In March, we took a break from financial issues affecting the satellite sector specifically to discuss general economic conditions and the Obama Administration’s fiscal stimulus package. We also examined those phrases we have all learned — "moral hazard" and "too big to fail" — and posited a perverse effect whereby the availability of government bailouts actually incentivizes companies both to become too big to fail and to engage in the riskiest economic behavior.

We wrote: "Too big to fail" is an exception to what economists call "moral hazard," which means the danger — by relieving a person or company from the effects of bad economic decisions — of causing them to think that future behavior is risk-free, since the bailout will always be there at last resort. In that case, a rational decision is to engage in future similar or other high-risk behavior, since the possibility of excess gains on the upside is there (reward follows risk), and the downside is protected.

In fact, it is worse than that; since the bailout is only on offer if the company is at risk of failing, it is the most risky behavior that is encouraged, since that is the behavior that creates the risk of failure… We closed by arguing that anything "too big to fail" is "too big to exist."

Federal Reserve Chairman Ben Bernanke subsequently endorsed the same idea in his speech "Financial Reform to Address Systemic Risk" to The Council on Foreign Relations on March 10. "The belief of market participants that a particular firm is considered too big to fail has many undesirable effects," he said. "For instance, it reduces market discipline and encourages excessive risk-taking by the firm. It also provides an artificial incentive for firms to grow in order to be perceived as too big to fail. And it creates an unlevel playing field with smaller firms, which may not be regarded as having implicit government support."

What we did not examine in March are the long-term consequences of bailing out financial institutions and companies.

Economists consider one of the key aspects of capitalism’s energy and growth mechanism to be that of "creative destruction," a quasi-evolutionary doctrine and one equally susceptible to abuse. Creative destruction is the idea that it is only by older, less-fit incumbents quitting the scene that newer, more energetic ones can take their place, just as old growth forests and underbrush must burn to allow new shoots to take hold. By artificially propping up failed financial institutions and industrial concerns, the government is not merely wasting taxpayer dollars better spent on aid to actual people, be it in social assistance, retraining or other aid, it is actively endangering the emergence of the next generation of businesses that would provide jobs, innovation and economic growth by allowing older incumbent players that would disappear if left to themselves to continue to occupy their fields, often to the exclusion of new market entrants.

Since it is the incumbents who typically have the clout and the political connections — the lobbyists — the process is insidious and institutionalized. Many of our self-proclaimed giants of capitalism and competition are in fact creaking, propped-up wrecks that depend on government intervention, cronyism and incumbent status for continued survival, and whose right to continued survival is assumed merely because they have been around for a long time.

That takes us back to the satellite and space industry. Our own industry has been a near-model of innovation and self reinvention, starting with the transition from quasi-governmental entities to privatization and continuing with cycles of private and public investment, divestitures and consolidations, and endless technological renewal in the face of entrenched terrestrial competition.

But those advances also have come against the resistance of established players inside and outside of the industry, supported by government — either directly or indirectly — through discriminatory licensing regimes, subsidies, franchises and other means. Notwithstanding those forces, both fixed and mobile satellite services have become competitive sectors, and satellite television and radio broadcasters have taken market share from terrestrial competition.

It would be healthier in both the short- and long-term if financial services and heavy industry were held to the same standard.