HANSON: Failure not an option

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COMMENTARY:

We all remember the advice about failure we received from our parents and teachers. “If at first you don’t succeed, try, try again.” “Learn from your mistakes.” “Failure breeds success.”

The common theme was that some sort of failure in life is inevitable. It is a wake-up call for reflection - and should prompt needed change. Our character is not just built from success, but during setbacks as well.

But now Americans seem to think such folk wisdom is obsolete. First came the $700 billion bailout of the financial industry. Such a one-time federal guarantee was perhaps necessary to restore liquidity for the failed banking system, but it sent a terrible message.

Those who caused the mess - greedy traders, corrupt politicians, incompetent CEOs and gullible stockbrokers - got a collective reprieve. Most inside the rescued Bear Stearns, American International Group, Freddie Mac and Fannie Mae are either quiet about their failure or blame others rather than show contrition. So far, few have admitted their managers were both incompetent and far too highly paid.

The teetering U.S. auto industry is now next in line for a multibillion-dollar federal bailout. But for decades, Detroit made gas-guzzling automobiles that the public believed were not as well built as the Japanese competition - despite being made by unionized workers paid nearly twice as much as those somehow building better cars. Will overpaid auto executives and workers worry about the consequences of their ongoing mistakes when the government has assured them failing is not an option?

States and cities are lining up as well for fail-safe cash. California is nearly bankrupt; the state was just projected a deficit of $28 billion through June 2010. The state has vastly increased its public spending over the rate of inflation. Californians pay among the highest sales and income taxes in the nation.

But what they see in return are bloated bureaucracies, poor schools, congested highways and dysfunctional community hospitals. With a bailout, California’s governor and legislators won’t worry too much that their constituents are some of the most taxed and least served of any in America.

All sorts of promises are proposed to bail out mortgage holders who have defaulted or owe more than their homes are worth. Apparently, no debtor is really culpable. And apparently, no one took out second or third mortgages for optional consumer purchases, or bought homes too large for their incomes.

What is the lesson here for other pinched families who will not default and will somehow meet their mortgage obligations, even on homes with negative equity? Is it that those who pay what they owe are punished while those who fail to are excused?

President-elect Barack Obama promised more than $1 trillion in new entitlements at a time when the Bush administration may well run a $500 billion annual deficit, only adding to a $10 trillion national debt. We also have $50 trillion in federal unfunded liabilities, ranging from long-term promises to Medicare and Social Security to payouts for government bonds and guaranteed loans.

Such massive borrowing and guarantees all offer cover for insolvent or poorly run programs (that face no worry of running out of money - and thus have no incentive to change). Corporate farmers just learned the current $288 billion farm bill will again provide government subsidies to ensure it won’t matter much if they plant the wrong crop at the wrong time.

Universities raise tuition rates that exceed the rate of inflation. But in our brave, new no-failure world, why worry when more promised federal-guaranteed student loans and credits will ensure steady paying enrollment? With guaranteed federal money, why be concerned that colleges and universities are overstaffed with administrators, replete with centers and programs that have nothing to do with undergraduate education, and erecting Las Vegas-like student unions and colossal recreation centers?

Americans are creating a therapeutic society in which none of us need fail. No one loses in T-ball anymore. Schools honor a dozen valedictorians. In universities, a “C” passing grade is now the understood kinder and gentler version of the old and now-rare “F.”

Our culture forgot there was once a utility in failure. Failing reminded us of what works and what doesn’t - and how we must learn to avoid the latter. Instead, in our new economic purgatory, no firm, company, state, city or individual ever quite goes to financial heaven or hell. A Bear Stearns or Chrysler neither succeeds nor fails but just sort of endlessly exists.

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