Spectacularly Bad Ideas In Response To The Financial Crisis

from the wow dept

The financial crisis is certainly the result of a series of rather complex situations, and with many people rushing to try to understand what happened, plenty of totally incorrect, but very simplified, explanations are being proffered: it was the Republicans fault! It was the Democrats fault! Free market economics doesn't work! Poor people are to blame! None of these are even close to accurate, but it leads people to come up with positively nutty suggestions for how we should react -- and what's more troubling is that some of these suggestions come from well-respected individuals who should know better. In the past few days, we've seen two absolutely ridiculous suggestions, which would make problems much, much worse, but are apparently suggested in all seriousness.

The first is apparently in the latest issue of the Harvard Business Review, where two business school professors suggest that business managers should be licensed, similar to doctors and lawyers. That's a fantastic idea if you want to basically destroy business growth. In fact, we've already examined how these sorts of "professional unions" often are really designed to simply inflate prices for services by limiting the supply of service providers. These sorts of licensing systems often do little to actually "protect" consumers, but do plenty to make them pay more. If you added the same situation to business managers, you'd make running any kind of business significantly more expensive, while removing from the pool of potential managers plenty of people who would excel at the job. While you can at least understand some of the reasoning for licensing some professions, management is one where it's hard to see any rationale, as creativity and out-of-the-box thinking is often what managers need the most.

The second also seems to come from the medical profession, and it would be to purposely slow down innovation by forcing all new financial instruments to go through a complex approval process similar to what it takes for drugs to be approved. I can't think of a better way to kill the economy than that. I've been meaning to dig into some of the problems with the health care system for a few months (though, the whole financial crisis has pushed that back), and one of the biggest problems with it right now is the process for approving drugs, which often does more harm than good. Extending that broken process to other businesses, such as the financial industry, would basically ensure that money would quickly flow out of the US and into other countries that have more reasonable financial systems.

I can understand the desire to come up with big solutions to "fix" the problems that created this financial mess, but suggestions like these are simply scary overreactions by people who don't seem to understand what really caused the problems. Both of these suggestions would make things significantly worse, based on the false belief that you can somehow have some body (government or licensing body) that can decide what's "good" and what's "bad" for business.

Filed Under: approval process, bad ideas, financial crisis, licenses, professional associations, unions