Whenever the term 'Nobel-Prize-Winner' is flung at you, from the economics pages of a newspaper, you can generally guarantee that you're about to be hit with a flurry of government-worshipping bunk.
But Joseph Stiglitz got it half right this morning, with the following story:
=> Let banks fail, says Nobel economist Joseph Stiglitz
Yes, let bad businesses go out of business. This is what the free market was supposed to threaten all along, to stop people taking inordinate risk.
Once the resources of these bad businesses are freed from socialist intervention and wasted taxes, metaphorically rusting in enormous car parks, more successful managers can then snap up these freed resources to start using them productively.
Propping up bad managers with money taken from good managers is the exact recipe required to turn a recession into a depression. Letting badly managed companies liquidate, as the market wants, is the way to make it through to the other side in one piece. Yes, there will be cold turkey pain, but who ever said giving up the addictive joy of inflation would ever be easy? The alternative is decades of stagflation, or horrific interest rates which could cause a real revolution, or the utter destruction of hyperinflation. Of course, politicians will do anything to avoid short-term pain, even if the end result is much worse pain.
So on the flip side, Stiglitz gets it wrong when he suggests that governments should then prop up these failed companies, once they have been allowed to collapse; that will be the route to Fannie Maes and Freddie Macs all over the world.
All of our current problems originated from such entities, backed up by legislatures trying to siphon money from the free market into the hands of other incompetent men. The free market, when it is allowed to work, immediately shuts down such stupidity. But when the stupid men in the legislatures are the ones with the guns and the ones who use these guns to hold a monopoly on law creation, then you must restrict these people in every way you can, rather than give them access to the keys to the kingdom.
But let us be charitable to Mr Stiglitz.
It is good that someone armed with a gong from the Swedish central bank is finally daring to say that the Emperor has no clothes. This crack in the orthodox edifice, countering the holy scripture that some businesses are just too big to fail, may be the end of the beginning. Once again we are reduced to hope.
Though I advise against anyone holding their breath.
By the way, Peter Schiff has been saying for years that failed businesses should be allowed to fail. No doubt his Nobel prize, from the Swedish central bank, is winging its way to him as we speak.