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Even five years after the start of the financial crisis of 2008, the U.S. is, in some ways, still shaking off the dregs of the housing downturn and widespread unemployment.

Often, these symptoms of the crisis, along with the government-sponsored bailout of banking and automotive industry giants have been characterized as signals of the impending Great Recession. However, some would argue that attempts to save these industries were the catalyst behind the country’s economic downturn.

In an op-ed for Forbes, John Tamny asserted that the government bailout of failing corporations – specifically of banking industry leaders Lehman Brothers, Citigroup and Bear Stearns actually may have aided in deepening the crisis. When the Bush administration was approached for stimulus funding, the move was seen as necessary for preventing the downfall of corporations that were thought to be vital to economy.

Despite those assertions, Tamny argued that it may have been better to let these corporations fail.

Reigning in the free market system
At the time of the bailout, there were many dissenters with their own reasons for opposing government aid to private corporations. Many taxpayers, for instance, were far from happy about their tax dollars saving a corporation whose leaders would not give up their private jets in the face of bankruptcy.

In addition to those grievances, the bailout hindered the principles behind the free market system, Richard Salsman wrote for Forbes. Much like Darwin’s theory of evolution, the economy absorbs failing firms by producing more efficient corporations and utilizing competition as a means of evolving industries. The “survival of the fittest” nature of the market allows new companies to advance while forcing outdated competition to adapt or die.

Tamny stated that by bailing out Lehman Brothers, Citigroup and Bear Stearns, the government encouraged further use of inefficient and economically detrimental practices rather than ushering in necessary change.

What to glean from 2008
The free market system is a staple of American culture from the country’s founding until today. The many laws barring the creation of monopolies and trust-busting techniques of the government make it clear that competition is at the heart of the U.S. economy.

New corporations will always rise to meet demand if industry leaders fall into decline, provided the playing field is level and government is not choosing the winners.

 


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