Thursday, July 7, 2016
Trump and Government Bankruptcies
Hillary Clinton was in Atlantic City yesterday explaining how Donald Trump’s bankruptcies there exploited creditors and left the city in a lurch. Her criticism was that Trump could note be trusted to other peoples’ money, which brings to mind Margaret Thatcher’s famous comment “The trouble with socialism is that eventually you run out of other people’s money.”
I respectively point out there’s a difference between private bankruptcies and government bankruptcies.
Private bankruptcies occur because you run out of money and have no way of recouping your losses. Atlantic City casinos went bankrupt largely because people stopped coming to Atlantic City because they could gamble elsewhere more conveniently in more hospitable places, like Mohegan Sun in Connecticut.
Government bankruptcies are much less frequent because government is not gambling with its own money, measures its success in good intentions, not results, grows too big to fail and too influential to stop, and can’t go out of business, can keep printing money, and can always prop itself up using taxpayer money.
One of the hallmarks of capitalism is “creative destruction,” which Joseph Schumpeter (1883-1950), an Austrian economist, considered the essential factor separating from centralized bureaucracies. “Creative destruction” has come to be known as “creative disruption,” to destroy what is not working and to replace it with something sustainable, or “creative innovation,” the ability to do things in a more convenient, less costly fashion than governmental experts or elitists.
Government can run deficits of $20 trillion, risking recessions and depressions, but can always paper over its bankruptcy in the name of national contingencies or by borrowing from other countries or taxpayers.. It cannot manage failure, and it seldom abandons a failed project because it has political constituents it must please or lose their votes.