Is government intervention designed to prevent company failures in our markets less damaging than the consequences of not intervening? I have no doubt there are incompetent methods for intervention that do a lot of damage, but smart/experienced advisers would avoid them if they are properly motivated to give the best advice. At some level, we cannot know what the actual consequences of intervention will be due to the complexity of the markets. Even macro-economic predictions may prove difficult. However, we should be able to make some probabilistic statements if the advisers are given the time and the mandate to produce them.
If we accept the notion that no company is too big to fail, then for probabilistic reasons we should never intervene. This belief implies that the risk of harm from the intervention is worse than not acting.
If we accept the notion that some companies are too big to fail, then for probabilistic reasons we should take steps to ensure they never get that big OR we should take steps to prepare for future interventions.
- Trust busting activities help to avoid a company getting too big to fail. Supporting these activities implies we are recognizing the risk of harm from an intervention later and preferring to intervene a little less at an earlier time.
- Bailout activities occur at the last possible moment for an intervention. Supporting these activities implies the harm done by trust busting is worse than the increased cost of the last minute bailout.