ve always needed oligopolies, such as utilities, may over time dwindle in influence with widely distributed renewable sources being added over the next few decades. Perhaps smaller regional players in the airlines might prove more agile. Or in recent years as industries, such as media, gobbled up all the small players, media itself is being redefined. and thousands of new actors take part every year. I think it possible that we might start trending more towards smaller, more customized industries rather than larger scale in but a few instances. ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [November 25, 2008, 7:56pm UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/23 "2008-11-25T19:56:16Z")
> [@mswas](#): > > Depends on who you ask I suppose. It’s funny the conservative viewpoint would be quite the opposite. Look at all the economic disasters we’re now suffering. Those to blame are not lazy, they are coffee-achieving workaholic greedheads who do not know the meaning of “Enough!” ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [November 25, 2008, 8:20pm UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/24 "2008-11-25T20:20:28Z")
This just sounds like more “Small Business is more ethical than Big Business” nonsense. Big businesses employ a lot of people and they often are more efficient and providing certain products or services than their equivalent in small businesses. That’s why they are big. > [@BrainGlutton](#): > > Perhaps we’ve let it happen because, apart from the idea of “liberty,” it is well known that there are such things as [economies of scale.](http://en.wikipedia.org/wiki/Economies_of_scale) > > However, less well known is that there are also such things as [diseconomies of scale.](http://en.wikipedia.org/wiki/Diseconomy_of_scale) Ergo not every industry can be reduced to a handful of large players like the automotive industry or the airline industry. > [@John Mace](#): > > I don’t believe any US corporation is too big to fail. Let them go. > > Now, the thing with the banks is slightly different, since they are all so interconnected. But GM or some other such corporation? Not too big to fail. Easy to say in theory until you have a quarter million people who are out of work (not counting vendors and suppliers who would also be affected by GM’s failure.) I mean normally no one would give a shit if a couple of big companies fail. But it’s less espensive to prop a few big ones up for awhile then to have a massive cascade effect of layoffs leading to more business failures and more layoffs. > [@BrainGlutton](#): > > Look at all the economic disasters we’re now suffering. Those to blame are not lazy, they are coffee-achieving workaholic greedheads who do not know the meaning of “Enough!” Well…and the lazy people who thought they should be able to afford a $700,000 house on a $45,000 a year salary. Really, 90% of the current crisis could have been avoided with some regulation and enforcement around mortgage lending. ---
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [November 25, 2008, 8:54pm UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/25 "2008-11-25T20:54:41Z")
“Too Big to fail” was also the premise of soviet russian Communism. the idea was, with the state running things, consumer goods would be produced at the lowest cost, and with the highest befficiency. it didn’t work, and the USSR failed. ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [November 25, 2008, 9:18pm UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/26 "2008-11-25T21:18:42Z")
> [@msmith537](#): > > Well…and the lazy people who thought they should be able to afford a $700,000 house on a $45,000 a year salary. Who, them? They’re not lazy, they’re stupid. ---
**Author:** ![foolsguinea](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foolsguinea/32/14751_2.png) [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)\ **Post date:** [November 25, 2008, 9:42pm UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/27 "2008-11-25T21:42:13Z")
Hey! What’s wrong with public urination!? That said, I agree with the OP. ---
**Author:** ![furt](https://avatars.discourse-cdn.com/v4/letter/f/439d5e/32.png) [@furt](https://boards.straightdope.com/u/furt)\ **Post date:** [November 25, 2008, 9:50pm UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/28 "2008-11-25T21:50:17Z")
> [@BJMoose](#): > > The usual counterargument, along libertarian lines, is that government has no business meddling in people’s business. This is the usual misunderstanding of libertarianism as “pro-business.” Yes, a pure Libertarian opposes breaking up huge corportations; but any libertarian at all opposes corporate welfare, including bailouts. Large corporations generally do NOT want a free market – they can and do want the government to intercede on their behalf (and they usually get it) through tax breaks, favorable regulation, etc. Practical/moderate libertarians, like _moi_, have no problem with the principle articulated in the thread title. Interfering in the growth of a company is bad, but interfering in the marketplace by bailing out the losers is far worse. ---
**Author:** ![BJMoose](https://avatars.discourse-cdn.com/v4/letter/b/5fc32e/32.png) [@BJMoose](https://boards.straightdope.com/u/BJMoose)\ **Post date:** [November 25, 2008, 9:51pm UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/29 "2008-11-25T21:51:43Z")
> [@msmith537](#): > > * * * > > Easy to say in theory until you have a quarter million people who are out of work (not counting vendors and suppliers who would also be affected by GM’s failure.) > > I mean normally no one would give a shit if a couple of big companies fail. But it’s less espensive to prop a few big ones up for awhile then to have a massive cascade effect of layoffs leading to more business failures and more layoffs. > > * * * But that’s kinda the point of this thread: should _any_ company be so big that it can have this kind of impact on society? One simply doesn’t need an organization the size of GM to manufacture cars. Twenty smaller companies could do the same thing. More “efficiently”? Maybe, maybe not. But the loss of one of those companies would not throw the country into a tizzy. ---
