If Business Was Run Like Government

Two days ago, Ben Bernanke and Paul Volcker were in front of a House of Representatives committee to deliver what essentially amounted to a 4th-grade level book report on the Fed's response to the recent financial meltdown.

The hearing, which was broadcast live on C-SPAN.org, provided viewers with a spectacle that was at some times confusing, at other times nauseating but which was at all times absolutely absurd-- here you have a man (and his predecessor) who is primarily responsible for the economically criminal response of the Fed to the financial meltdown serving simultaneously as his own prosecutor, defense, judge and jury! In Bernanke's view, the Fed had nothing to do with creating the conditions that led to the financial meltdown -- Bernanke denied that low interest rates created any kind of bubble or dislocations of capital in financial markets or the economy --the Fed did nothing wrong in how it responded to the meltdown, and all criticism of the Fed going forward should generally be ignored in acknowledgment of the fact that the Fed is well aware of its critics and is on a deeply introspective and self-corrective path without anyone even suggesting it should be... oh, and the Fed is uniquely blessed with the kind of people, experience, expertise and reach necessary to properly police the markets going forward.

In Congress's view, this sounds about right.

Now, as absurd as this whole circus was, the even more distressing fact is that the Fed is not alone in operating this way (that is, completely unaccountable to anyone and totally immune from punishment or backlash). The truth of the matter is that this is precisely how the entire federal government operates, as well. Anytime the federal government screws something up, the legislature sets up its own committees and subcommittees to investigate itself, at which point it ultimately concludes that it may have messed up as a whole but no single individual screwed up (and therefore no single individual will lose their job or face any special ostracism) and that expanding and perpetuating itself and its powers is the only sensible way to ensure that the same mistake isn't made again going forward.

The average person puts up with this absurdity because the average person is biased towards government, to put it bluntly. In the average person's mind, there is just something special about government and the people who make it up that allows for it a special standard of judgment that is the complete opposite of how any lone, private individual would ever be judged, whether in relation to a criminal or civil matter. The average person has to treat the government as intellectually special because without that arbitrary distinction, the case for government completely breaks down.

The man on the street excuses government because he believes that government is impartial. Furthermore, he believes government is "doing the best it can." In other words, he believes that the intentions of government are generally good, because government is self-less-- it doesn't stand to profit from its actions, it exists only to serve him. Therefore, if government gets a little out of line or screws up now and then, he's willing to let  it slide.

This stands in stark contrast to how an individual judges, say, a for-profit business. For-profit businesses make the average person leery... yes, the for-profit business provides them with a good or service, but they also make a profit off of the average person in doing so. And profit, is bad, nevermind the fact that all the salaries of everyone who works for government is "profit" in the form of labor wages, and that many suppliers and contractors for the government profit from their arrangements as well.

If a for-profit business screws up, the average person immediately questions the motive of that organization and accuses them of putting people at risk all to chase the bottom line. Furthermore, they demand that someone in the organization (if not the entire organization itself) be brought in front of the government to be harassed and ultimately punished for their assumed wrong-doing. Keep in mind, when government screws up, the presumption is innocent until proven guilty, and you'll notice the government never finds a way to prove itself guilty. But with a private business, the presumption is guilty AND evil, until proven innocent, which, if it is somehow found innocent it doesn't matter anymore because the business has suffered nearly irreparable PR damage in the process. And if someone from management of the accused company, specifically someone with executive power, can be lynched as a sacrifice, proverbially or otherwise, even better because the average man loves a good lynching!

Think about the recent Toyota debacle revolving around the unintended acceleration of some Toyota vehicles. The company and its leadership was dragged before Congress to answer for its crimes, humiliated and abused on the public stage for a series of incidents over a period of years that were, statistically speaking, insignificant. The reputation of the company was immediately besmirched as Congress, the media and the average man assumed the worst of intentions for Toyota-- that it purposefully marketed unsafe vehicles to the public in order to profit, because doing the right thing would've been too expensive. The government has pledged to tighten the regulatory and supervisory noose around Toyota's neck going forward and the PR fallout is still being felt as Toyota new and used car sales have plummeted. And this episode will likely be revisited at some opportune (for the government) point in the future when Congress needs another distraction and another easily-obtained pound of flesh.

Now, use your imagination to think about how differently that entire scenario would have unfolded had Toyota operated like the federal government did, and people were to find this acceptable.

After being made aware of an unintended acceleration problem in some of their vehicles, Toyota forms a committee of its own executives and employees to investigate the matter. The committee holds a hearing in which it reveals its findings-- yes, unintended acceleration was found to be a problem in some vehicles. However, Toyota did not mean to do it, and furthermore, let Toyota remind everyone that as the number one auto manufacturer in the world, it enjoys a unique level of talent, experience, expertise and reach to produce the best, safest automobiles going forward. Everybody shakes hands and pats each other on the back for a job well done in taking a tough, self-reflective look at Toyota's operations and then everyone goes back to work, including the engineers and executives who may have played a role in Toyota manufacturing some vehicles with the unintended acceleration problem.

And then, as my friend Tom says, Toyota forms a brand new Unintended Acceleration Mitigation Department, builds it a brand new, permanent high-tech facility and staffs it with several hundred new useless bureaucrats to "make sure this problem never happens again" and then raises the prices on all of its vehicles to pay for it-- which everyone puts up with because Toyota is a monopoly and if you don't want to pay higher prices for its vehicles it will fine you or throw you in prison or, if necessary, kill you for resisting the first two attempts at discipline.

Oh, if only everything could work the way government does!