Good can come from failure. Abraham Lincoln’s failure to capture a Senate seat set the stage for his presidential run. Winston Churchill’s failure at Gallipoli prepared him for the strategic challenges of WW II. Recognizing failure and trying to move forward is almost always better than pretending that you haven’t really failed.
So why is the federal government preventing the failure of financial firms, such as AIG or Bear Stearns? Providing government loans to AIG or guaranteeing the buyer of Bear Stearns against loss did not alter any of the financial reality. Nothing new was produced or created. No new capital was created; it was simply transferred from taxpayers (either by contributing to inflation or by adding to national debt) to people who do work for or business with these firms.
Conversely, if these firms had instead been allowed to fail by going bankrupt nothing would have been destroyed. All of the financial capital held by these firms would still exist. And all of the human capital of the people who works for those firms would still exist. Bankruptcy doesn’t mean that you take all of the capital of a firm, put it in a pile, and blow it up. It’s all still there. What bankruptcy does is it forces people to reorganize what they will do with that financial and human capital. That is, they are forces to recognize their failure and figure out a better way to do things.
And even more importantly, failure forces people involved with these firms to experience the consequences of their actions. Those people — and everyone else — learns from those consequences and hopefully changes their behavior in the future. To prevent failure is to prevent learning.
The same is true for schools. Good can come from failure. Of course, we’d prefer to avoid failure, if at all possible. But if the reality is that students or educators or schools have failed, then insulating people from that reality doesn’t do anyone any favors. No new knowledge is created by hiding failure and none is destroyed by recognizing it. Admitting that students, educators, or schools have failed allows us to reorganize how we do things and to all learn important lessons.
Posted by Jay P. Greene 
Jay P. Greene's Blog 