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Governments often fall down on all three: they have a particular ideology and so push a single-minded policy; they bet big; and they don’t bother to evaluate the results too carefully, perhaps through overconfidence. But markets can fail badly too, and for much the same reason. Just think about the subprime crisis. It failed the same three tests. First, many big banks and insurance companies were taking similar bets at similar times, so that when subprime loans started to go bad, much of Wall Street started struggling simultaneously. Second, the bets were gigantic. Fancy derivatives such as credit default swaps and complex mortgage-backed securities were new, rapidly growing, and largely untested. And third, many investment bankers were being paid large bonuses on the assumption that their performance could be measured properly – and it couldn’t, because profitable-seeming bets concealed large risks.

a study by Kathy Fogel, Randall Morck, and Bernard Yeung, found statistical evidence that economies with more churn in the corporate sector also had faster economic growth. The relationship even seems causal: churn today is correlated with fast economic growth tomorrow. The real benefit of this creative destruction, say Fogel and her colleagues, is not the appearance of “rising stars” but the disappearance of old, inefficient companies. Failure is not only common and unpredictable, it’s healthy.