"Tell him. Tell him, the liberator who destroyed my property has realigned my perceptions." - Tyler Durden
Not to get all "Fight Club"-ey on you guys, but we need a little destruction in the world every now and then.
The terms "hormesis" and "mithridatism" refers to the intentional exposure to toxins in order to strengthen the body. There is evidence you can cure some allergies or gain immunity from certain poisons this way. The cost usually isn't worth it (you can become disabled or die), but it makes sense in certain situations (e.g. you are a dangerous animal handler by profession).
This means that certain things, although dangerous in large doses, can be beneficial in small doses. Physical labor can cripple you, but it can also make you stronger. Permitting small forest fires to burn instead of fighting them will reduce the amount of flammable material left for uncontrollable large forest fires. What doesn't kill you makes you stronger.
Schumpeter called the disruptive innovation of entrepreneurs who displaced established economic orders "creative destruction". It's the process that destroys in order to create. In that vein, everything must be fallible, whether it's a bank, a forest, an individual, or even a government.
According to Karl Popper, the difference between science and religion is that science can be disproven - he called this "falsifiability". Any scientific statement can be disproved given good enough contra-evidence. In other words, no scientific fact is "too-big-to-fail", and for good reason: practically everything we know from science that has been proved has been disproved and replaced with something better (e.g. Newtonian mechanics -> Relativity -> Quantum mechanics -> ???).
Nothing lasts forever - least of all complex systems such as government and economies - so why do we persist in believing that it should be otherwise?
I am not merely advocating allowing failure. We should actively create it. Instead of merely permitting forest fires, what if we deliberately instigated them? In wildfire management, "controlled burn" is known as the practice of intentionally lighting small forest fires. This has been proven to be more effective in reducing the inherent instability within forest than fighting every fire that comes along. However, at a certain point, a forest becomes too flammable for this strategy to work: in other words, the forest has become "too-big-to-fail". We tried to let Lehman burn, but it was already too late: the forest was too flammable.
Micro-fragility leads to macro-resilience. This is where the regulators and Elizabeth Warren and Occupy Wall Street and practically everyone else is getting it wrong: we shouldn't be making failure harder, we should making it easier.
