Being a libertarian is tough. Often times, people alarmingly ask me what would happen if we pulled the plug on agricultural subsidies, quitted supporting so called "national champions" and let treasury bonds depreciate as they should. They then proceed to answer their own question by saying with an air of great gravity that "failure would be the result. Firms would go bankrupt, people would lose their job and investors would take a shell-shaking". To that I inevitably answer "so what?".
One of the big differences between classic liberalism and other ideologies is that the ideas that we support are not absolute. Failure is a key part of our philosophy, one of the most important drivers of progress. We believe that it is through a constant process of trial and error that man becomes better and finds new, more efficient ways to satisfy his needs and aspirations.
Unfortunately, in modern societies, failure is no longer accepted as an immutable element of daily life and an indispensable component of any sound economic and social system. Prevalent ideologies are what I like to call absolute ideologies. What they implicitly promise is a society and an economy in which state intervention would have completely eliminated failure. Liberalism promises a better world but progressivism is selling us a perfect world in which individuals would be shielded from failure for their entire lives.
Failure is important because without it, there can be no responsibility and without responsibility, liberty is meaningless. Without failure, men have no incentive to be cautious, assess risk and make long term planning (Lehman Brothers anyone?). When the possibility of failure is gone, whether for real or because people are stupid enough to believe it, the human mind becomes corrupt and the longer we wait to let failure happen, the more devastating its consequences.
Most importantly, a system that does not allow for failure to occur can't evolve and become resilient. Failures allows us to learn from the past, they set examples and paves the road for innovation and progress. Without failure, societies become sclerosed, secluded, trapped in denial and focussed on preserving rather than creating.
Painful but necessary
The practical consequences of our aversion for failure should strike us: over-leveraged and under capitalized banks were given the signal that is was ok to take insane risks because in case of a crash, the Greenspan put would come into effect and taxpayer money would be there to cushion their fall. Global finance was trapped into a complicated corpus of regulations that completely wiped out every attempt at diversification and created an insane situation in which castles that were supposed to be invulnerable turned out to be made of sand and everybody had the same Achilles' heal. Inefficient firms that failed to make products that consumers wanted were propped up by governments because they were deemed of "national interest" or simply "too big to fail". Intolerable moral hazards were created and the customer/taxpayer was left to foot the bill. In western countries, people act like spoiled brats when faced with adversity: they closet themselves in denial, look for scapegoats, evade their responsibilities and ask for some outside force to give them what they feel entitled to. The crisis in the west is not economic, it is moral. Everywhere, we have created laws, regulations, subsidies, aid mechanisms and other such stopgap schemes with the aim of making our societies and economies failure free. The result is disastrous.
Bottom line: we need failure. Let banks fail! Let governments fail! Let investors lose money on treasury bonds! Instead of doing everything to prevent people from losing their jobs, focus on making it easy for them to find a new one! Let companies fail when consumers clearly don't want them around anymore! Quit keeping this artificial, unsustainable model alive! Let us try and let us fail because there is no other path towards material, intellectual and moral progress.