Debate: The state should never support failing businesses

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This House believes that the state should never support failing businesses

Background and Context of Debate:

At the time of the current financial crisis there are many companies who are unable to survive without state support. One can argue that crises are generally beneficial, because they allow for creative destruction (wiping out insolvent companies), but on the other hand the state needs to keep the economy afloat.

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Moral hazard: Do bail-out create moral hazard? Does it matter?

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Pro

• State support creates moral hazard. If insolvent companies have a guarantee that the state will always bail them out regardless of their (not very) sound fiscal policies, they have no incentives to change their risky behavior. Thus they are more prone to future collapses, and therefore such financial support is just short-sighted and ineffective.

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Con

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Economics: Are bail-outs necessary to keep the economy afloat?

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Pro

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Con

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Write Subquestion here...

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Pro

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Con

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See also

• Debate: Are some companies too big to fail?
• Debate: Allowing Lehman Brothers to fail
• Debate: "Too big to fail"

External links and resources:

• "Too Big to Fail", by David Henry, Stanley Reed, Cristina Lindblad and Paula Lehman, BusinessWeek, January 2008