**Author:** ![mswas](https://avatars.discourse-cdn.com/v4/letter/m/e99b99/32.png) [@mswas](https://boards.straightdope.com/u/mswas)\ **Post date:** [November 25, 2008, 10:07pm UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/30 "2008-11-25T22:07:35Z")
> [@BrainGlutton](#): > > Look at all the economic disasters we’re now suffering. Those to blame are not lazy, they are coffee-achieving workaholic greedheads who do not know the meaning of “Enough!” Who signed mortgages with people who were too lazy to read the terms and conditions they were binding themselves to.. _shrugs_ ---
**Author:** ![Chief\_Pedant](https://avatars.discourse-cdn.com/v4/letter/c/a6a055/32.png) [@Chief\_Pedant](https://boards.straightdope.com/u/Chief_Pedant)\ **Post date:** [November 26, 2008, 12:00am UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/31 "2008-11-26T00:00:08Z")
> [@BrainGlutton](#): > > Kim Stanley Robinson’s utopian novel [_Pacific Edge_](http://en.wikipedia.org/wiki/Three_Californias_Trilogy) is set in America after a Green revolution (no details of which are given; apparently it was peaceful). Big biz is forbidden. The government does not own or manage the economy, but it does intervene to break up any private business that has grown too large for all the managers and employees to know each other personally. (It also sets upper and lower limits to personal incomes – everybody is guaranteed $10,000 a year, work-free, which you can live on very meagerly if you’re satisfied with that; nobody is allowed to have more than $100,000 a year; there is still plenty of energy and dynamism and entrepreneurship in the economy, because “Everybody wants to be a Hundred.”) My brother has six kids. Were such an income restriction enacted, the whole family would simply become employees and their take of his biz would be $800k/yr. The devil is always in the details, including the OP’s proposal. Nothing is too big too fail. That’s shorthand for “if it fails more people will suffer than if the public bails it out.” It is exceedingly naive to think that size is the problem per se. We should let any business of any size in any industry fail, in my opinion. What we are no good at is short-term pain, and in an effort to avoid it we make bad decisions. This is as much the inadequacy of the government itself as it is a systemic problem that is fixable by not letting corporations get too big. ---
**Author:** ![erislover](https://avatars.discourse-cdn.com/v4/letter/e/71e660/32.png) [@erislover](https://boards.straightdope.com/u/erislover)\ **Post date:** [November 26, 2008, 12:28am UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/32 "2008-11-26T00:28:08Z")
> [@Chief\_Pedant](#): > > My brother has six kids. Were such an income restriction enacted, the whole family would simply become employees and their take of his biz would be $800k/yr. I agree. Introducing this salary-cap overhead creates more problems than it solves. However… > [@](#): > > Nothing is too big too fail. That’s shorthand for “if it fails more people will suffer than if the public bails it out.” This is a problem if the people who are bearing the costs were not reaping the benefits. > [@](#): > > It is exceedingly naive to think that size is the problem per se. I agree that externality problems are not exclusively related to size. But the public’s willingness to do something about it almost certainly is. > [@](#): > > We should let any business of any size in any industry fail, in my opinion. Why? > [@](#): > > What we are no good at is short-term pain, and in an effort to avoid it we make bad decisions. I would wager that a great deal of what we enjoy in modern life is based off avoiding massive short-term pain for a lifetime of little pains. You seem to argue that this creates more problems than it solves. Why do you suppose that is so? How does this impact your view of car insurance, health insurance, or life insurance? How does this impact the existence of long-term credit? ---
**Author:** ![Chief\_Pedant](https://avatars.discourse-cdn.com/v4/letter/c/a6a055/32.png) [@Chief\_Pedant](https://boards.straightdope.com/u/Chief_Pedant)\ **Post date:** [November 26, 2008, 3:57am UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/33 "2008-11-26T03:57:36Z")
\*\*by CP: \*\* \*“We should let any business of any size in any industry fail, in my opinion. What we are no good at is short-term pain, and in an effort to avoid it we make bad decisions.” \* > [@erislover](#): > > Why?.. > > I would wager that a great deal of what we enjoy in modern life is based off avoiding massive short-term pain for a lifetime of little pains. You seem to argue that this creates more problems than it solves. Why do you suppose that is so? How does this impact your view of car insurance, health insurance, or life insurance? How does this impact the existence of long-term credit? If we prop up businesses with business models so poor that they would otherwise fail, we eliminate the capitalist engine’s ability to generate wealth. In the long run this will catch up with us because enabling companies to operate at a loss means remaining taxpayers will support a business that cannot create a profit. It creates a pyramid scheme in which the first failures are supported, but eventually you run out of taxpayers to provide the next pyramid layer. This is quite different from insurance. Insurance companies (properly run) do operate at a profit. I do not understand the question about long-term credit. I have not suggested all gratification should be deferred until cash can be paid. But a lender needs to be able to operate at a profit, and if they cannot, should be allowed to fail. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [November 27, 2008, 1:02am UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/34 "2008-11-27T01:02:05Z")
