Saturday, January 16, 2010


In an old Kiplinger Letter from 1982 or so, I once read that agribusiness had grown "beyond its economies of scale." A memorable phrase.

During the recent fiscal crisis, the memorable line was "too big to fail."

I totally buy the TBTF argument. To let your biggest firms fail in the midst of "the worst recession since the Great Depression" is to invite disaster.

John Maynard Keynes, asked by a journalist whether there had ever been anything before like the Great Depression, replied: "Yes, it was called the Dark Ages, and it lasted four hundred years."

If you want to break up big businesses, do it while the economy is on the up-swing. Don't wait to do it during the worst whatever since whatever.

A question arises: How do businesses get TBTF? In particular: What makes a business grow "beyond its economies of scale?" What makes a business get so big that it would be more profitable to be smaller -- and yet continue to grow?

What makes a business grow larger than its natural economic limits would allow? The tax code. The tax code makes business grow. The tax code says re-invest your money or we'll tax it. To minimize taxes, business must grow.

What makes a business get too big to fail? The tax code, that's what.

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