The massive wild fire in Montecito last night made me think of a similarity between forests and the economy and forest fires and economic crisis.

Until the 1970’s we used to try to put out all forest fires as soon as possible.  Then we learned that “Forests in which fires are regularly suppressed can burn much hotter and more dangerously when a fire finally does break out.”  It turns out that the best way to keep forests healthy is to allow fires to happen.  It is counter intuitive.  I propose that the same is true for our economy.  The best way to keep our economy strong is to allow companies to fail.  in other words to have small fires.  By saving companies like Chrysler and Harley Davidson in the 1970’s and 1980’s we kept the old models in place and ensured that when another crisis occurred it would be even more dangerous than the last time.

If Chrysler had been allowed to fail in 1980 maybe there would have been enough space in the Detroit ecosystem for a new type of car company to grow that would have caused Ford, GM and the UAW to change the way they did business.  Certainly saving companies is a short term solution that is proving to be costly and counter productive.  If we let the bad companies fail there would be room for new ones that do the job better.  If the government had let United Airlines and American Airlines fail there could be more companies like Southwest Airlines around right now and we would all be better off.

It is a human instinct to try and save companies and the jobs and creativity that they represent.  In the same way it was a human instinct to try to put out all wild fires.  We have finally learned that it is a bad idea to put out every fire and it seems to me that the same is true about saving companies. 

This long excerpt is from The Environmental Literacy Council:
“Historically, when fires from natural or other causes began, efforts were made to control them as quickly as possible. That has changed somewhat as more has been learned about the role of fire within forest ecosystems. Forests in which fires are regularly suppressed can burn much hotter and more dangerously when a fire finally does break out. With suppression, large amounts of underbrush accumulate on the forest floor, certain tree species cannot regenerate (oak and pine, for example, need fire to crack their seeds), and trees that do flourish become densely packed. Within this forest structure, the number of fires continues to increase, getting larger and gaining in intensity. This has become increasingly dangerous as urban and suburban areas encroach on forested spaces.

These realities have brought about a greater sense of the importance of understanding how forests should be managed to ensure health and sustainability. Current practices use a combination of containment measures in an attempt to balance the importance of periodic fires to ecosystem health and the danger of uncontrolled burns to human communities.”