> [@BJMoose](#): > > But that’s kinda the point of this thread: should _any_ company be so big that it can have this kind of impact on society? How big is too big then? I mean even the largest company is still only a fraction of the GNP. Is 100,000 employees too big? 10,000? ---
**Author:** ![brazil84](https://avatars.discourse-cdn.com/v4/letter/b/8491ac/32.png) [@brazil84](https://boards.straightdope.com/u/brazil84)\ **Post date:** [November 27, 2008, 1:08am UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/35 "2008-11-27T01:08:16Z")
> [@BrainGlutton](#): > > Perhaps we’ve let it happen because, apart from the idea of “liberty,” it is well known that there are such things as [economies of scale.](http://en.wikipedia.org/wiki/Economies_of_scale) Sure, and in fact I mentioned economies of scale earlier. > [@](#): > > However, less well known is that there are also such things as [diseconomies of scale.](http://en.wikipedia.org/wiki/Diseconomy_of_scale) I for one am aware of that. Pluses and minuses. I would also note that the idea of limiting companies to a size where all employees know eachother could easily have a lot of negative consequences. For example, I doubt it would be possible to run a railroad or rail transit. Probably a lot fewer people would be able to afford cars, let alone low emissions cars. Probably a lot more people would use wood for heating, leading to a lot more emissions and deforestation. etc. etc. > [@](#): > > There is absolutely no reason for a single entity to own, say, so many banks that we cannot allow the Leviathon to die I’m not sure about that. There may very well be economies of scale in banking. For example, I bank at a really big bank. There are branches everywhere, including near my house; my office; and other places where my work takes me. That’s really convenient. Also, I can call the bank any time day or night and get help with problems. Not only that, but the bank has a decent web site which offers a lot of services. By contrast, my home mortgage is serviced by a small bank. There’s no web site which lets me access my account. There are no branches near my workplace. If I need help with something, I have to call during business hours and hope that the person who can help me is not out to lunch. etc. etc. The point is that a small bank cannot offer a lot of services which consumers value. ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [November 27, 2008, 1:15am UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/36 "2008-11-27T01:15:09Z")
> [@furt](#): > > Practical/moderate libertarians, like _moi_, have no problem with the principle articulated in the thread title. Interfering in the growth of a company is bad, but interfering in the marketplace by bailing out the losers is far worse. But, what do you think would have happened, to the economy and to people on the ground, if Congress had refused all the demands made for business bailouts this year? ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [November 27, 2008, 1:17am UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/37 "2008-11-27T01:17:51Z")
> [@msmith537](#): > > Easy to say in theory until you have a quarter million people who are out of work (not counting vendors and suppliers who would also be affected by GM’s failure.) But this is just a social construct. We have 3 major car companies, and it’s very visible when they lay a bunch of people off. But what about, say, the construction industry, which has thousands of small companies, each of which may be laying people off? Why not bail them out collectively, if bailing out GM is so good? If we have to spend money, I’d rather see it go directly to the people laid off to help them transition into better jobs than propping up a company that isn’t run well. ---
**Author:** ![BJMoose](https://avatars.discourse-cdn.com/v4/letter/b/5fc32e/32.png) [@BJMoose](https://boards.straightdope.com/u/BJMoose)\ **Post date:** [November 27, 2008, 3:29am UTC](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433/38 "2008-11-27T03:29:19Z")
> [@msmith537](#): > > How big is too big then? I mean even the largest company is still only a fraction of the GNP. Is 100,000 employees too big? 10,000? Once again: the issue isn’t size itself; it’s the claim that certain companies are so large that they _can’t_ be allowed to fail and _must_ be bailed out at public expense. What riled me up enough to start this thread was CitiCorp making a grab for the public teat this past week. There is no rational reason for one company to own thousands of local banks (plus whatever else they have). Someone just metioned the construction industry. Though collectively it may be much larger than GM or Citi or whatever, it’ll never get a cent out of the public purse because it can’t do the 8000-pound gorilla in the china shop routine. Does it not bother you at least a little bit that the bailout tab over the past few months is already over $1,000,000,000,000.00, with more (quite possibly much more) to come? Seems to me it would be in our collective self-interest if society adopted some rules that would make this sort of thing unlikely. [Previous page](https://boards.straightdope.com/t/too-big-to-fail-is-too-big-period/474433.md?page=1)